Open banking. This term has become a hot topic in bank boardrooms, spearheaded by the European Commission’s revised Payments Services Directive (PSD2). The PSD2 mandate means banks in Europe can work with fintech companies and pass on third party data, operating in a new ecosystem of open APIs.
This open attitude to banking is a way to drive innovation in the financial services industry, allowing more agile, digital businesses to provide services to customers where large incumbent banks are unable to do so. It also presents an opportunity for brands to gain access to third party data, creating a much clearer picture of a customer’s life, so they can improve the customer experience with highly relevant rewards and offers.
Yet in the US, there has been no visible appetite to re-shape operations, and look at open banking as a positive platform to change the way the finance industry works with other companies. This is despite the PSD2 directive coming into effect in January 2018, which requires US banks operating in Europe to comply with the new regulations and open their APIs. Customer data will be available for third parties to use and develop next generation products and services to better serve the customer and completely revolutionize the customer experience.
The US does it differently
Perhaps Europe’s appetite for open banking is better understood by looking closely at some of the domestic European markets. In the UK, for example, industry bodies and politicians are loud advocates of open banking – a reaction to a 2015 Competitions and Market Authority (CMA) report that said banks do not have to work hard enough to win and retain customers.
In contrast to the US where there are hundreds of sizeable banks, the UK has just four major banks who dominate the market share of the customer base. While challenger banks and fintech startups have risen in popularity, the UK is pushing the open banking agenda to try and improve customer service.
In the US, third parties must work hard to get access to the kind of data from a bank that would allow them to offer greater personalization of services. While banks do make partnerships with fintech companies, these relationships are closed bilateral partnerships.
Perhaps the US customer hasn’t yet realized the advantages of open banking, instead content with the innovation that’s come from mobile payments sources like Venmo. With technology brands like Apple and Samsung all providing their own mobile wallets, the technology available to consumers appears very cutting edge. In a single day, you can pay for items and services with a connected credit card and use it anywhere – transferring fees or payment to your phone, or virtual pre-paid cards. In the US, at least, consumers might feel as though they are already getting a good deal from their banks.
However, open banking still provides banks in the US an exciting opportunity to work with third-party providers and improve services further. Open banking is a necessary response to the changing requirements of customers in the digital age, and offers incumbent banks the chance to provide more personalized, timely rewards to customers as well as a better overall experience.
We are beginning to see changes in the periphery of the industry. One area where the US is performing well is in card-linked offers, which is led by the credit card industry. Card-linked offers have the potential to enable loyalty programs to offer more timely, relevant and personalized rewards and experiences to attract and retain customers. For example, our recent acquisition of Linkable Network’s market-leading card-linked-offer platform gives loyalty programs more intelligence on how customers shop, and what consumers value at different points in their lives, so that they can tailor offers accordingly.
Today’s customer, regardless of the country, values experience above all. Across all channels, they seek a tailored, timely experience that is relevant to them. Data sharing through open banking, and to an extent card-lined offers, will help brands to be able to do this. As more brands realize the benefits of such platforms, we may find that open banking gains traction in the US market soon.
Gartner found that 89 percent of organizations expect to be able to compete in the marketplace simply because they offer a better customer experience than the next rival. At Collinson, we know customers want a personalized service, where experiences and rewards are tailored to their own needs. Incumbent banks will struggle to provide the full range of services the customer has come to expect. By embracing open banking and embarking on new partnerships, many banks could find that they are better able to meet customer expectations and retain a loyal customer base.