Tuesday, March 05, 2024

Banking

Why Banks Need To Embrace Open Banking

Open Banking

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Open banking enables third-party services to access users’ banking data through APIs. As the first step towards open banking, it has the purpose of restoring power to customers, enabling them to securely use third-party financial products and services that rely on banking data or functionality.

The financial incentives provided by open banking are strong and provide ample reasons for banks to embrace it. Here are six of them:

Compliance

In most cases, the main reason bank open banking practices are implemented is compliance or at least preparation for compliance. The purpose of compliance is not to drive more revenue: it is to remain profitable. Accordingly, compliance allows an organization to avoid unnecessary fines and fees, which in turn improves profitability.

Improved Digital Agility

The ability to share data securely, efficiently, and quickly is a major concern for open banking. Therefore, many banks are having to redesign their data architectures, often employing an API-based microservices approach to make data more accessible. Open banking, then, is both a necessity and a benefit of greater digital agility.

Improved digital agility, in turn, has its advantages. It is not only more secure and transparent, but it also allows banks to utilize their data internally.

Premium API Products

One particularly exciting benefit of open banking is the potential to create new, revenue-generating API products with relative ease. By developing and selling access to new API products, banks can create additional direct revenue streams. These premium APIs can also be used as up-sells or cross-sells for other banking products.

Increased Customer Satisfaction

Open banking gives customers significant flexibility concerning the range and number of financial services they have access to. As a result, this appears to be a clear negative for banks, as it allows third-party organizations to capitalize on user data wherever they previously had to do so themselves. However, whether or not the bank’s services are integrated, a greater option ultimately improves the customer’s experience while they bank, making them less likely to switch providers.

Potential For Collaboration

Open banking permits third-party companies to access customer data, as has been mentioned earlier.

Through partnerships with third-party companies that offer financial services, banks can develop unique value propositions, which then leads to creative marketing strategies. As a result, customers are less likely to go elsewhere for banking services as they are more satisfied with the service provided. Customer lifetime value increases, thus improving long-term profitability.

Wider Client Base

Banks could gain access to user data through other participating financial institutions. It opens up the possibility for banks to create their banking services and products based on integration.

Whereas banks could previously only offer additional financial products and services contingent on banking data to their customers, they can now serve customers of other banks, with the potential for significantly more revenue.

To Conclude

Open banking may have been prompted by compliance, but there is no doubt that there is a range of tangible financial benefits to this movement.

Customer satisfaction and improved digital agility are among the benefits that result in an increase in lifetime value for the customer. In addition, open banking improves security, opens new avenues for collaboration, and gives banks a chance to introduce new products and services.

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