The term ‘Open Banking’ sounds like a free for all with cowboys riding in and setting up shop and taking customers money with no regulation. In reality, it can give consumers more choice, competitive offerings, more secure data exchanges and more control over data access and privacy. For financial institutions, open banking does not need to be considered a threat but rather an opportunity. 

So what are the key benefits of Open Banking and how can the data be used to positively impact people’s lives? Jane Barratt, Chief Advocacy Officer for MX outlined some of the benefits in a talk for Digital Banking Week.

Why Open Banking?

Open Banking is based on the principle that customers should be able to access their own data freely and securely, that there should be transparency around what the data is used for and that a technology framework can provide consistency in how people’s information is presented. 

The benefits for both financial institutions and customers are increased security and privacy, balances being consolidated in one place and boosted engagement. To understand increased privacy and security benefits of Open Banking, we need to understand the differences between the old and new ways of sharing data. 

For the past twenty years, data has been credential-based whereby people share data by entering their user name and password. Screens are then scraped and the data is shared through the digital ecosystem. 

Open Banking uses token-based data exchange via API’s. This means customers enter their username and password once, then receive a uniquely-generated encrypted token in exchange, which gives access to protected pages or resources instead of the login credentials for a designated period of time. The digital token proves you’ve already been allowed in and allows the website to add more layers of security without forcing you to continually prove you are who you say you are” (thanks to SwoopNow for this explanation.)

Benefits for financial institutions.

Rather than viewing it as a threat, financial institutions can view open banking as a great way to improve their consumer positioning. They can provide more secure data exchanges and privacy for their customers, better and more secure omnichannel experiences and short-cut the way digital identities are verified. 

Benefits to banking customers.

For the customer, open banking will speed up loan applications, make data more private and secure and offer more competitive products. Customers can manage money in a single view of financial accounts all in one location and share their data with accountants and advisors, give instant payment permission through third parties, receive links to loyalty programs and access new offers. 

Using data to improve your value offering. 

Financial analytics can tell the full story of a customers’ situation to improve their financial wellbeing. An example is risk reduction for customers; by looking for customers who have engaged with predatory lenders or might be susceptible, businesses can develop a part education, part product offer, to prepare for and prevent that cycle of predatory debt. 

A bank can then deliver their customer’s full financial story through the lens of the financial institution – where they stand with their income, spending and debt. If you can give someone a full view of their financial life and provide contextual advice based on their situation, chances are they will return again for their next financial need. 

The benefits of a customer-focused value offering. 

Providing value beyond standard products means changing the conversation from selling to identifying and meeting needs. Advocating for customer success is the crucial differentiator in a competitive landscape but it also adds genuine value to your business. Reducing a customers debt and providing financial education can increase a bank’s loan portfolio through selling consolidation loans, it reduces outflow because reducing predatory loans means more saving, and being a foundational relationship places your business as the focal point of a solution. 

What are the long-term benefits of data-driven innovation?

Data is the new oil is the saying and it’s true. The top ten most valuable companies on earth are data platforms and financial services are leading the way by getting customers used to granting and evoking permission with data and using it as a currency.  

In the future, Garratt says customers will control the use of their data and trade it themselves for discounts on products, and financial technology will negotiate, bot-to-bot, the best deal on behalf of the customer.

How Navag8 uses data.

Our algorithms and financial analytics provide actionable insights from user behaviour to help banks, credit unions, employers or superannuation funds engage, grow and retain their customer base.

Navag8 is a tool for financial empowerment as customers choose the path to save, invest or be debt-free. Every feature is there to create positive behavioural change, engaging customers in real-time with accurate insights so they can spend less and save more to achieve financial goals.

Get in touch to find out how we can help you.