We, at eHyve, have been testing our pilot market – The Swiss Banking Retail sector – and we would like to share our findings with you.
Open banking and data aggregation should not be seen as a threat to financial institutions, as there are huge opportunities on the horizon. By setting a common purpose to bring value to customers, a business can help them understand their financial health and improve it.
Established financial institutions (i.e. retail banks, insurance companies, financial planners, etc.) are positioned the best to harness this opportunity.
The Quest for Value
Our market research and surveys have shown that up to 75% of consumers seek the assistance of more than one financial provider. In other words, the average consumer tends to have 2.6 bank accounts with various institutions. In fact, consumers don’t place all their eggs in one basket, they share their assets and the risks based on trust and research.
Consumers understand the value of their data and would be willing to share it, provided something is given in return.
However, our investigations have shown that consumers understand the value of their data and would be willing to share it, provided something is given in return, e.g. advice, exclusivity, recognition or rewards. Therefore, in return for sharing their data, consumers will demand more personalised financial advice and insights.
Timing is also a key factor, as customers want relevant advice and product information at their fingertips when they need it most. They want banks to send them information on the best mortgage deals when they are in the process of purchasing property. This process is also expected to be quick and seamless.
A few interesting comments from our customer interviews reveal that they would also appreciate their banks playing a more active and supporting role on a global scale by encompassing other non-banking services. An example would include a customer interested in buying a car. The bank providing the credit can further assist by offering the best motor insurance, perfectly suited to their specific price-range, location and other personal preferences.
These observations are a large stepping stone towards creating an innovative business model that serves the financial industry. In an industry renowned for long standing establishments and a slow pace of change…who will be the first to harness the value that data consolidation provides?
Innovation vs an Innovative Business Model
Being two creative engineers, bringing technical innovation is our second nature. However, implementing an innovative business model is not as straightforward.
Our initial thoughts were to utilise an advertisement-based revenue stream; nevertheless, we deliberately avoided this option, as we were and are convinced by the trends we have seen, that revenue from advertisements are well under pressure. But the main reason not to continue on this path, is that traditional content aggregators currently serve advertisers, not the end user.
We also take data privacy to heart by embracing the latest standards and regulations. We understand the value of our users’ personal information, and thus position ourselves as “trust enabler” and not your everyday data consumer. For example, we believe that the entire process of receiving advice via an online tool should be entirely driven by the user and that customers are the only ones who should make financial choices in their lives.
We want to encourage a genuine trust between financial institutions and consumers, without hidden counterparts or side effects
This reflection process, which encompassed days of canvas design and brainstorming, has enabled us to highlight two values that reflect our culture, vision and mission: Trust and Transparency.
The world is changing. We now live in a time where the line between public and private is often blurred. A time where new regulations, such as the General Data Protection Regulation (GDPR), are in force to raise awareness and to encourage better practice.
In this context, the fundamental question is, who will users trust to aggregate their data?
A very strong assumption is that the trust will go to the institutions who already manage this sensitive information. Their purpose would remain the same: To improve the financial well-being of the customer. Financial institutions can use their position of trust and expertise in handling rich data sources to serve that objective. The conclusion being that established financial institutions themselves would be the prime candidates for this role.
The ultimate goal would be to help customers understand their financial needs in an impartial way, giving them unbiased advice and helping them access the products or services that best match their requirements. And moreover, even if those services are non-financial or come from competitors.
The Price of Innovation
And here we are, the giant obstacle on this path to innovation: Established Financial Institutions.
The main focus of every retail bank is to bring customer assets (i.e. accounts, credit lines, investments, etc.) under their one roof. Managing more assets allows them to fuel their current business models. However, these model are under constant pressure too. The ever increasing speed of new services and digitisation makes it difficult to maintain a complete range of services, leading to small business partnerships.
Therefore, can an institution walk away from the idea of managing all their customers’ assets? Could we imagine and institutions proposing a service out of his walls?
The answer begins with a simple known fact. Savvy consumers now choose the best products that serve their interests and are the most suited to their needs.
A direct consequence of this new kind of consumerism, is that customers will use different accounts with various financial institutions. This behaviour implicitly brings a deeper segregation within the different services, as well as a certain level of specialisation within these services.
Indeed, such isolation already exists in the financial ecosystem. There is a clear split between retail and private banking, and excluding a couple of very big players, few can argue to perform in both sectors.
The latest trend shows that this separation will inevitably develop itself further in the upcoming years, and then drill-down to a lower layer by becoming increasingly service specific: best online portfolio manager, best credit card for people under 26 years old.
Benefiting The Entire Value Chain
So in order to overcome the obstacles, we believe that it would be in the best interest of financial institutions to provide aggregation, as customers would benefit from many advantages.
Obviously, seeing his complete financials’ picture in one place, is a big plus, but only a corner stone for even more value by leveraging the power of data.
This convenience will then be surpassed by adapting to the individuals’ personal financial journey.
A result could be found in advisory, where a completely consolidated situation is the perfect base for accurate recommendations and insights that are relevant to the customers’ situation. With these institutions being more proactive by providing insights and proposing services, trust will be built as customers begin to save their time and money. Customer will feel unique with such a tailored service.
Institutions can also become more “hands-on”, as well as save a large amount of expense on mass-marketing campaigns. Additionally, the KYC process is already built in.
Finally, if the institution is not in the position of proposing a specific service to the customer, it could then be done through his network of commercial partners.
Various studies have unveiled that banks enjoy a major competitive advantage, as they are the most trusted type of institution to safeguard data. Banks are probably one of the best places to store user data from other organisations, as the infrastructure already exists, creating an additional return on expensive IT investment.
By now you must know that it is a huge opportunity for financial institutions to choose the aggregation path. It would allow larger organisations to re-direct their activities to better align with their specialties, as well as offer new opportunity and greenfield for smaller players or start-up businesses.
However, in order to succeed, this must be done with high principles, meaning that ethicality and data privacy are a de-facto standard. With a new disruptive dynamic framework, comes quick transgression, so rules must be set from the start.
In this new market, who will be the referee? How do we ensure an institution does not succumb to the power of holding all this data? How will customers detect whether a price is fair or not if their own market research has not been done? How do we put a break on institutions who focus heavily on sales, rather than properly servicing their customers? All this is certainly not a job for the regulator.
Transparency as Auto-Regulation
Now this is where further innovation comes into play and reduces the risk of transgression. By allowing customers to review and rank different providers and services, the best safeguards are put in place. The power of the community will let the institutions regulate themselves and thereby work in the sole interest of the customer.
Indeed, a customer would be more inclined to try a new product or service that receives good reviews from other members of the community. Moreover, an institution might be further interested in recommending a product from a partner with a good reputation. Once again, the upstanding circle of trust is in action.
Incumbent or Insider?
As we can see, there are big opportunities ahead and there is not much to be afraid of if the common purpose is to serve the customer. At eHyve, we offer a unique and innovative financial wellness platform as a first step forward in this new ecosystem.
Reach out to us and request a brochure or a demo so we can demonstrate how well we can accelerate the pace of innovation along your path. Don’t fall behind, let us help you experience this open banking opportunity to deepen client relationships.