Banks see opportunities in monetizing customer data and open-banking can help them return to high profitability

December 2020

The year 2020 and the corona virus crisis that defines it, has brought high levels of uncertainty and financial losses to a number of sectors. Banks are no exception, and many are reporting a decline in profits while searching for a way to return to pre-crisis results as soon as possible. There are many paths to optimizing revenue and spending, but financial institutions around the world are discovering that the concept of "open-banking," which has so far developed considerably less than expected, holds great potential.

Global and local banks as well as fintechs are gradually discovering that the new “fuel” necessary for growth and profit increases might be found primarily in customer data and its monetization. Information has, of course, always been a valuable commodity, but it is open-banking that brings the possibility of aggregating and utilizing customer data and behaviour across services on a large scale.

The concept of open banking is that bank clients can make their balance and transaction data available to third parties. As a result, in a mobile app or web service a client can track, for example, movements in their accounts with different banks, or more easily use other banking and non-banking products. Third parties only need the proper license and technological ability to tap into a given bank through the API.

But open-banking is not just about making balance and transaction history available. It also allows you to connect third-party products and services to online banking, making it much easier to offer relevant products tailored to the client. For example, if a customer connects their savings products held in other banks to their online banking, this suddenly opens up an opportunity for a financial institution to offer them, say, matching investment products. But there are many more possibilities.

“The obligation to provide client data on account balances and transaction history to third parties under PSD2 initially caused concern to many banks. Above all, the big banks feared that they would have to spend considerable resources to implement the regulation and risk losing their relationship with clients who would be poached by new digital banks and fintech companies. It was only after a while that they realized that it could be the other way around and that what they saw as a threat should be seen more as a great opportunity,” says Karel Beran, Director of Products and Innovation at BSC, who has 30 years of experience in developing digital banking products for the biggest Czech and global banks.

Both banks and clients can benefit from open banking and the connection to third-party services. One example is the ability to gain detailed control over your income and expenses. In other countries we can see that a client, by aggregating data and viewing it in a clear way can, for example, find out if they are spending too much money on clothes or paying too much for insurance and gas and electricity and the like. As a result, the online banking user can save money, while the bank also gets a commission for selling a product or introducing a customer to a particular service.

The essence of open-banking is the ability to aggregate significantly higher amounts of user data and, as a result, improve the quality of services offered. This leaves room for the smarter banks, firms and services to reach many more customers, and allows them to offer the right service at exactly the right time.

“Open banking is one of the biggest opportunities in today’s banking world. Banks can not only offer clients innovative third-party products and services, but even more importantly – offer services perfectly tailored for them. The wide availability of a large amount of different data will enable banks to get to know the client and his needs better. If financial institutions take advantage of this opportunity correctly, they can not only find new sources of income, but also strengthen their role in society and significantly improve their own reputation with clients, “concludes Beran.

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