a goldmine of actionable intelligence for banks keen to open

By Laurent VanHuffel, Vice President of Financial Services, Open Banking and FinTech at Axway

Much discussion around open banking use cases has focused on the benefits for individual consumers – from greater data portability and privacy to easier account management and more personal finance options, or even social goods like green loan, debt reduction and expanding accessibility to the unbanked. But many traditional banking institutions have experienced the wave of open banking as a threat to their business models, a breakdown in the hard-earned trust of their customers.

While open banking requires banks to become an API provider, securely exposing their data for greater interoperability and competition, it also offers a goldmine of actionable intelligence that, if leveraged, can generate rich cross-selling opportunities and beyond. Here is an overview of some open banking use cases that are of particular interest to retail banks.

Account aggregation paints a more complete customer profile

Let’s backtrack a bit for a basic overview of account aggregation, one of the most immediate use cases of open banking that has already been successfully leveraged by companies such as Finicity or MX.

Account aggregation preceded open banking, which relies on APIs to securely share data directly. Historically, this was done via screen scraping: A customer logs in to their primary checking account, 401k, and credit card through an aggregator’s platform, then authorizes that aggregator to collect data about their accounts, logging in as if they are acted from them and by “scraping” the data on the screen.

But screen scraping has its limits: on the one hand, it is not particularly secure and connections are often interrupted or have to be reset. This is where APIs come in: enabling technology for open banking.

Financial institutions expose data through an application programming interface (API), which fintechs or other partners can securely connect to and leverage in an app or other primary use. An aggregator can connect directly to raw data from a person’s account, with their consent.

A note on mechanics: a challenge specific to North America has been the standardization of financial APIs. Because the effort here has been largely market-driven, there hasn’t been a common requirement (like the European PSD2 regulations) to define how these APIs are formatted. The Financial Data Exchange FDX API has become the North American De Facto Open Banking Standardand financial institutions are quickly realizing that to participate in this new economy, they must comply with the FDX standard and speak this dominant “common language”.

Account aggregation offers immense value because it collects in one place multiple data points about an individual across the various institutions where a client consumes and manages their financial assets. Maybe someone has a checking account with your bank, savings with another, has a mortgage with a third party, and has taken out a personal loan with a fintech. Having access to the big picture can tell you that this person often shops at Petco, makes recurring payments at a daycare center, and has donated to PETA in the past…now you have a clearer idea of ​​cross-selling opportunities or upsell. appeal to this client.

By leveraging the operational intelligence gained through account aggregation – whether you choose to become an aggregator yourself or partner with a third-party aggregator – banks can gain a better understanding of their customers and develop new business models to better serve them.

Subscription management can be a two-way street

Being able to view and manage all of your subscriptions in one place is of undeniable value to consumers, allowing them to save money by canceling unused, possibly forgotten subscriptions, and to manage their finances more proactively.

My kids have laptops for school and personal use, and years ago we started subscribing to antivirus software to protect them. But I still get a bill every year, and some of those laptops aren’t even used anymore – none of us even know who’s using the service or how to cancel it! So, a platform like this is helpful because it demystifies subscription and puts information front and center for us.

But other than pleasing its customers, what is the benefit of a bank offering subscription management services? Again, the answer is actionable intelligence.

Providing a nice automatic dashboard to display all their subscriptions means you need to have access to their banking transactions and subscription information. Now you have the opportunity to analyze this data and learn more about your customer.

Then you can leverage the intelligence you just gained from their subscriptions with real-time analytics and look for patterns. Let’s say 10% of your customers are subscribed to a specific service. And 20% of them get a loan from your competitors. Now you can cross-reference their profile and offer data-driven personalized loans to compete.

Acquire Customers Faster with Digital Wealth Management

Open banking APIs offer a distinct advantage when it comes to the KYC (Know Your Customer) and onboarding process. Today’s tech-savvy customers expect fast and simple digital experiences, and banks that can streamline onboarding by instantly pulling customer data through APIs gain a competitive advantage.

A financial institution can use APIs to instantly access a person’s credit and transaction history, their personal information (name, address, profession, income, etc.) and thus integrate them or assess their solvency much more quickly. Not only is the customer delighted and more likely to recommend the bank to friends, but the bank has also simplified and accelerated their onboarding process and significantly reduced the administrative burden.

Access to more detailed behavioral data also allows financial institutions to segment and prioritize customers based on their risk, lifetime value and/or growth potential. And another beneficial use case for open banking in wealth management: payments can be transferred directly between bank accounts, without the need for an intermediary – which can be up to 80% cheaper than payments by card.

Financial advisors can benefit from higher quality, real-time information

Because APIs allow instant access to data, they eliminate much of the friction of collecting or finding information and waiting for updates.

Wealth advisors typically have to go through an onerous onboarding process with new clients, taking away valuable time advising them on their wealth. A Deloitte report on promising use cases for open banking notes that APIs would allow them to streamline the data collection process and even fundamentally change the relationship:

“Continuous monitoring of client data through analytical models will allow advisors to proactively engage in meaningful dialogue when a client’s portfolio or income fluctuates, resulting in investment advice and strategies. better and more dynamic.”

Changing the way customers and banks interact

The Deloitte report cited above cleverly identifies a fundamental change at the heart of Open Banking: it has the ability to alter the timing of financial events such as transactions, borrowings or discovery.

Canadian small business owners, for example, face up to 90 days of waiting when applying for a loan due to the time required to collect, analyze and process the documents. Imagine being able to make funds available immediately, as banks can offer real-time prequalification that is continuously available by aggregating transaction history and other external data sources.

Exposing data through secure APIs can seem like a daunting prospect for traditional retail banks, and it’s certainly transformational. But we’re only scratching the surface of open banking use cases — beyond the examples shared above, banks can use APIs to help build their personal brand, improve customer relationships, and deliver multi-channel touchpoints.

It’s time to seize the opportunity of open banking. Yes, it forces banks to provide service in the form of APIs, but it also has the added benefit of breaking down walls in the financial services space, opening up a two-way flow of information. Savvy banks can access a whole new wealth of intelligence they don’t have today – if they have the courage to open up.