Open banking revolution: enhancing customer experience and retention

In 2016, the Competition and Markets Authority (CMA) created the United Kingdom’s Open Banking Implementation Entity as a roadmap for delivering open banking - as well as the onboarding of the first few millions of users -  as efficiently as possible. Thanks to this focused initiative, open banking caused the single biggest paradigm shift in banking for decades; the move towards customer-centricity. 

In an industry where customer loyalty has been on the decline, customer centricity has been accelerating. If anything, this proves that digital banking concepts influence levels of customer satisfaction even more than first thought. 

By taking this evidence into account, banks and financial institutions are empowered to prioritise these concepts confidently, enabling them to tailor their product offerings to consumer expectations. This in turn improves customer satisfaction and in the long run, customer retention; enabling them to deliver a customer-centric banking experience while also improving ROI, driving measurable impact, and increasing revenue.

Similarly, with the population of digital natives in the UK only set to rise from its current number (49%), banks and financial institutions are under more duress to place focus on not only attracting new customers but also retaining them through positive and personalised banking experiences. 

This article will explore the principles of the open banking revolution, and exactly how you can win over a customer by enhancing their experience. 

Principles of open banking

There are three core principles of open banking that are important to know:

• Real-time sharing of data 
• Real-time payment initiations
• Information of products and services for comparison

Real-time sharing of financial data

With the power to connect financial institutions with individual account holders and third parties, open banking facilitates a real-time, yet highly secure, flow of data capable of revolutionising the way consumers engage with financial services. One of the ways that financial data remains secure is through Strong Customer Authentication (SCA), introduced in 2019. It means that any banking customers must hold at least two of the following three factors in order to gain account access to their account: 

• Knowledge (password)
• Inherence (face ID)
• Possession (text code) 

SCA impacted open banking by making it a more trustworthy technology. Anything new needs to be tested in the market to gain credibility and this security feature enhances data protection without significantly degrading the customer experience. 

Real-time payment initiation

The payment services directive (PSD) is one of the regulations governing open banking practices. Upon its introduction, banks had to create a way to integrate with third parties providers, known as TPPs.  

These integrations allowed authorised third party providers (TPPs) to access an individual’s financial information and provide new services to improve the customer experience. 

Examples of TPPs include: 

• personal budgeting apps
• accounting software
• payment initiators

TPPs reduce friction and enhance the customer experience, providing faster access to financial services. 

Information of products and services for comparison

Open banking allows financial institutions to dig deeper into an individual’s financial situation with more accurate data sources that relay in real-time. Credit unions can leverage this to improve the accuracy of their product offers, choosing to contact individuals through digital channels at the right time with the right proposal. This also makes it easier for customers to directly compare two or more products.  

This customer-first approach results in benefits for the banks and lenders; making it easier to assess an individual’s financial position and make decisions with confidence. It leads to a better product-customer fit and fewer missed payments or delinquent customers. 

Improving the banking experience

Here are four key areas to improve the banking experience for customers: 

• Customer control
• Personalised suggestions
• Simplified financial management
• Innovative services 

Customer control

Trust is a big issue with open banking: 48% of Brits limit their use of online banking because they don’t know enough about the safety of their personal data. But banks and lenders can grant customers the ability to personalise their data sharing, by setting their own preferences.  

 Here are some good examples of customer-powered preferences: 

• Consent management: customers can choose which pieces of data that financial institutions are allowed to collect and can request deletion at any time
• Data sharing preferences: customers have control over who can access the data collected by financial institutions (and whether it can be shared)
• Data portability: customers can rest in the knowledge that their data is encrypted and tokenised, keeping individuals anonymous for an elevated level of security

Personalised suggestions

Open banking providers like Bud enable institutions to harness extreme personalisation and boost engagement. We can assess characteristics to determine who the customer is, and offer them a fitting product at the right time. Here are some examples of customer characteristics, and personalised product offers: 

One client recently shared that 81% of customers complete the connection journey successfully for a better banking experience - proving just how many individuals are open to sharing their data in favour of improving their experience.

Simplified financial management

Finances are the number one cause of stress in 37% of households. But, open banking may be able to remove at least some of that stress, because it gives customers the ability to view multiple accounts in a single dashboard.  

Account consolidation allows customers to instantly see what’s going on with their finances in real-time, reducing fears over the unknown. 

Traditionally, a delinquent customer can feel stressed and might ignore contact attempts - both factors that can hamper the customer experience. Instead, Moneyboat utilised Bud’s market-leading technology to track customer income and proactively reach out before customers became delinquent – assisting in the reduction of missed payments by 20% for Moneyboat customers. 

Innovative services

In a society favouring innovation and growth, individuals are seeking out and partnering with institutions at the forefront of their industry, with 70% of customers revealing they value innovative technology and its impact on the customer experience.  

In industries like retail, customers can build wishlists, retailers can retain baskets and even send personalised follow-ups to convert purchasers. It’s clear that the public expects the same user experience in banking. One example of innovation in banking is the adoption of third party integrations, powered by APIs, which is why we’ve developed the technology for clients to generate their own custom insights from Bud’s Engage data.  

Little Birdie is a subscription management tool, and uses Engage to connect customer accounts, identify and categorise all of their open subscriptions. Underpinned by machine learning technology, the company is trying to eliminate the average of £39 per month that Brits waste on redundant subscriptions. By encouraging customers to instantly find and close unused subscriptions, Little Birdie gained over 10,000 downloads of their mobile banking app.    

Customer retention as open banking evolves

There are many recommendations for advances in the most recent report from the UK’s open banking oversight committee (JROC). Voice assistants, AI and machine learning are all viable tools that should see marked improvements to customer experience over the coming years.  

If you’re a bank or lender looking to capitalise on the principles and technologies that lead to better customer experiences, partnering with a provider like Bud is essential.  We’re confident that even an evolving regulatory landscape doesn’t have to affect your customer experience. 

Transform your customer experience with Bud and allow us to empower a seamless transition towards better banking and enhanced customer experience.

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