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Opinion > NETCEL

The potential and pitfalls of Open Banking

Tom Denbigh, account director at Netcel | 16:47 Wednesday 2nd May 2018

Whether banking or wealth and asset management, financial management is evolving.

New entrants and challenger brands are disrupting traditional models and moving into the space. Changing regulations and advancements in technology mean the sector has changed rapidly in recent years, and there are more challenges to come with the UK's Open Banking reforms, the Payments Services Directive 2 (PSD2) and EU-wide mandates.

The new Open Banking regulations mean banks and building societies must allow regulated businesses access to their customer's financial data, provided the customer gives permission. In practical terms, banks and financial services firms will see more customers using apps to analyse their spending patterns and shop for better deals. But while Open Banking offers the potential for a streamlined service for customers, financial services firms must be wary of possible pitfalls ahead.

Data driven

The advent of Open Banking will see the value of data skyrocket, but the bank's sizeable data stores may become less of an advantage in the face of new challengers.

Open application programming interfaces (API) will allow new entrants to plug into incumbents' systems and access customer account data, levelling the playing field and effectively cutting out intermediaries.

There's also the issue of analytics; established banks and financial institutions generally lag behind new entrants in their capabilities. With new fintech companies and the tech giants on the scene, firms need to be confident of their ability to glean actionable insights from their data.

Customer focused

Alongside this, customers are becoming more digitally savvy. Fintech is empowering users to rethink their financial wellbeing and encouraging them to be active participants in their financial lives. New entrants to the wealth and asset management space have jumped on the opportunity provided by smart devices to lower the barriers to entry and offer more attractive pricing models.

What customers want is also in transition, as are the services that FS firms will need to provide in the future. The focus has moved from product-centric to customer-centric strategies. Financial organisations must prove their relevance and show a keen understanding of their customers' financial needs. Established organisations must capitalise on trusted reputations, while new entrants need to place focus on their freedom to innovate and disrupt. Financial services organisations need to adopt a different mindset, joining online and offline data, and turning this into meaningful insights that add real value for customers.

Digital solutions

One thing that unites all financial services organisations is the crucial role of digital technology on their growth and survival; how technology can help them stay ahead, engage with existing audiences and attract new ones.

Customers expect the same level of sophistication, speed and convenience from their financial advisers that they see from tech giants and leading brands. Customers have become accustomed to personalisation, but The Future of Retail Banking Report found only 20% of banks automatically adapt their online interfaces based on individual customer habits. Increasingly, people want the same service online as offline and the ability to move seamlessly between the two.

An investment in digital technologies can help to engage customers, deepen relationships and improve service and experience across every touchpoint, but to truly transform capabilities, digital now needs to be at the heart of the business model.

Better for everyone

In the coming years, we'll see an increase in personalisation to drive new business; pushing relevant content and guidance at the right time to make the experience as intuitive and relevant as possible.

Online tools will offer more scope for interactivity from the user, with customers gaining access to advisers, product experts, tools and research without leaving their home or office. Mobile is making spending, managing and investing money easier than ever and forcing a rethink of bricks-and-mortar branches and the role of face to face.

Regardless of the size or age of a firm, those who seek to get ahead – and stay ahead – of the pace of change need to be committed to digital innovation. But digital transformation isn't a single project; it's an ongoing process that evolves with the needs of customers and organisations. Firms need to prepare their digital experiences now to ensure they're ready for anything the future may bring.

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