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Open banking was once viewed as the catalyst for the transformation of traditional financial services, but it still needs to meet expectations. While a small percentage of banks have developed an API, they still need to fully meet the requirements of the Second Payments Directive (PSD2). Despite limited consumer-facing applications, there is potential for open banking in business-to-business (B2B) around small and medium-sized enterprises (SMEs) and corporate banking. However, due to competition concerns, traditional banks are hesitant to collaborate with fintechs. To remain competitive, major banks must develop valuable collaborations with fintech developers and shift from a transaction-led model to a data-led revenue system.
The COVID-19 pandemic has rapidly accelerated digital transformation across the financial services industry. Banks that have not committed to a digital transformation strategy will suffer the consequences. Banks must allow third-party fintechs access to business accounts, payment providers, lenders, and equity managers to serve businesses and customers better. However, banks must make their platforms and sandboxes attractive to third-party developers by treating them as valued customers, producing high-quality APIs, and exceeding developer expectations.
To deliver on the potential of open banking, banks must extend collaboration beyond financial services to understand consumer behavior better. Banks can only collect a limited layer of data; the actual data owners tend to be the retailers or service providers from which customers purchase. Banks must take the plunge into insurance and retail data to better understand consumer behavior, leading to an enhanced service offer. Early innovation has focused on personal finance management, but open finance can only be achieved by understanding how consumers spend and making insightful recommendations.
Traditional Banks need to acknowledge the potential of open banking and fully embrace it to remain competitive. Open banking offers the creation of new services and new revenues, but it requires active partnerships with fintech developers and retailers. Banks must shift from a transaction-led model to a data-led revenue system and foster valuable collaborations with fintech developers to succeed. They must make their platforms and sandboxes attractive to third-party developers by treating them as valued customers, producing high-quality APIs, and exceeding developer expectations. Banks must also extend collaboration beyond financial services to understand consumer behavior better and make insightful recommendations.
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