How Open Banking offers big banks the opportunity to regain the loyalty of their customers

It has been almost four years since the Second Payment Services Directive (PSD2) entered into force. This new Open Banking legislation was based on the belief that allowing consumers to share their banking data with other financial providers would stimulate competition and result in better offers and services.

More than three years later, it is questionable whether Open Banking has fully met expectations. What is clear is that the legislation has made steady progress in its adoption by service providers and end users. By the start of 2021, 109 new live-to-market applications had been created to help retail consumers and small businesses improve their financial literacy. It has also enabled banks to develop their partner ecosystems.

While the initial adoption of PSD2 licenses primarily affected B2B and non-B2C service providers, most new services are aimed at improving financial decision-making among retail consumers. However, the results of a recent survey suggest that there is still relative apathy in the consumer market, with less than 40% of UK consumers worrying about their job security and considering apps to support consumers. financial decisions as “attractive”.

New competition and new expectations

Open Banking created the opportunity to develop improved customer experiences. However, the most recent Bank Service Quality Index showed that legacy banks are lagging behind consumers when it comes to customer experience. While Monzo was number 1 for overall quality of service, historical banks are notoriously absent from the top places in the Ipsos MORI survey. The only incumbent to make the overall top 5 was Nationwide, possibly due to the £ 4.1bn business transformation he undertook.

Why don’t the wealth and superior resources of incumbent banks outweigh the smaller challengers? Customers praise small digital banks for their intuitive digital services, attractive products, and the overall quality of the customer experience. But it’s not the attractive products and interest rates that create the gap. The two can be matched by incumbent banks.

The correlation between technological innovation and customer service is more influential. The successful challenger banks have done so by going beyond the development paths of the legacy banks. These new entrants don’t have to deal with technical debt and inflexible infrastructure or outdated business processes and entrenched cultures. The resulting agility and reduced change costs allow them to move quickly from idea to reality, meaning they are responsive to customer needs and deliver a more cohesive and compelling experience for the end user. .

Customer experience is not superficial

In the face of growing competition, it may be tempting for incumbent banks to focus on improving the aesthetics of the user interface, redefining existing services with fluid interfaces. However, the customer experience is not superficial.

The beating heart of a compelling customer experience is the truly connected business behind engaging interfaces. It’s the fully integrated data environment
and the aligned business process that makes or breaks a customer journey. By allowing customers and internal staff to access the information they need when they need it, self-service customers and hyperactive customer service functions are simultaneously created.

For incumbent banks looking to create and defend a competitive advantage, relying on fast and unimpeded access to data will become increasingly important. The increasing commoditization and adoption of advanced analytics is laying the groundwork for a new wave of smart service platforms. The appetite for data from these platforms will increase as the efficiency of analytical techniques improves. So while great user interfaces don’t hamper the aspirations of an incumbent bank, a cohesive data strategy should be the cornerstone of its competitive strategy.

Embrace the future hybrid

Digital transformation is not a ‘once done’ activity. Constant disturbances require adaptation. Constant change is difficult for any organization, but for highly complex and regulated financial companies, it is especially difficult. It took a while, but legacy banks are now embracing the cloud to accelerate their transformation goals.

Migration to the cloud is not trivial in practical or economic terms. However, the institutional agility and flexibility created by the adoption of cloud infrastructure and services more than justifies the investments required. Incumbent banks are able to deliver new services, delivery capacity and continuous modernization in a way unmatched by historical efforts focused on delivering solutions on-premise.

Despite the compelling benefits of the cloud, a 100% cloud infrastructure is rarely the answer. The scars caused by many failed cloud migrations have forced the use of appropriate tools and processes to drive a holistic, evidence-based approach to migration decisions rather than application-specific goals. The net result of this activity is that some systems cannot be moved to the cloud.

Fortunately, a consistent hybrid data integration and API management strategy can provide a practical boundary between IT functions. Building API interfaces allows banks to wrap records systems with open standards interfaces that are more convenient in the on-premises environment. Hybrid integration solutions can then expose these on-premise interfaces to new cloud-hosted customer service platforms that depend on core registration systems.

“Built to last” recording systems can be kept intact on site if necessary. Systems “designed to change” that allow a bank to differentiate itself from the competition can be hosted in the cloud.

It’s all to play

Open Banking has provided the financial services industry with a rich opportunity to improve collaboration and competition. It will be interesting to see how the ability of incumbent banking providers to create and maintain compelling customer experiences evolves, relative to their diminishing trust advantage, which has always been a key driver of consumer inertia. On the other hand, it will also be interesting to see if and how challenger banks and FinTech service providers can maintain their customer experience advantage.

While the long-term effects of Open Banking are uncertain, incumbent banks have a window of opportunity to create compelling customer experiences through well-planned and executed digital transformation initiatives, incorporating smart investments in people, processes and technology.

Joseph P. Harris