View all newsletters
Receive our newsletter – data, insights and analysis delivered to you
  1. Analysis
January 12, 2017

Can open banking inspire the loyalty that banks crave?

Customer retention is often cited as banks’ top priority, but how to achieve this is slightly harder to lock down. Many methods have been pitched, but none seem to be the solution. However, as open banking becomes more prevalent in the industry, could that be the answer? Patrick Brusnahan reports

By Verdict Staff

Customer retention is often cited as banks’ top priority, but how to achieve this is slightly harder to lock down. Many methods have been pitched, but none seem to be the solution. However, as open banking becomes more prevalent in the industry, could that be the answer? Patrick Brusnahan reports

The banking sector, it would appear, is beginning to give open banking a chance.

According to research from banking software vendor Temenos in its Open for Business report, the industry now accepts open banking more as an opportunity than as a threat.

In addition, there are fewer concerns regarding cost or technology constraints.

Some 69% of senior bank respondents said they saw open banking as more of an opportunity than a threat, 17 percentage points higher than 2015, while 51% considered building an open banking platform as a higher priority, as compared to 30% in 2015.

Only 29% thought they could not exploit open banking due to technology or cost restraints, compared to over half of respondents the year before.

Embracing open banking has likely been driven by a combination of regulatory and market pressures. PSD2 includes an Access to Accounts provision that requires banks, when asked by customers, to provide third parties access to their data.

Banks are also finding that open banking and partnership with the fintech community is necessary to remain relevant in today’s market.

According to the World Fintech Report 2017 from Capgemini and LinkedIn, in collaboration with Efma, 76.7% of financial services executives agreed that fintechs provide partnership opportunities while 60% are already looking to make these partnerships.

Customer retention and digital channels
Retaining customer loyalty remained a top concern for bankers in Temenos’s latest widespread survey.

However, the number of respondents considering it to be the top priority dropped as banks began to put more emphasis on leveraging data and improving the customer experience to encourage loyalty.

Some 25% of banks stated that digital channels were their top investment priority. This is hardly surprising considering the shifts of many products and services onto online and mobile platforms.

However, alongside this is an increased focus on wholesale IT modernisation with 19% of respondents claiming that IT modernisation was their biggest concern.

The report states: “Frankly, there is little point in having state-of-the-art digital channels if the data and content being served up is neither relevant nor timely and if the underlying fulfilment mechanisms are not instant and frictionless: User experience cannot be meaningfully enhanced under these conditions.”

Retaining customers and their loyalty is crucial as competition in the sector increases. In recent years a clear consensus has emerged that the external threat from non-banking competitors such as Apple and Google was greater than those of other banks.

The threat from fintech companies was generally considered to be higher – 18% in 2016 as compared to 14% in 2015 – but the danger from technology platforms such as Google and Amazon decreased sharply from 27% in 2015 to 17% in 2016. This is attributed to the fact that current efforts, such as Apple Pay and Android Pay, have not received widespread success.

Incumbent banks, with big brands and scale, are still seen to be the biggest threat by banking professionals (22% stated this compared to 21% a year previously).

On the other hand, overseas banks are seen to be less of a threat – only 8% of respondents considered them to be the biggest threat – reflecting the mood of retrenchment and domestic focus as banks are hit by regulation and a greater pressure on profit margins.

NEWSLETTER Sign up Tick the boxes of the newsletters you would like to receive. A weekly roundup of the latest news and analysis, sent every Wednesday.
I consent to GlobalData UK Limited collecting my details provided via this form in accordance with the Privacy Policy
SUBSCRIBED

THANK YOU