When Open Banking and the open APIs it allows came on the scene, it presented a huge opportunity for financial institutions to broaden the type of services on offer their customers. As a result, a primary way banks are choosing to diversify their offering
is by partnering with third parties who have products relevant to their customers. But do these partnerships deliver enough benefits to the bank, or indeed, the customer?
Banks can gain by quickly being able to build new profitable revenue streams by taking a cut of the profit and providing scalable services which can keep up with customer demand for greater convenience. This is particularly important for the legacy players.
Accenture, 29 percent of banks’ traditional retail-based revenue streams are at risk, so it makes sense that they want to team-up with other organisations who can offer new products and services, and fast.
As a result, Open Banking has brought with it a myriad of banks tying up with partners, for example, Starling has partnered with Habito and Monzo with OakNorth, amongst others. This has effectively created a marketplace concept where a consumer can access
a range of offerings all from their primary bank.
At the outset, these partnerships look like they are providing banking customers with a far wider range of products and services at an excellent price whilst also being easily accessible. But, delving deeper, it appears that banking customers are, in fact,
sometimes being charged a premium for this ease of access. If they were to approach the partner directly, they could get the same product or service for less. This is something that has happened in other aggregator driven offers such as hotels and airline
Interestingly, Monzo was called out in August for this when they launched two new savings account tie-ups for its customers. It was reported that Monzo was taking a percentage off of the savings rate as commission, meaning that customers could save more
by going to the same savings providers directly.
Could this be the start of a backlash?
There is some evidence that the success of alliances and offers of third party products will present challenges. In Australia, Suncorp announced the change in strategy of their marketplace equivalent in August following criticism it was costly and confusing.
Still seeking to create a digital platform for distribution of products from other companies it has lowered its focus on this. Another example is the end of the tie-up between JPMC and OnDeck for small business lending, where an alliance with a third party
product and solution provider appears to have delivered enough learnings for the larger bank to continue alone.
Any alliance must deliver more than the two partners could achieve apart for a customer. Otherwise in this day and age of immediate information and search engines, it quickly becomes apparent if you can get a cheaper, loan, mortgage etc. or better service
and features by looking elsewhere. Freely available comparison sites mean that it is simple enough for an average customer to shop around and find the best deal.
The only way these partnerships will prevail is if they can offer something above and beyond an integrated service. Until now, consumers have been used to operating their finances in silos and are therefore prepared to continue to do so unless the price
or service difference is right.
If partnerships aren’t the long-term option, then what can banks do to make sure they are tailoring their products and services, so they can offer their customers what they would like, at the right price? By utilising the latest retail banking solutions,
technology can help banks gain a competitive edge with agile processes that accelerate the launch of new products and services. In addition, AI-based decisioning that is informed by customer profiles and preferences, can allow banks to dynamically package
products and services together based on personalised needs.
No doubt we will see a few partnership announcements at SIBOS at the end of the month, but it will be interesting to see whether they last the course.