Subrato Bhattacharya, Senior Consultant, TCS BaNCS

At a recent workshop, the moderator asked us, the participants, to pick one's favorite financial technology trend, and we were to relate that to an object, or a movie, without naming the trend, while the other participants were to guess that. I chose “I Know What You Did Last Summer” as I have been talking and exploring with clients & prospects around Data and the constructs of an “Insights Driven Organization” -IDO. Combined with open banking or open finance, the insights can be much more powerful. Hence the headline.

Open banking/finance is not an API strategy but a part of the Data Strategy.

To start, open banking is about 3 principles

  • Sharing of customer transaction data from a data provider to a data user
  • Based on customer consent,
  • Under a public-sector supported or regulated framework,

Meanwhile. on the customer side, the profound change in behavior has accelerated the pace of transition from products and into a new era of delivering ambient banking, embedded into lifestyles, available anywhere, anytime, and any device. This has fast-tracked the positioning of data and analytics front and center in a bank’s business strategy and throughout all echelons.

Banks need to take a position and create differentiation, Now!

Just sharing data with other Financial Institutions as a Data Provider may not be an effective strategy for any Financial Institution. It poses serious churn risk and customers can easily switch based on value-offered. Financial Institutions can offer differentiation based on experiences that are curated with data that is consumed and the data that it shares.

The three strategies that a bank can adopt in an open banking/finance world to stay competitive are:

  • A bank can choose to open up data and its systems beyond a regime-led framework, at a minimum
  • · A bank can look for Fintech collaborators to enable it to offer new services to its customers and reach new customer segments.  
  • · At the premium end of the spectrum, a bank can choose to become a data-driven organization, building new value-add services and actively using the data for the benefit of its customers.

“Data is the new oil”, but we also need a Refinery

Banks collect so many data points about their customers than anyone–not even the likes of Facebook or Google. With such data sitting within the bank, APIs providing the plumbing from diverse internal and external systems, and Analytics engine is the much-needed refinery, which makes that data useful.

It will require banks to rebuild and integrate new technologies, such as APIs, Cloud, and Advanced Analytics, into a dynamic, data-driven architecture.

So far, for most banks, open banking has been a compliance-driven topic. Graduation to the next stages of evolution is certain only if the bank considers open banking in its Data & Analytics strategy, rather than a part of the API strategy. The winners always think "beyond the box".

Banks should re-focus on open banking with the lens of data & analytics strategy by creating a “Connected Experiences Hub” around the data being shared or consumed, with an analytics engine that powers delightful customer experiences.

Delighting Customers

With open banking/finance, ownership of customer data shifts from the bank to the customer. Incumbent financial institutions and new entrants can use this data to identify the product or service which is most appropriate for a potential new customer or for an existing customer, provide new services to customers, and to determine the credit risk and price of credit facilities. All this requires a hub, which intelligently dishes out experiences to various actors in the connected ecosystem through a Connected Experiences Hub (CEH).

Customer-related or market-related events in the internal systems or ecosystem partner network activate the CEH and trigger responses to consumer needs. CEH delivers these responses through flexible service delivery channels or through ecosystem actors. The choice of the actors is also based on the intelligence gathered from previous interactions.

The Connected Experiences Hub, at a minimum, should support the principles behind the following building blocks:

  • Unified Data Fabric sitting on a data platform to manage ingestion pipelines, data quality, governance, lineage, and other aspects
  • Open banking Services–APIs which publishes and consumes the banking/financial data
  • Intelligence Engine–a storehouse of artificial intelligence and machine learning models
  • Real-Time Analytics Services–data analytic intelligence delivered through services/APIs for Orchestration, Automation, and Optimisation on a Real-Time basis. Real-Time is the key to discovering and serving the ‘magic moments’
  • Cloud-Native principles–With open banking, there will be massive volumes of financial transaction data, which will demand high-speed concurrent access, and analytic model executions across many ecosystem partners, and cloud nativity promises to deliver reliability, availability, and scale.

CEH delivers Better Banking

By better understanding their customers, banks will be able to:

  • Offer competitive pricing,
  • Offer personalized product customizations,
  • Enable automated recommendation engines for targeted advice, more appropriate product suitability.
  • Minimize portability woes - Moving will no longer mean leaving customer history behind as a customer’s account history can travel with them as they move.
  • Respond at the speed of business–banks will uncover the needs of customers and respond with speed and diversity of product creation
  • Offer more ecosystem collaboration partnerships needing to share customer information with consent.

Hurdles to realizing a CEH

For a CEH to work,

  • Banks need to get their data into shape and get the ’right data’
  • Banks need to get the ‘right models’ into place
  • Banks need to have the ‘right culture’ that can absorb all of that.

The future of open banking is about intelligent automation and driving fluidity in experiences across ecosystems enabling financial services for a “segment of 1.” And to achieve this, banks need cloud-native platforms like a CEH as open banking becomes a reality.

On one fine day, the bank will tap and say "I Know What You Will Do Next Summer".

Disclaimer: Views or opinions represented in this blog are based on the author’s own research and do not represent TCS BaNCS.