Open banking has freed banks to meet customers’ demands for faster payments and personalised functions – and customers are sticking with their banks as a result
Banks may assume that their customers are more loyal than, say, Netflix users or ASOS shoppers, but that is changing. Today’s bank customers are getting younger, more tech-savvy, and more used to features such as one-click payments, easily accessible support, account dashboards and smart recommendations. These data-driven functions are now expected as standard from all providers, including banks.
Recent research by UK brand loyalty experts Ello found that while nearly three-quarters of people (72%) say they’re loyal to their bank or finance provider, 60% admit that “bad interactions” have damaged their loyalty. Half of respondents would pay more for a service if they trusted the provider, and almost a quarter wished their bank offered more perks. Only one in five felt their bank valued them as a customer.
It’s never been easier for banks to deliver smart, personalised functions, thanks to the open banking revolution and modern API technology. Some financial providers will remain culturally and technologically reluctant to innovate, but they may soon find that their customers vote with their feet by switching for a brand that treats them more like an individual and less like a number.
How open banking set data free – with permission
Historically, bank customer data has been too tightly governed to be used for smart, real-time functions by modern APIs. But a loosening of regulations now gives banks and other financial providers access to customer data, from other banks as well as their own, as long as those customers give permission.
Open banking has effectively handed control of data back to customers, who can now allow apps and companies to use that information in ways that potentially benefit both company and consumer. This stems from the introduction of PDS2 (Payment Services Directive) in 2018, a huge regulatory change to an industry that had previously prioritised governance and control, right down to telling you when you can take a day off (“bank holidays”, I ask you).
Some traditionally-minded banks may feel nervous about open banking. But the availability of data enables banks to personalise their financial services and offer a smooth, unified experience that keeps people coming back for more, says esynergy’s Nia Batten. “Not only do modern finance apps comply with changing consumer demands, they also improve customers’ perception of banks. In turn, that helps with customer retention.”
How APIs turn data into customer satisfaction
APIs (application programming interfaces) have existed for many years, but modern APIs are game-changingly simple, standardised and secure, enabling different financial systems and providers to integrate with each other and access user-selected data in real time.
“APIs are essentially a way of interfacing,” says Freeform Dynamics analyst Tony Lock. “As long as you’ve got the right access privileges, and you’re calling up the data in the right way, then the API is essentially an open integration. It’s an easy way to integrate disparate systems together, which is why it’s great for open banking.”
The widest use of API-driven architecture in finance is one-click payments. Payment APIs allow online retailers to verify transactions automatically, by linking directly to customers’ banks and retrieving very specific verification information. For example, esynergy developed an API for a global payment processor whose customers had asked to be able to pay via Apple Pay. The new payment option is already helping our client retain those customers, and encourage them to spend.
APIs have also helped banks modernise applications that have been running for years. “Banks’ systems are the main source of records for accounts and billing, everything,” says Lock. “A lot of them run on mainframes, but they’re now API enabled. Banks are really on top of this stuff.”
API-driven modernisation also benefits bank data security, says Lock. “Before APIs, the software code would have to be security checked every step of the way, and every time it was modified. It was a nightmare. APIs are relatively constant; they’re not being changed every day or week or whatever. You still need to have good API management and security processes in place, but security is much easier.”
How personalisation fosters customer loyalty
Perhaps the biggest impact of APIs in open banking is personalising the customer’s experience. For example, when you log into your bank account and you see your account balance, that’s a personalised function achieved by an API.
Personalised digital experiences become particularly commercially powerful when they’re enhanced by richer data such as preferences, context, location and activity history, which the user can enable or disable. The availability of third-party customer data means banks can now offer personalisation at scale, and via API integrations with business partners who complement their own services.
Not all banks want to get on board, and not all their customers do either. Cultural shifts often take time to catch up with tech and regulation. Banks have traditionally operated within a closed system integrating only with other known players, and the idea of opening up their infrastructure and data to startups won’t go down easily with some. Banks also know that some customers who prefer the bricks-and-mortar approach are often more dubious of evolutions in technology, and they don’t want to erode the trust of those customers.
But banks and customers who are nervous about data collection and sharing can be reassured that UK data is regulated more than in other countries, where banks can use data to target individuals with personalised adverts that criticise those customers’ other financial providers. In the UK and Europe, open banking has led to a more balanced landscape of respectful personalisation and innovation enabled by APIs – and ultimately all controlled through explicit permission from the customer.