Banking the unbanked

Insight: The future of finance is ‘Open’

Eli Rosner,
31 Aug 2021

The resilience of financial services, like many other industries over the past couple of years, has been tested vigorously since the outbreak of Covid-19. The sector had to adapt quickly. Longer-term trends, such as the digitalisation of services, accelerated and became an immediate priority.

In a matter of months, it was clear that businesses already embracing digital transformation had the upper hand. While being nimble, open-minded and collaborative was necessary for them to survive, this mindset is also a good indication of what we can expect from the future of banking.

Finastra recently conducted its annual ‘Financial Services: State of the Nation Survey’ across the US, UK, Singapore, France, Germany, Hong Kong, and the UAE. The data explores the Open Banking and Open Finance landscape, the technology and initiatives set to make an impact in financial services over the next year.

One key finding was that more than nine in 10 respondents agree that Open Banking is important to their organisation. What’s more, 97% of those that already use Open Banking recognise that it has provided benefits to their business.

Those benefits can come in different forms and are unique to each financial institution, but one specific example cited was that it can help to improve customer experience. While customer experience has always been important, our survey revealed it has now become one of the top criteria in decision-making at financial institutions.

A key driver of this improved customer experience is the open technology which sits at the heart of Open Banking.

By opening up access to customer data with their consent, third-party developers, as well as the banks themselves, are building apps and services that are more intuitive to an individual’s financial journey. As individual needs evolve, so too will innovation.

The open nature of this platform-process is useful for the third-party providers looking to insert themselves seamlessly into a customer’s financial journey, as well as giving the customer more control over how they want to engage with financial tools and capabilities.

An open future

When we asked what the future looks like, 84% of respondents agreed that Open Finance is a natural evolution of Open Banking and, globally, respondents largely agree that Open Finance is the future of banking.

The prospect of an open financial landscape could give consumers the ability to share a wealth of financial data with their financial services provider. This includes not just their bank account data, but also data from their mortgages, savings and loans, giving the provider a holistic view of their finances.

With this information, a financial institution can offer a better quality and personalised service which truly answers that customer’s needs.

In addition to a holistic service, there is an enormous opportunity to implement artificial intelligence (AI) and machine learning into customer applications. AI was identified as one of the top technologies which will be improved or deployed by financial institutions around the world in the next 12 months.

What we have learnt from the survey is that financial institutions are using AI in two major categories. The first is to improve customer engagement; for example, using AI to analyse the usage patterns of a customer’s credit card, revealing their spending habits and suggesting financial products that align to that individual’s needs. The second is to improve internal operations, digitising processes, and developing more efficient practices.

BaaS sees a surge

These open possibilities, and desire for democratising data, have led to the rise of banking as a service (BaaS). 81% of global respondents see BaaS as a means to grow their business, enhance their distribution channels, shorten time to market and streamline operations.

Both BaaS and Open Banking rely on the view that banking can be malleable, and the historical view of a bank as a single-operating entity is changing dramatically.

It is clear to see how BaaS and Open Banking can work in tandem when thinking about the benefits for both a financial institution and a third-party provider or fintech. Open Banking allows consumers to share their banking data with trusted third parties; with BaaS, banks can provide services to third-party brands, allowing them to embed banking services into their own products.

The majority of respondents said they are configuring BaaS in collaboration with another organisation, rather than building these systems internally. This suggests that both Open Banking and BaaS are a catalyst for collaboration in the financial sector.

As banks have historically relied on legacy systems and monolithic technologies, Open Finance allows institutions to become more modular by being able to segment technology. This makes collaboration with third parties much simpler.

We have seen that Open Banking is one of the most important vehicles in improving customer experience within a bank.

What’s more, 59% of professionals at banks and financial institutions also stated that Open Banking helped them attract new types of customers. And with the addition of new customers comes the opportunity to reimagine finance; not only for the customers, but also for the banks which can use these valuable insights from the industry to shape the future of financial services.

Written by Eli Rosner (pictured), chief product and technology officer at Finastra