Open Banking Initiative: How Can Retail Banks And Insurance Firms Remain Relevant?

22 February 2018 | About a 4 minute read
Tags: banking, insurance, modern, relevance

The introduction of Phase 2 of the Open Banking initiative in the UK will truly change financial institutions as we know them today and a few experts predict it will lead us back to an era of big bank casualties and closures. In my blog, I will look the initiative’s effect on customers, banks and insurers and what they can do to benefit from the opportunities it brings.


In simple terms, the Open Banking initiative means banks have to be transparent with third-party providers about transactional data (with customer’s consent) and reference data (portfolios of products they offer, bank location, opening times and ATM locations). Practically for the banks, they have to provide third-parties with access to back-end APIs containing this information. What this means for a customer of many bank accounts is that they can see all their accounts’ live status and historical incomings & outgoings from one app only (such as Bud, Yolt and OnTrees).

The truly disruptive part is that banks have to provide third-parties with the ability to initiate payments. Before this game-changer, customers would likely go onto a comparison website to look up the best rate for mortgages/car insurance for their personal circumstances and then either go to the bank’s website or visit the brick-and-mortar store. Now, purchases can be made on the comparison site itself without even visiting the bank.


Banking customers in 2018 will have:

  1. Access to improved rates – With a customer’s transactional data, other banks can understand an individual’s credit risk profile and offer them preferential rates
  2. Greater understanding of what they spend their money on – Purely Digital banks such as Monzo and Starling Bank are now using Machine Learning techniques to visualise the customer’s spending habits
  3. No need for banking intermediaries – Third-party providers will not need to be a bank to provide banking services, just the customer’s consent to initiate payments


These benefits will improve customer experience. Switching banks is free and easier than ever, so expect customer adoption of fintech services such as Bud and Ontrees to be high.


The role of the traditional retail bank is fundamentally shifting. Although I have painted a bad picture, Open Banking actually increases potential revenue streams for these large institutions because of the trust in their services to date. In order to do this, banks have to:


  1. Embrace the new world – Banks that are able to provide additional services directly through their current accounts by integrating their APIs with other third-party services reduce the likelihood of customers switching (such as Starling Marketplace)
  2. Become a third-party provider – Banks that use this initiative to their advantage by providing their own customers with information about their other bank accounts through a mobile app/website (such as HSBC’s new app)
  3. Treat the APIs as products – Banks should build an API Product Management function to pro-actively seek feedback from third-party use of their APIs and develop the APIs further. These premium APIs will ensure customers remain/are attracted to the bank’s proposition rather than others.


Insurance firms should also consider the impact of Open Banking on their industry. Access to customers’ transactional data would significantly improve the accuracy when calculating customers’ risk profiles. Insurance products and premiums can be more personalised with more data-savvy insurers able to attract customers if they assess customers are at less risk of default based on their transactional data. Some could go even further and understand customers’ household buying habits to further personalise their home insurance products. To take full advantage of this, insurance firms must:


  1. Invest in Data Insight teams – These teams should manage the aggregation and presentation of key metrics from internal and external data sources. More advanced teams can begin to build machine learning models to predict future customer trends, informing underwriters of potential new insurance products and how to increase ROI on current ones. These teams require a combination of skills including Data Visualisation Analysts, Data Scientists and Data Solution Architects.
  2. Set up an innovation capability – I went to a talk by Tom Blomfield (founder of Monzo) a few weeks ago and his slogan was “Release uncomfortably early and gather customer feedback”. A test-and-learn approach to new development, with minimum funding and a defined process will enable firms to test the benefits that the opportunities created by the Open Banking initiative will bring.


In conclusion, embracing the open framework and developing with constant feedback from the end-user (whether that is actual customers or third-party services wanting to use the financial institution’s API) will keep banks and insurance firms relevant in an era of openness.


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