A series of open banking use cases
The financial services industry is changing fast. New industry entrants, shifting customer behaviors and ever-evolving digital solutions have created a new landscape that financial institutions have to contend with. And in the past year, the coronavirus and its impact have only accelerated this change.
Open banking – a practice that allows third-party financial service providers open access to consumer banking – is at the forefront of the industry’s evolution, as both a disruptor and a vehicle of opportunity for players of all shapes and sizes.
And open banking’s stock is growing fast. Sixty-one percent of financial executives feel more positive toward open banking than they did in 2019, and investment in open banking opportunities is significantly on the rise.
However, given the fast-moving nature of open banking, it’s still shrouded in confusion. Forty-six percent of financial executives, for instance, aren’t confident that the benefits of open banking are widely understood within their organizations.
Given this uncertainty, we’ve put together a series of articles outlining different business use cases enabled by open banking, and the benefits they offer to both end-customers and financial institutions.
Multi-banking as an open banking use case
Outstanding customer experience (CX) is key to business success, and in today’s uncertain economy it’s more important than ever to give customers what they need and want. In fact, it can often be a deciding factor when it comes to consumers’ purchasing decisions. A recent report from Tink revealed that 44.1 percent of the financial executives across Europe surveyed saw improving CX as one of the main drivers of open banking implementation.
However, when it comes to understanding their customers in enough detail to provide them with top-quality CX, many financial institutions (FIs) still have a way to go. According to Deloitte, only around half of consumers believe their bank understands them and their needs.
Open banking-enabled solutions around personal finance management and digital lending already do plenty to help banking customers better manage their financial health, ultimately driving up engagement for FIs. But FIs can go even further for the millions of customers worldwide with multiple banking accounts (in North America, the average consumer has 5.3 accounts, according to this report) by aggregating all those accounts in one easy-to-use digital app.
Great customer-facing services
For customers, open banking-enabled multi-banking allows all finances, across multiple accounts from different FIs and banks, to be aggregated in one web or mobile app. Of course, this affords users the luxury of a holistic view of their financial health and situation. But there’s much more to multi-banking than that.
Dynamic searching
With multiple banks accounts, searching for a particular transaction can be incredibly time consuming and difficult. Intelligent, dynamic search functions can help users find exactly what they’re looking for at the click of a button, across all their finances.
Payments
Many multi-banking apps offer customers the option to make a wide range of payment transactions from the app, making transfers easier and centralized. These include single or grouped payments, payment files, SEPA and international transfers, and direct debits.
Balance management
Multi-banking also often offers an automatic transfers function. So if one account goes overdrawn, it’s immediately credited by another. This allows customers to avoid overdraft fees and means they don’t have to worry about managing their spending for individual accounts.
Increased customer retention and engagement
With all their financial information accessible in one multi-banking app or website, users will engage with their FI more regularly. And just like with other open banking-enabled use cases, this results in greater brand recognition and customer retention, an important driver of revenue. According to research by Hubspot, it can cost up to 25 times more to acquire a new customer than to retain an existing one.
Furthermore, higher engagement with customers gives FIs more opportunity to cross-sell additional products and services, and develop more data-driven insights, which they can, in turn, use to create new offers and finetune their existing ones.
More effective risk management
For FIs, increased access to their customers’ and potential customers’ financial information – via a multi-banking app – allows them to better manage their credit risk. By having a more holistic view, FIs can determine which customers have untenable financial situations and, therefore, make safer loan-related decisions.
Become the go-to banking app for your customers
The ultimate goal for FIs should be to become the go-to multi-banking app for customers. In a recent survey, Tink shared that the number of firms authorized for account information services in August 2020 was up 58.3 percent compared to 2019, according to the EBA payment institution registry. That’s 342 firms increasing the competition within financial services, and FIs need to keep that in mind as they consider creating their own multi-banking apps.
Clearly, the competition is stiff. But as finance management becomes an increasingly important topic for customers and FIs alike, open banking-enabled solutions, such as multi-banking services, are not just desirable add-ons but vital offerings.
Check out our articles on PFM and digital lending use cases, from the same series. And click here to find out how we can help your organization to meet its open banking needs.