Innovation has not occurred at a rapid pace in banking as it has in other industry sectors. Over a year down the line from the introduction of open banking it’s only fairly recently that we have started to see the first signs of the innovation it promised
in helping to improve services for customers in the digital age.
One of the most prominent has seen retail banks working with others to offer customers access to all their account information from rival banks within one banking app, as they seek to improve the user experience.
However, the majority of the developments in the digitisation of banking have been led by the fintech challengers like Monzo, Starling Bank and Rovolut, along with financial service providers such as iwoca and Funding Options on the lending side.
Today, with the recent launch of the Apple Card that brings new functionality to the credit card marketplace, this could all be about to change. It’s clear that in the open banking world the huge technology and digital organisations like Google and Amazon
are poised to make inroads into the banking sector. After all, the prize these businesses are fiercely competing with one another for is to be the all in one hub for our increasingly digital lives.
Many of these digital behemoths have already demonstrated their service credentials, built trust with customers in how they use their data, and also have ‘accounts’ with customers, such as Amazon with Amazon Prime. They have, by and large, proved that they
can effectively handle and analyse big data, are experts in artificial intelligence (AI) and cloud computing; can provide a strong customer experience and engender trust in the digital space - all areas that many banks have traditionally struggled in. Beyond
Apple Card, some have already headed down the banking route with online commerce giant Alibaba in China launching online lender MYbank and commerce and internet company Rakuten in Japan offering internet banking products and services in their respective countries.
The threat is clear for incumbent banking service providers. Once an industry is opened up to wider competition it's almost always the established players that take a hit. For example, according to a recent report by Ofgem the big six energy providers are
continuing to lose market share to new energy suppliers and seeing their profits fall as a result.
However, with the challenge posed by these megacorporations, there’s an opportunity for forward-thinking banks to relook at their offering and the experience they deliver to customers, and make sure that it stands out in the digital age. This means making
sure that their service provision is simple, accurate and reliable, particularly online, so there’s no reason for customers to go elsewhere for bank services. To help deliver this banks must hold clean, up to date data on their customers that supports them
in achieving a 360-degree customer view, and in providing a strong personalised experience. This will help banks to become the source of trusted identity their customers use for all of their digital banking activities; vital if you want to grow and prosper
in the open banking age and successfully compete with the new entrants, be they big or small.
What is very important moving forward is that banks continually focus on innovation and find ways to adopt new digital service capabilities and integrate them into their systems quickly. They could create these themselves or with a technology partner. Or
look at acquisitions of those in the fintech space who are doing an outstanding job of delivering innovation while building a large customer base.
The advent of open banking and the increased competition it opens the sector up to needs to be viewed as an opportunity by incumbent banks - one that focuses their minds on innovation to drive their business forward and ensure they deliver an outstanding
service to their customers in the digital age. The risk for those who don’t embrace innovation could be to open the door to the savvier digital and tech megacorporation challengers like Apple, or the agile smaller ones, who will take their more profitable
business and leave them holding the bulk low margin, high cost, customer accounts.