As banks continue to explore best practices around handling customer data, insight from core technology provider Fiserv suggests open banking can help banks compete with fintechs and large incumbents alike.
“By using open banking to share that data with other entities, [banks] can co-innovate with fintechs, develop value-added services on top of their solutions, differentiate their brand to drive retention and growth, and explore new, profitable business models,” Fiserv said in a white paper titled “Open Banking: Start Now and Move Fast.”
As consumers continue to expect better customer journeys — on par with tech platforms like Amazon and Google — Fiserv argues that open banking offers banks a way to give customers faster, tailored customer experiences, which will be an important means for banks to survive as the number of financial institutions continues to dwindle.
Open banking can help financial institutions create more seamless experiences with fintech apps. Fiserv also argues that data sharing can help banks more effectively reach customers. If a customer is shopping on Amazon, for example, the bank could provide bank account and budgeting information directly at the point of purchase. Fiserv also pointed out that banks could make data from health savings accounts available on pharmacy apps to better serve customers.
The paper referenced statistics from a variety of studies to further its points. Bain & Company found in 2018 that 78% of consumers would be willing to share their data with their primary bank in order to have a better experience; 63% said they would share with another bank; and 43% said they would share data with a nonbank. According to the paper, the number of FDIC-insured institutions has shrunk from more than 8,500 to about 5,600 during the past 10 years, with smaller banks suffering the most. The paper stated that the 15 largest banks manage 77% of FDIC-insured assets.
Fiserv mentioned two strategies banks could use to monetize open banking: Charging fintech companies each time they request data from a financial institution, and offering banking as a service while charging fintechs for their back-end capabilities.
Fiserv said the alternatives to open banking leave consumers vulnerable. “Screen-scraping,” which allows third parties to access the banking credentials consumers provide to fintechs, gives consumers less control of their own data, according to Fiserv.
The paper argues that embracing open banking is key to survival for many financial institutions, stating: “Some financial institutions will use open banking technology to reimagine a new digital future and flourish beyond all expectations. Some will move forward with the new innovations forged by others. Those who stand still will not remain standing.”
Bank Innovation Ignite, which will take place on March 2-3 in Seattle, is a must-attend industry event for professionals overseeing financial technologies, product experiences and services. This is an exclusive, invitation-only event for executives eager to learn about the latest innovations. Request your invitation.