The Open Banking playing field and example use cases
The most common application is account aggregation, which per se doesn’t sound too disruptive. However, what the aggregation allows you to do as second- or third-order effects, can be very disruptive: it provides the data baseline to get a client’s full financial overview, helps customers to develop financial literacy, enables faster access to other (financial and non-financial) products for cross-selling and speeds up cost and time to serve for more intricate services, such as applying for a mortgage or loan offering.
The most comprehensive platforms that currently provide access-to-account (XS2A) services are Swedish payments firm Klarna (connects to over 4300 banks across 14 European markets) and Dutch payments firm Volt (connects to over 4000 banks across 14 markets).
Use case 1: New bank offerings for B2C customers
Let’s be honest, most people have a hard time keeping an overview of their financial situation. Behavioural psychology has presented deep challenges to the rationality assumption favoured in standard economics, and now the long lists of biases of judgement and decision making are commonly accepted, especially when it comes to day-to-day money management.
What if banks are not only used as virtual money storage containers, but helped to keep a complete overview of all financial matters and proactively nudged users towards the best financial choices in their unique situation?
Offerings that fall into the personal finance management (PFM) category are:
Image: Yolt by ING
By leveraging AISP and PISP use cases in personal finance management apps, banks can provide more personalised service and tailored products.
Use case 2: New bank offerings for SME customers
Small businesses have been the nightmare customers for incumbent banks, a segment with many diverse and complex needs that make it difficult to serve them very profitably. Now, with potential PISP (Payment Initiation Service Providers) or AISP (Account Integration Service Provider) licenses, or even own account provisioning, the champions of SME businesses can finally fully claim this target group for themselves: accountants and bookkeeping SaaS companies.
Offerings that fall into the SME category are:
To defend against future TPP competition, e.g. accounting companies with PISP licences, banks can simplify and streamline the financial management of SMEs by entering new financial product categories.
Use case 3: Better lending offerings
Digitalising lending is not a new idea. However, for both B2B and B2C clients, Open Banking offers an opportunity for banks to get required financial data faster and to merge it with other digital risk scoring sources. This brings banks closer to the vision of real-time risk assessments and loan decisions with the tap of a button.
Offerings that fall into the lending category are:
By gaining a better understanding, faster, on the customer’s creditworthiness and solvency, banks can increase their lending market share while reducing risks and boosting productivity.
Open Banking is a new opportunity for growth. When looking at the forefront of Open Banking, the UK, it’s clear that new ecosystems take time to emerge and that banks can benefit a lot from initiating their own use cases. By figuring out how to navigate Open Banking and APIs as well as how to partner up with 3rd parties, banks can enhance their products and improve monetisation. Beyond that, by proactively promoting the unbundling of the bank’s own horizontal offerings, they can let 3rd parties create new services with their data, which will ultimately benefit all customers.
Many customers still trust their banks as the main place of their financial home and are probably not yet ready to switch the primary relationship to a new TPP. Hence, banks needs to get the innovation (to the market), before the challengers get the distribution. The party who owns the day-to-day user interface will ultimately have the most influence to cross- and up-sell other products.
Ross Republic has extensive experience in forging partnerships between financial services providers and 3rd parties and in creating ground-breaking core and non-core offerings that leverage APIs and customer data. Get in touch with us if you want to know more!