Pillar 1
of the Customer OS –
Open banking
(part 1 in a series of 4)

What do digital winners like Google have that financial institutions don’t? The answer is a firm grasp of the Customer OS – they get it, in fact they proactively drive it. These companies have found a way to cover all the bases and stay relevant for every facet of their offering. Their customers really have no need to look elsewhere. If someone jumps into a UBER cab, they need not worry about booking, having cash, or knowing directions, they simply use the app and it’s all taken care of.

Such comprehensive offerings are what financial institutions must aspire to, but they need the right framework in place to support them. That framework is the Customer OS. Banks today require a deep understanding and strong commitment to this OS. It is the key to relevance, the holy grail of customer targeting, onboarding and retention.

If the Customer OS is so important, how do banks go about creating it? How can they use it to future-proof themselves in a changing industry? They need the right supports in place and these supports are the four pillars of the Customer OS – Open Banking, Modular Banking, Omni-channel Banking and Smart Banking. This first post in a series of four takes a closer look at Open Banking.

Open – the new way to bank

Banks in Europe were predominantly drawn into open banking though PSD2 regulation. This ‘major threat’ to the industry, actually turned out to be a good thing – and it won’t be contained within the borders of the EU. Growing customer demands for choice and flexibility worldwide have made open banking the required modus operandi everywhere.

Handled the right way, open banking creates opportunities to retain and grow the customer base. Banks can connect the dots and make customer journeys make sense. They can tap into the open banking marketplace and connect third party services to enhance their own offerings. By truly immersing themselves in open banking, banks can bring customers unprecedented convenience and choice, and a whole lot of new reasons to stay loyal.

Open APIs – the engine

Open APIs are protocols that allow different parties to connect to each other and exchange data. They facilitate open banking, powering organizations to connect and share data. Banks have historically used open APIs to connect internal functions within the organization. Today, that’s not enough, they need to connect to external third parties – even competitors.

To begin, banks can use open APIs to join up their internal systems and ensure a smooth customer journey across all touch points. Then next step is to connect to other organizations in the open banking marketplace – that’s when the magic really happens. The marketplace is filled with additional value and opportunity, built by other organizations. Banks can connect to this, add value to their own offering, and delight customers in the process.

Aside from happier customers, open APIs endow banks with new innovative powers. The selection of raw materials becomes almost infinite in the open marketplace, which means product and service design has so much more potential. To extract this value and drive innovation, banks must open up those APIs. They know this and slowly but surely, have started to do so. Now it remains to be seen who can pick up the pace quickest.

Big data – the energy

With open APIs connecting everything, there is a lot of data flowing around, data which can be organized and exploited. Big data offers massive opportunities to customize and differentiate. Every banking transaction is a nugget of valuable intel, and with years of data built up in disparate silos, this is one industry that sits on vast stores of information. Add to this vast stores of outside information from CRM systems or social media and the result is a powerful concoction of data potential.

By using data science to collect and analyse big data, banks can improve or reinvent nearly every aspect of banking. Data mining has become a science that uses these insights to drive targeted marketing. It also allows banks to personalize every aspect of the customer experience and drive customer loyalty.

Many large data projects are aimed at improving service, while driving sales and customer retention. By getting a true understanding of each and every customer, its possible to communicate in a relevant way. This is the essence of big data and we are at the tip of the iceberg with it’s potential.

The risks

The rise of the open network economy will continue as more and more organisations collaborate and exchange data to bring the full range of capabilities to their customers. Those that do so in a clever way will acquire value from other players, strategically opening up APIs to add value, expand their offering, and drive traffic to their platform.

So open is good –  but there is a downside. There are inherent risks in sharing data, which is why it is critical to incorporate the right processes and governance. The very value of open banking is in how it promotes data access, yet at the same time, infrastructure must control how data is accessed and shared. The two objectives of openness and security, while both crucial, are seemingly at odds with each other.

Permissions and access rights must be properly designed to allow access while protecting data where security is needed. This can be automated and any technology partner a bank works with for their open banking solution should have a sophisticated permissions component.

Banks need to ensure they get something out out joining. The open marketplace must be joined in a way that allows a bank to get value from the network. Joining must enable the bank to get those value components. A proper strategy is also needed for how a bank will open up their APIs to others. If they don’t think this through, they run the risk of a huge, harmful data giveaway.

Striking the right balance

Being a player in open banking economy needs some thought, and a strong business model. Decisions have to be made, like whether to charge for open APIs, how to encourage developers to connect, and more. How can banks selectively open up whilst keeping the business secure? How can they add value, rather than just giving away their data? The line between a beneficial collaboration and a data giveaway is a fine one. Banks can make open banking work, but they must be primed to work this pillar of the OS the right way.