Open banking represents the biggest banking transformation in a generation. Regulatory initiatives, such as ‘PSD2 and Open Banking’ from the UK’s Competition and Markets Authority (CMA) empower customers to share their data and payment mandates with third parties, so they can deliver compelling new services that are rich in functionality and enhance the customer experience.

For banks, the success of open banking will ultimately be determined by the value it provides. For this reason, the daunting question faced by all institutions is how to make money out of open banking?

To answer this question, one of the first things banks must bear in mind is that financial products are usually part of a larger transaction: for example, people tend to shop for a new car before they finance the purchase. The challenge is how to position key financial products where and when people need them.

Since most customer journeys nowadays begin online or via a mobile device, open banking creates the opportunity to develop an entirely new market for financial products. In the new era of open banking, customer journeys can be unpacked, and bank products and services disaggregated and made available through application programming interfaces (APIs). Over time, APIs can become bank products that are promoted widely, in order to generate new revenue streams and reach new customers.

Open banking also offers an opportunity for monetisation in the form of cost reduction strategies. Identifying the cost base and the opportunities to radically shift this by utilising third-party services enables banks to offer value services at significantly lower cost.

Open banking provides the opportunity for banks to move away from their traditional focus on products to a new approach centred on the needs of the customer. New services can be delivered by utilising the additional volume of customer data available to banks, but only if their systems are able to ingest, analyse and interpret data from multiple sources, then tailor it for each individual customer. Focus on the evolving customer needs!