In the past decade, digital transformation has been an integral part of the banking revolution. Digital drives the need for banks to better engage with their customers and improve overall customer experience. In today’s fast-moving millennial world, a shift in user power demands better engagement and real-time interactions. In this environment, open banking brings in new possibilities of creating a customer-centric ecosystem.
With the introduction of the Revised Payment Services Directive (PSD2) in Europe and similar legislation around the world, open banking has gained significant ground in the past year. Open banking driven by mapping and understanding a customer's journey to enable better interaction and experience. The bridge being - application programming interfaces (APIs).
APIs lies at the core of open banking, emerging as the main mechanism for data interactions between banks and third-party providers (TPPs). On one hand, they have been able to provide the much-needed integration between various systems and on the other, they have been facilitating data integration across surround systems. Organizational structure and culture are shifting to support rapid product development and innovation in the financial sector.
Globally, banks are recognizing the potential of Open Banking in enhancing their service offerings, customer engagement, and increase revenue potential from new channels. But open banking demands new approaches to drive customer engagement. To meet the increasing demands of the market, banks have to build on
- Better anticipation of the customer through better insights
- APIs enabling engagement through customer interaction
- Driving impact through ongoing innovation
Better anticipation of the customer through better insights
APIs enable banks and financial institutions to push past the current banking system and develop and deploy products based on what customers will need. Banks are tapping into social media and other digital channel data to determine customer needs and behavior. With the right insights, banks can develop a deeper understanding of what customers anticipate and create micro-segments to improve marketing, operations, and business focus. For example, if a customer's digital footprint indicates an impending property purchase, banks can make a timely offer of attractive housing loans.
Many banks are introducing AI-powered chatbots, backed by conversational AI abilities, to improve engagement. Financial advisory bots, such as Eno from Capital One or Ally Assist from Ally Bank, offer financial management solutions and easy banking facilities. Chatbots utilize APIs to integrate with data management platforms; allowing banks to analyze the extracted data and derive insights to anticipate customer behavior.
APIs enabling engagement through customer interaction
APIs are helping banks achieve better transparency and visibility, drive innovation, and improve collaboration. For instance, APIs are enabling the creation of vast customer data repositories to help deliver a highly personalized experience to consumers. Banking platforms provide TPPs access to multiple data sources, including banks direct deposit accounts, credit cards, investments, and other financial data for developing innovative financial applications and services. With quick integration and seamless data access, financial APIs can be used to construct a detailed customer profile and personas to increase convenience and connecting them with the right products or services. In its recent whitepaper, FICO categorizes the new-age consumers into five categories - success-driven savers, precarious passives, ambitious adopters, delayed dreamers, and fiscal futurists. These categories are based on user behavior and attitude toward financial institutes, products, and services.
Canada’s digital-native bank, Tangerine, partnered with IBM to develop a mobile banking app and provide a ‘shake to feedback’ feature. This capability offers customers an easy and accessible medium to provide personalized feedback directly to the bank; effectively engaging with the customer and gaining insights to improve the overall mobile experience.
Driving impact through ongoing innovation
For long, banks have been held back in the technology race due to their monolithic legacy systems and data silos. Migrating to new systems is an expensive affair that most small to medium banks cannot afford. A second challenge is staying relevant in the presence of technology giants Google, Apple, Facebook, and Amazon (GAFA).Deloitte estimates that 75 percent of millennials would be more interested in new financial services from GAFA than banks.
To survive in the current digital atmosphere, banks have to modernize their legacy systems to become more agile, flexible, and support scaling up plans. With an API strategy, it has become possible to adopt a bi-modal IT to improve speed and efficiency. Using APIs, banks can repackage core system assets to create new and innovative systems of engagement. Banks are now able to connect legacy systems for better operations and simultaneously improving their front-end for better customer experience.
Considered an enabler of innovation, APIs are expanding banking ecosystems to include more financial services and products that emphasize consumer value propositions. For instance, a Germany-based FinTech and fully licensed digital bank, is helping companies become financial service providers. Using its regulatory and technology infrastructure, the firm has developed a modular banking kit that includes APIs for account and transaction services, compliance and other services.
The future of banking would be a new paradigm driven by emerging technologies, non-traditional competitors, and deregulation of the sector pushing for openness and transparency. In order to serve customers efficiently, banks have to emerge to manage relationships among multiple stakeholders making up the banking ecosystem. With APIs, banks can truly become a digital platform and a central hub for TPPs to interact and attract more customers.