Open Banking is a concept that allows the use of open APIs for third party developers to build applications and services around financial institutions with increased financial transparency for account holders. This has opened a floodgate of innovation attempting to build smart applications that are highly personalized and customer centric. This is a huge paradigm shift from how financial institutions used to operate even 10 years ago.
Using APIs means that banking data will be available in real-time, providing customers with better and smarter ways to transact, save and invest their money. Customers may also have access to better loan terms since lenders will be able to look at historical transactional data to determine a borrower’s risk level and on the other hand give customers better and more personalized information for making sound financial decisions.
In this article we look at some of the innovation trends that are being powered by Open Banking through its Open API driven architecture.
- Financial Services Personalization
As per Accenture, “Many banks have initiatives aimed at targeting demographic-based clusters such as young people, Millennials or older people, but some banks are now targeting customers based on lifestyles, values, aspirations, mindsets and underserved needs.”
In 2019 and beyond, banking organizations will go beyond personalization by segment, to develop individualized communication and experiences down to the level where each individual has his/her own unique experience. This is the ultimate level of innovative personalization allowed through open API data communication, advanced analytics and digital technologies. Interestingly personalized user experiences has already been built by other e-commerce and social media giants like Amazon, Google and Facebook but they had the freedom of control. With the advent of Open Banking the control and monopoly over financial data by financial institutions are being greatly reduced thus generating a wide range of opportunities for innovation.
- AI Driven Predictive Banking
The essence of personalization begins with Open API driven real time data connectivity which leads to a rich view of customer engagement. Banks are able to get a 360 degree of a customer. AI driven algorithms attempt to pre-empt customer sentiment and actions and offer personalized service which has a much higher potential of adoption. This has led to one of the most exciting innovation trends in 2019 – predictive banking.
For the first time, the banking industry can consolidate all internal and external data, building predictive profiles of customers and members in real time. With data that is rich, accessible and financially viable to deploy, financial institutions of all sizes can not only know their customers, but also provide advice for the future.
The focus is no longer on putting together good information and waiting for someone to look at it; information is now shown with the goal of proactively changing customers’ everyday behaviors, with figures and insights contextually delivered.
Image Credit: The Financial Brand
3. AI powered ChatBots as an alternative to Banking Apps
The integration of chatbots as opposed to traditional Banking Apps can provide customerss with quick and personalized interactions, using machine learning and artificial intelligence as a foundation. As per The Financial Brand “Although only 19% of consumers are currently using chatbots, 95% think they will make more use of chatbots in the coming years.
The main reasons to use a chatbot for consumer engagement in banking are:
a. Cost savings. Chatbots are relatively inexpensive to develop and maintain compared to the human equivalent. Chatbots require less coding than standalone banking apps, can be supported by an expanding array of channels and don’t require expensive data storage thanks to chatbots’ cloud-based systems.
b. Ease of use. Chatbots are more intuitive and easier to use than a traditional banking app. There is no download required and the experience can be personalized over time through machine learning.
c. Conversational interface Customers want speed and personalization when interacting with their financial institution. At the same time, they don’t want the impersonal experience of email or online forms. Customer support chatbots offer a mix of both live conversation and speed.
d. Financial advice. Advanced banking chatbots provide access to all of a customer’s data. It can track spending habits, provide credit scores, set and manage budgets and tell the consumer where they are spending their money. This allows for AI-based recommendations and advice for better money management.
e. New account generation. If a prospect visits a bank’s website and is greeted with a polite ‘hello’, invited to ask questions about a product, and pointed in the right direction where they can find relevant information, the engagement is more likely to result in a new account opening.
f. 24/7 digital support. A 24/7 instant chat feature is expected by the increasingly digital ‘always-on’ consumer. This means that banks with chatbots built into their systems have a competitive advantage, and are more likely to attract and retain customers.
Lending as a Service (LaaS) and the Rise of Alternative Lending Companies
LaaS, sometimes referred to as the “Marketplace Lending or Alternative Lending” is an emerging trend in the banking and financial services sector where banks and lenders are leveraging new technology to surface their products and services on platforms outside of their traditional banking channels (i.e. in a branch, online banking, etc.).
Alternative lending is a broad term used to describe the wide range of loan options available to consumers and business owners outside of a traditional bank loan. A variety of private non-banking lending service companies have emerged which uses the power of Open APIs to evaluate a customer’s credit worthiness and create custom tailor made loan schemes that are unheard of in the traditional banking domain.
Open Banking can streamline the process through which small businesses explore a variety of financing products from many sources, both traditional and non-traditional. SMBs that struggle to obtain funding from large financial organizations will have a higher probability to obtain funds which in the long run can have a positive impact on the economy.
In 2018 a wave of new partnerships in the lending sector has emerged, where Banks, FinTech’s and the wider marketplace eco-system (often big tech giants) have started to collaborate in the sector of LaaS.
It seems that the future of Banking and FinTech is going to witness a major disruption globally. Financial institutions will witness a sea change on how they deal with their customers. In Europe, the Revised Payment Services Directive (PSD2) is set to unleash a transformation in how financial services organizations view themselves and each other. In the United States, aggregators such as Mint.com have already dis-intermediated banks and now own the ‘last mile’ of the customer banking relationship, disrupting traditional players. Open Banking represents an innovative step for the financial services industry to not only become more competitive in terms of customer engagement, but also to fend off the various financial services startups that have emerged in the past several years.
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