Open Finance: Customers at the Center and a New Data Core
How far has open banking progressed? What’s driving the wider movement of open finance? Teodor Blidarus, FintechOS CEO and Co-founder shared his thoughts at MoneyLive Summit Goes Digital 2021.
Teodor Blidarus, FintechOS CEO and Co-founder joined a panel at MoneyLive Summit Goes Digital 2021 to discuss open finance and customer data with Tanja Imamovic, Open Banking Leader at Raiffeisen Bank, and Vilmos Lorincz, Managing Director – Data, API and Working Capital Propositions, Global Transaction Banking at Lloyds Banking Group.
In this blog post we summarize key topics, as well as Teodor Blidarus’s takeaways covered during this wide-ranging discussion:
- How far has open banking progressed?
- What’s driving the wider movement of open finance?
- Where are the opportunities in smarter use of consumers’ financial data… and do the individuals trust the financial industry with it?
- What do financial brands stand to gain if they get it right, and, faced with increasing pressure from the market and regulators, how can they take action in the face of significant technological complexity?
#1 The new banking: customer centric, data led
Financial businesses have repeatedly struggled with the gap between their technology vision and their execution. Digital products and services that, in principle, were excellent ideas regularly arrive late – often years after the idea was originally fresh – and some fail to see the light of day at all. Large and long-established financial institutions associate “data” and “technology” with lengthy, complex, costly projects that may not deliver value. This in turn diminishes the organization’s appetite for innovation.
To escape this vicious cycle, financial institutions seek to move faster in developing and rolling out new products and services, to have better control of costs and risks, and to avoid inadvertently creating new complexity and technical debt when executing their digital strategy.
How can banks do this? The industry is talking about shifting strategy to become less product-centric and more “data-centric”. This aligns with the philosophy behind open data and, specifically, open banking – which puts the customer’s ownership of data and their personal use cases for it at the forefront of solution design. What if banking products were designed with the same mindset from the outset?
With the customer at the center of the concept, and joined-up data creating a more complete context for that customer, businesses can give themselves and their customers a holistic view in any digital use case, allowing far better relevance, personalization, and intelligent insights.
#2 “Data is the new core”
As FintechOS CEO and Co-founder Teodor Blidarus comments, “data is your most important asset yet you don’t own – you are a custodian – you must leverage data with the consent and trust of the customer”. Financial institutions should look at data as something to join up and bring to life, not to lock up and hoard in disconnected siloes. This mindset shift is summed up at FintechOS: “data is the new core”.
Why are insights and personalization so important? The simple answer: because you don’t want your competitors doing it far better than you. General digital financial services are becoming a commodity: as Teodor Blidarus challenged, “what are you going to do to stand out?”
Digital differentiation has to go beyond the basics from now on, particularly in the face of increased spending on innovation by tier 1 players, in turn perhaps spurred on by the rise of digitally-native challengers in every vertical. To compete, financial brands need to be able to roll out new products and services that are not only “secure” and “convenient” but also considered by their customers to be “smart” and “insightful”.
#3 Personalization and relevance through smart use of customer data
Personalized financial services mean what I (the customer) get recognizes my needs and my long-term plans. That kind of context is simply not possible without a modernized approach to data and insights within the financial institution. Because a lot of the data needed is not currently with the bank, this implies that open banking is an enabling technology, not something to slow-walk.
This can also be seen with the application of AI in financial services: the possibilities for improvement of the customer experience are rather limited without data that crosses outside traditional banking product siloes. On the other hand the hype is definitely justified when you consider the explosive potential of systems that can go beyond rules-based segmentation and decisions into something more genuinely deserving of the term “intelligence”. This can only happen when the AI systems have secure and permissioned access to the same boundary-crossing sets of data that the advisor or the customer herself see: it’s 360 degrees of your life’s finances rather than just one financial product.
Take another example: what do savings mean to a modern customer? Perhaps it is a traditional cash savings account with the bank. But for certain demographics it’s just as likely to be a cryptocurrency or blockchain-based digital asset. These things can be brought together: but how can the bank address this except through open finance? Wherever the bank needs to mix the old and the new, you are going to see the need for a new customer-centric thinking about data and openness to the customer’s needs.
While the customer does not need to think about how it is achieved, the banks need to exchange data between very different underlying systems, and again this is an area where financial brands will not achieve results by leaning back, but instead can differentiate by developing these data connection capabilities and engaging with the ecosystem that’s rapidly expanding the frontiers of open finance.
#4 Open finance: shift to a new era of data-driven banking
We are now in a transition from first and second generation “digital banking” to a new era of “data-driven banking”. This is why we say “data is the new core” – what this means is that the strategy and the technology of the modern financial institution must come together and drive innovation centered on the customer experience, generating and delivering insights and personalization automatically. Achieving this is a central source of value for the brand. Thus banks must not attempt to outsource innovation – they must work on this new core themselves, empowered by the right technology for doing so.
What this does not mean is that banks should close themselves off from outside innovation – exactly the opposite. As Teodor Blidarus emphasizes: “long gone are the days when the bank could rely only on itself to innovate”. Partnerships are essential because the pace and variety of innovation expected can only be delivered through close connection with the fintech ecosystem. By doing so, banks will actually strengthen and focus their value proposition, because they can leverage partnerships for features and functionality which they should not be trying to re-invent in house.
In conclusion: “to be focused on innovation, you need to be open – in all senses of that word.”