This week Finance Monthly talks to Daniel Kjellén, CEO and Co-founder of Tink on the democratisation of data and what this means for both financial services businesses and consumers.
Open Banking was designed to open the retail banking market by giving everyone access to the data they needed to deliver banking services. Initially viewed as a massive boon for fintechs, and a worrying threat for banks, the mindset of the latter is shifting.
They may have been slow to start, but today the majority of retail banks are waking up to the opportunities offered by Open Banking. Banks are realising that the new battleground is the level of valuable insights and product offerings, tailored to the individual, that can win over consumers. And the key to unlocking this customer value? Data.
But CIOs and product analysts will be only too aware that data was relatively unmanageable until fairly recently. Historically, legacy systems and fragmented technology stacks have meant that getting the right data-sets in one place has been a huge struggle for banks.
What’s more, being able to use these data-sets to create data-driven insights and support data-driven sales has proved even more of a challenge. This means that, until recently, banks and consumers alike have been unable to make full use of the financial data at hand to make better, more informed decisions.
Out-engineered or the opportunity of a lifetime?
Banks might still be grappling with trying to make the best of their consumer’s financial data. But heel-dragging is not an option.
For several years, banks have been under siege from all sides. The technology that allows consumers to grant third parties access to their financial data has existed for some time, and agile fintechs have out-engineered banks in the field.
There’s no question that the advent of Open Banking has widened the data floodgates now that banks have had to open up their APIs. With data more readily accessible, third party providers in all sectors – from finance to insurance – can begin to compete with the traditional banks by introducing innovative new products and services.
What’s more, these challengers have the advantage of being more agile with their time to market; getting new software off the shelf and into people’s pockets in a fraction of the time previously taken.
Banking on the future
Banks have work to do. They’ve been caught napping by these nimble fintechs who have stolen a march.
Regulation is really only the rubber stamp on a technology-led revolution that was already well underway. Banks are now waking up to the same opportunities by partnering with agile industry players that can leverage the financial data at hand.
They need to act now to keep pace with the new market entrants who have already tapped into a world where the access to financial data is democratised, to build newer and better products for consumers. Instead of inventing the wheel once again, banks can choose to invest in the best technology that will provide them with the right data-sets that will both give them a holistic overview over their customer’s finances, and the ability to deliver data-driven sales and insights, tailored at the individual.
Why does this matter?
Open Banking has changed the way consumers can choose to manage their finances. By democratising the access to financial data, consumers are beginning to understand, and take advantage of, the benefits of sharing their financial information with third parties.
Once faithful to traditional banks, people are becoming increasingly fickle – flirting with other providers to find the best deal, service or experience on the market.
It might be intelligent personal finance technology that can predict consumer spending habits and provide advice and recommendations based on these predictive insights. Or it might be a current account platform that allows people to monitor and change their mortgage and savings in the same place, despite using different providers.
Whatever the specific solution, consumers are feeling the benefit of increased flexibility and choice, and demand for new ways to manage money is growing.
It really is win-win-win
Banks must stop viewing the democratisation of data as a zero-sum game – where their loss is a fintech’s or another bank’s gain. Instead, they should see it as an opportunity to gain an advantage by ensuring that their data analytics capabilities keep them one step ahead of their rivals.
While aggregation is just one part of the puzzle, the democratisation of data opens up a wealth of opportunities for banks. Data-driven banking will allow banks to make better commercial decisions based on their customers behaviour, while PFM (personal finance management platforms) will help banks give their customers a better experience.
There is a huge opportunity for banks to successfully monetise Open Banking through identifying where they can offer customers a better deal to meet their needs and targeting them accordingly with a personalised offer.
In this brave new world of banking, the winners will be those who decide what their unique offer to consumers will be and focus on doing it better than anyone else in the market. This might be providing the smoothest UX, the best predictive personal finance management platform, or the slickest analysis and insights tools. Or it might be offering the best products in one particular area – for example the most competitive rates on mortgages or loans
Unlocking this opportunity might require developing new customer centric platforms in house or buying technology of the shelf by partnering with fintechs to take advantage of their technology solutions.
But one thing’s for certain. Far from sounding the death knell for the banking industry, the democratisation of data will become the smart bank’s secret weapon for winning their segment.