Before COVID-19, financial institutions were waking up to the competitive advantage of going digital and the commercial opportunities afforded by open banking with the huge potential of use cases it offers.
As we look ahead to a post-pandemic world, it’s the increased shift to digital that’ll pave the way to the economic recovery of countries around the globe, and open banking is the enabler that will allow financial services providers to meet evolving customer needs and expectations that have emerged from the pandemic. It has revolutionised the banking experience and if its full potential is grasped by financial institutions, it will allow them to offer a broader range of financial services for a wider group of people, whilst also reducing operational costs and ensuring operational efficiency.
Open banking also increases financial inclusion. This will empower end-users, improving their access to insights and services and allowing them to budget better — a priority for many customers in a post-COVID world.
With Coronavirus accelerating the shift to digital, financial institutions must prioritise digital transformation and embrace the open banking opportunity. But what should they do to achieve this?
Create a clear open banking strategy
A coherent open banking strategy that improves services and products and delivers an enhanced customer experience will be the saving grace for financial institutions in a tricky economic climate. But in order to truly reap the benefits of open banking, they must first acknowledge the value it creates.
Our 2020 research shows that this is beginning to happen. Based on a survey of 290 senior decision-makers at European financial institutions, we found that 61% are feeling positive about open banking; a rise of 6 percentage points since 2019. However, many executives still lack a clear strategy, with almost half of the survey participants (46%) unsure of how to implement an open banking system effectively. To make the most of the open banking opportunity and keep pace with the accelerated digital transformation of financial services, banks need a clear plan.
Make strategic investments and calculate budget wisely
More executives in Europe are investing in open banking as a means to transform their digital offer. Our data shows that 63% of financial institutions in Europe are ramping up their open banking budgets, with annual spend rising by 20-29% in 2020. Median investment was typically between €50-€100 million, with spending exceeding €100 million for nearly half (45%) of executives surveyed.
Post-pandemic, the main priority for many senior executives is to ensure budgets are allocated strategically. Overall open banking spend is increasing but it’s vital that budget is invested into the right areas of the business to ensure maximum ROI. Our research shows that improving the customer experience (44%), IT modernisation (39%) and process optimisation (34%) are the three main drivers for open banking investments.
Ultimately though, in order to take full advantage of open banking’s true potential, financial institutions should focus on the low-hanging fruit by operating swiftly and nimbly as a third-party provider (TTP). This means building elementary use cases that deliver tangible short term benefit, before developing more advanced use cases.
Partner with like-minded fintechs
Partnerships may not historically be in the DNA of traditional banks, but increasingly financial institutions are joining forces with like-minded fintechs as they embrace innovation and digital transformation.
69% of European financial institutions have increased their number of fintech partnerships in 2019, with 22% having at least one partnership in place and some having up to five. Such partnerships provide executives with the technology, expertise, and vision to drive open banking value creation — creating both short and long term value for financial institutions and, in turn, their customers. Partnerships are at the heart of Tink’s business model and we offer access to the tools and technology to allow all players in the industry to realise the open banking opportunity.
In the months and years ahead, the shift towards digital will only accelerate. Financial institutions that take full advantage of open banking will win market share by providing customers with better experiences and greater choice. Institutions must continue to prioritise investment and innovation in this area if they are to successfully navigate the turbulent economic times ahead.
By Jan van Vonno, Research Director at Tink
Main image credits: Wright Studio/Shutterstock