Banks stand on the precipice of the new trend in financial services. Because of Application Programming Interface technology, financial data can now be shared between outside firms to create new services for consumers. Already noted for being the safest spot for money, there is scope for banks to grow that relationship with other facets of the customer relationship. Banks won't simply be only a spot to deposit and withdraw your money, but a one-stop-shop for a range of loading=”lazy” src=”https://www.financedigest.com/wp-content/uploads/2022/11/Young-Headshot-1-450×450.png” width=”300″ height=”300″ title=”Moving Past Regulation: the way forward for open banking 47″>
Young Pham
More banks should consider how open banking can maximise their digital capabilities and make up a greater selection of services for customers to savor. Such offerings might be tailored based on each bank and their particular customer audience. For instance, banks could offer everyday services for many users, such as insurance for people or business management tools for business accounts. Alternatively, banks could offer more exclusive and specialised services for high value visitors to meet their specific needs, such as art appraisal and investment management.
The concept that a firm can expand its offering into new verticals is hardly new. Most of the world's largest tech companies, such as Apple and Amazon, already offer diverse products including hardware, software, entertainment and cloud services. They could do that because of the vast amount of data they've gathered, which offer invaluable insights into consumer behaviour and demand. Banks have been in prime position to follow along with the illustration of the high tier tech companies thanks to their monopoly on key financial data.
The role of challengers
The business design described above has already been being adopted by numerous challenger banks. These firms have led the innovative charge so far, thanks largely for their agility afforded by their smaller size. Indeed, some fintech banks already provide a selection of non-banking services to their customers. Revolut, for example, offers users several types of travel insurance as well as access to airport lounges included in its premium service for a monthly subscription.
These offerings are not an indication the challenger banks are going to topple the large incumbents. Rather, these disruptors have always flagged the gaps on the market that larger institutions have been not fast enough to fill. It is now as much as the established banks to learn using their example.
While challenger banks may have a first-mover advantage for these services, the incumbents have two key advantages: capital and credibility. Firstly, the top banks have sufficient cash to finance this overhaul of their business models. As the challengers happen to be able to afford to achieve this recently, they don't have the reserves to tide on them during economic downturns such as the current pandemic.
Secondly, even though challenger banks are regarded as more convenient and are less vilified than traditional banks, the public still trusts the latter. Many of these large banks can indicate their extended histories and long-term investment success – accolades young challengers simply cannot match. In short, individuals don't need to like their bank to believe them with their cash as well as their data. These two advantages strongly suggest that large banks are better positioned to consider advantage of outdoors banking business design in the long run, despite being slower to consider and adapt.
The next steps
Technology is not the most pressing obstacle banks face when adopting e-commerce model. Current API technologies are already sufficient for banks to talk about data with outside service providers. Rather, the key with this evolution of the sector lies in banks' appetite for risk and willingness to reinvent their business model.