The Art of Open Banking, Part 2: On the March
Read Part 1: The Art of Open Banking, Laying Plans
In the first part of my talk with @digitalbankguru (aka Mark Ranta) and @Lui_Zurawski (aka Lu Zurawski), we discussed plans that best prepare an organization for Open Banking, and in this second chapter, we explore some use cases for delivering value.
Rachel Hunt: Mark, we have already discussed how to prepare for Open Banking, but how do we get moving with real projects? What are the opportunities for Open Banking? Why should banks get excited by them and how could they use them to launch new, differentiated services?
Mark Ranta: Let me answer this from a US perspective; the basis of core consumer banking services is FREE. Free checking, free debit and so on. The banks too often treat the “free” foundation services as loss leaders, the cost of which can be recouped as customers’ financial life-cycle progresses and they add credit, mortgages or investment portfolios. Some of the new services that open banking will enable can help to readdress the balance. Although foundation services can continue to be free, there are many new services, which offer real value to the user, that could be charged for. These can be elective, pay per use or part of premium accounts, but the difference is the variety of services that could be offered outside of the traditional financial life-cycle.
For example, if a customer would like the ability to connect his account directly to big-brand online store X, for ease of use and a better experience, then he may not think twice if his bank charges 10 cents for this service. Banks shouldn’t over-charge, but neither should they go to the default position of NOT charging. This is, after all, a net new service. These new value propositions can not only improve the customer experience, but also create new monetary streams for banks.
Lu Zurawski: Europe has slightly different dynamics. We have regulation and government initiatives like PSD2, which forces banks to open access to individual service components to new Third Party Providers (TPPs) free of charge – with those same TPPs able to introduce new paid services resulting from that access. Although banks could see this as disintermediation, and creation of a more competitive ecosystem, there isn’t anything to stop these banks from becoming TPPs themselves; reinventing their business to provide new holistic services and generate new revenue streams. They can also start thinking about monetizing additional services. One example could be balance enquiries. This is typically a free service, and should be part of the foundation services that Mark has mentioned. However, a predictive balance enquiry that can calculate a position against incoming payments or that could be called against, could result in better credit decisioning. This may be of interest to the customer, and could be part of a premium account service fee or a pay-to-use menu. Many standard bank services can be enhanced either by the bank alone, or through co-innovation with fintech partners using an open banking philosophy.
MR: The use case possibilities are endless within an open ecosystem. It forces us to challenge every process and workflow. It also simplifies activities that are possible today, but are complex to implement. We can build greater trust in the system by improving confirmation of payee, and reducing misdirected payments with account validation. Banks could offer single sign-on services across the payment ecosystem, and remove friction in the Know Your Customer (KYC) process, a little bit like your Facebook or Google sign-in credentials, but for your financial services.
LZ: Yes, and with the Internet of Things (IoT), this will be increasingly important, as micro-payments are predicted to grow exponentially. Analysts predict that we could have 20.4 billion connected devices by 2020. Not all will be doing machine-to-machine payments, but this is a new ecosystem that banks need to prepare for!
RH: OK, so now the million-dollar question: What will a bank look like in five years’ time?
MR: That is actually a long time for the fintech world, and not such a long time for the banks! What is clear is that many banks will be at one stage of production with open banking. Depending on the geographic location, some are likely to be at a live stage, with first iterations of open strategies, fine-tuning and possibly exploring versions 2.0. They will have built their first partner ecosystems. For others, especially where there is less of a regulatory push, the uptake will be slower. However, the new value propositions will be live, and there will be many new use cases, with or without the banks. Open and immediate payments will have converged and direct and instant connections between bank accounts and merchants will be increasingly prevalent. If anything, Open is an opportunity for the banks to create more value for themselves from the fintechs.
LZ: Let’s also not forget the impact of other trends. Mark mentioned Instant Payments, but regulation such as the General Data Protection Regulation (GDPR) will have a broad reach, beyond Europe. It will create a world where data belongs with the consumer. This will be a world where protecting data, identities and credentials of individuals will be a new value proposition. It’s imaginable that banks in this new world could be not only the custodian of customers’ money, but also of their identity and credentials. People still trust their bank more than any other third party when it comes to information, and could be a key differentiator if used wisely.
RH: Banks as data vaults and not just dollar vaults then! Or should I say... cryptocurrency?
Related Blog Posts
The Middle Eastern payments revolution: Getting Real-Time Ready
The Middle East is developing quickly and considerably. The population has surpassed 410 million and a number of nations, such as Saudi Arabia and the United Arab Emirates (UAE), represent some of the world's most innovative economies. The region has become synonymous with the rise of large infrastructure developments and technological innovation, while tourism continues to grow - 1.4 billion people visited in 2018 alone.
Women in Payments: Don't Be Afraid to Ask Questions
Today, we have the pleasure of speaking with Google's head of Retail and Payments Activation for Southeast Asia, Anna Maria Maurieta. Anna works closely with retailers and e-wallet partners across the region's complex and sometimes highly-regulated market—including countries such as Indonesia, Thailand, Malaysia and Vietnam—making it easier for Google Play users to make payments on Play.
Are Subscription Payments the Way Forward for Gaming?
With consumers spending more time and money than ever on games, the opportunity for gaming companies is vast. But monetizing digital games and creating sustained customer loyalty are complex issues. Subscription models are a key area now being explored by gaming companies, but the industry is still working on how to make these models compelling and profitable.
Customer Innovation: Erste Bank [Q&A]
The global banking sector is becoming both more strategically focused and technologically advanced, responding to rising consumer expectations while trying to defend market share against an increasing array of competitors. A great deal of emphasis is being placed on digitizing core business processes, and reassessing organizational structures and internal talent to be better prepared for the future of banking.
Turning U.S. Players into Payers: Driving Conversions in a $30 Billion Market
It’s no secret that Americans love their games. In 2018, it was estimated that 178.7 million players spent more than USD $30.4 billion on games, a $5 billion increase over 2017. That $30 billion represents almost a quarter of the global gaming market, making the U.S. an invaluable target for game developers.
Helping Merchants Protect Themselves: Cybersecurity Tips from a Former White House CIO
In a world full of open technology, the devices that make our lives easier also leave us vulnerable to being hacked, according to Theresa Payton, former White House CIO and star of the CBS series Hunted. Payton recently joined me for an exclusive ACI cybersecurity webinar, sharing expert insights into how merchants can enable growth, enhance the customer experience and prevent greater instances of fraud.
Turning German Players into Payers: Understanding the Gaming Payments Experience in a $4.7 Billion Market
German gamers represent an interesting challenge to game developers and publishers. Compared to their gaming peers in other countries, German gamers are the hardest to convert, with the lowest payer/player ratio (70%) and on average 20 percent lower spending levels per player than in the U.S. and U.K. And yet, Germany tops the gaming revenue ranks in Western Europe with an annual forecast of USD $4.7 billion. Simply put, cracking the conversion code can be immensely profitable.
Why India's Payments Players Need to Fight Fraud with Machine Learning
By 2023, experts are predicting 60 billion UPI (Unified Payments Interface) transactions annually, accounting for more than 50 percent of India’s total digital payments transactions. And it’s estimated that today nearly 50 percent of all real-time payment (RTP) transactions globally are processed in India. It’s an exciting market for payments innovation, with a wide range of digital overlay services available to consumers and merchants, thanks to the introduction of UPI.
Turning British Players into Payers: Insights to Convert the Country’s 37.9 Million Gamers
As the sixth largest gaming market in the world, and with USD $4.5 billion in annual revenue, the United Kingdom presents an immense opportunity for game developers looking to drive profits. And with estimates of 40 million gamers pushing revenues above $5.5 billion by 2022, it’s imperative to understand this market and the payment preferences of its gamers.
New Survey Results How Lenders Can Capture More of the Billion Dollar Pie
It should come as no surprise that the disruption found throughout the world of payments would impact the world of consumer finance. Fact is, the eCommerce experience enjoyed by shoppers has created an undeniable ripple effect for everyone from bankers to lenders. And with billions of dollars at stake, it’s important to understand the impact of this paradigm shift, especially as it applies to the growing demographic known as Gen Z.