Open Banking offers banks the opportunity to achieve greater efficiency and new revenue growth in an increasingly hectic financial service landscape.
The number of open banking users is expected to double by the end of this new year, from 18 million users in 2019 to more than 40 million in 2021. The figure shows that there is great potential for new services to be quickly adapted to the banking model, thereby bringing new income to the bank. New banking solutions will become the norm in the very near future, and even some entities are already having success with new business models, differentiated by their use of data.
5 business models based on data use
- Digital Banking: They are mainly Fintech companies that offer their digital banking services. These companies need a bank backing them, which allows them to open accounts, provide debit and credit cards to their customers, or move money between accounts. One case study is Chime, a Fintech considered a “unicorn,” supported by the banking services of the financial entity, Bancorp Bank.
- On-Demand Services: The so-called “collaborative economy” uses APIs to connect to banking services. These companies offer services from bicycle rentals to people who need to be paid in exchange for their services as babysitters or fixing washing machines, among many others. One example is the EatWith portal.
- Online Marketplaces: Companies that build platforms where buyers and suppliers come together to facilitate the exchange of services and product sales. One of the most recent examples is the Tuvoli company, able to bring together the clients and owners of private jets on the same platform in order to facilitate their rental. In this example, Tuvoli makes use of BBVA’s APIs to carry out payments without having to make use of other external agents or intermediaries.
- Payment Systems: In this case, companies that offer payments in real time can leave behind traditional payment methods, such as checks. They use digital payments, both between companies and individuals. This is the case with the ActivePass company, which is able to convert a DBS bank customer’s banking transactions into points that can be used in its stores.
- Finance Management: These are companies that, after obtaining information from their customers, help with savings and loan repayment management. The companies, Peoplejoy and Leif, are two clear examples of this business model; they help recent university graduates with the repayment of their student loans.
What is expected to happen with banking solutions in the future?
3 Proposals for the future of the banking sector
- Finance management:
- Ability for customers to have all their accounts organized in one place, even if they belong to different banks.
- Financial management tools capable of identifying customer spending patterns in order to plan and save more effectively.
- Improvements in customer registration and in the customer knowledge process:
- Today’s know-your-customer (KYC) processes are complex, cumbersome, and time-consuming. With open banking, customers will be able to create a digital identity that can be digitally authenticated, thereby eliminating the time-consuming registration process.
- Fraud reduction through collective risk management and more controlled data sharing.
- Credit offers:
- Custom products based on transaction history, such as personalized vacation loans based on flight and hotel reservations, and anticipated expenses, credit cards, mortgages…
In addition to retail consumption, now is the time to take advantage of the momentum of Open Banking to make the leap to other sectors that have been initially left out, such as large companies. Banks will be able to lead in new markets if they start to take advantage of their own API platforms and are able to offer the solutions that companies expect from them. The problem will be that if they do not adapt, the new Fintechs and the rest of the companies will do it for them.