A report by Capgemini and Efma, entitled World Retail Banking Report 2017 (WRBR 2017), states that as the Open Banking revolution continues to unfold, banks risk disintermediation.
The report offers two suggestions for how banks can avoid disintermediation: Firstly, banks must carefully choose their customer interaction business model, and secondly, they must use application programming interfaces (APIs).
The report also states that banks, in collaboration with FinTechs, can lead the Open Banking movement by offering their customer bases innovative and personalised services that create new revenue streams and provide more value to customers.
“FinTechs are now earning higher positive customer experience scores than traditional banks, and banks are openly seeking to collaborate with FinTechs,” says Anirban Bose, global head of Banking and Capital Markets, Capgemini.
“Open Banking offers banks an opportunity to retain and grow their customer base as they add the varied services of third parties to personalise and customise products and services. For banks that don’t think strategically and establish a role in Open Banking, there is a chance they will be disintermediated from their customers.”
“It is imperative that banks consider business transformation approaches now, to establish and solidify their long-term base in Open Banking,” continues Bose.
The power of APIs
According to the report, APIs can offer a pathway toward Open Banking, if FinTechs and financial institutions collaborate rather than compete to create customer-centric solutions.
“The most successful banks will use open APIs to generate new customer insights and revenue streams, while also improving customer experience,” comments Vincent Bastid, Secretary General, Efma.
“Many banks currently use APIs internally to improve information flow between legacy systems. In fact, we are already seeing early adopter banks asserting their role in Open Banking by proactively making their systems and data available to third parties and creating new revenue streams."
Collaboration is key to the future of open banking
The majority FinTech respondents, 53.8%, and banks, 43.5%, see a future in which banks and FinTechs collaborate to build cross-industry platforms with bundled, complementary services that benefit customers.
However, the report offers another outcome and suggests that banks will continue to provide products and services but leave distribution to FinTechs, BigTech, or other new open platforms.
The report warns that, although this has potential to lower customer acquisition costs, it raises issues related to disintermediation branding and customer ownership.
Just under half, 47.8%, of FinTechs predict this future scenario compared to only 28.8% of banks.
Overall, most of the banks (91.3%) and FinTechs (75.3%) say they expect to work together in the future, with banks providing access to their broad resources, experience and expertise, and FinTechs offering agility, speed to market and a fresh take on customer-centricity.
By working together and taking advantage of APIs, banks and FinTechs can leverage their complementary strengths, enhancing the customer experience much more than each entity could do on its own.
Bose concludes, “we work with clients every day who tell us that they are looking to better understand the roles they should play as these new business models take shape; everything from the investment necessary to how to engage with these new players. Many understand that Open Banking is the new normal, but they are still unclear about how to proceed.”