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How banks can take advantage of Open Banking to increase customer retention

Open Banking now has three million active users in the UK as of January 2021 according to the Open Banking Implementation Entity. However, since PDS2 came into force, the big transformation that was expected has not come to fruition. The directive paved the way for data sharing from multiple accounts from different providers, helping people with financial tasks such as budgeting by having a complete overview of their spending in one place. But many consumers remain sceptical, or even unaware of how they could be benefiting. To drive customer retention, banks need to enable customers to reap the rewards by innovating into new services that effectively utilise the sharing of data Open Banking facilitates.

Here are my favourite ideas for new services enabled by Open Banking:

Income and expense tracker

Data on earnings and expenses can be used by banks to calculate customer risk. This could lead to them being able to offer customers better rates on cards or credit spending limits. Should the customer apply for a loan at the last minute, the application process should be a lot faster and smoother, as the bank will already have the information they need to approve it. Mortgage calculations would also be simplified as banks will have more accurate current and historic data to inform the outcomes. Faster approvals lead to more satisfied customers. Those who are self-employed have a lot to gain in particular, as without a regular income, banks do not have enough information to assess their future ability to keep up with payments.

Pre-emptive services

Open Banking paves the way for the creation of services that could pre-emptively recommend providers that consumers may wish to switch to, to be savvier with their money. From utilities to telecommunications to insurance, banks could harness AI to spot opportunities to make customers’ lives better. For example, if an individual’s monthly mobile bill has increased, the bank can highlight that and suggest other providers offering better rates. Banks could also team up with third parties such as Uswitch or MoneySuperMarket to offer special deals with certain providers, adding value to existing financial services and differentiating themselves from other banks.

Perhaps the ultimate in pre-emptive service could be linking carbon footprint spend analysis to future patterns of spend. By doing so, they will be able to demonstrate to customers and businesses how their spending directly impacts the environment and positively suggest more sustainable alternatives. Multiple banks are experimenting with accessing carbon footprint analysis for customers and the technology is available to make this happen.

Pensions advice

Without Open Banking, banks do not know how much people put into their company pension. By having that information, they can provide more accurate and personalised savings advice. This will help their customers see them not just as their banking provider, but also as a trusted, long-term partner that values their loyalty and wants to help them save as best they can for the future.

That’s not all banks need to consider…

Beyond introducing new services and working with specialist third parties, banks need to identify the trigger points that mean the difference between keeping a customer engaged or not. For example, if they are seeing drops in credit utilization, they could introduce incentives to encourage customers to spend.

Banks should also analyse their customer data to identify which customers have the most to benefit from Open Banking and raise awareness of how it can help them. Financial organisations should also use Open Banking to better support vulnerable customers, as COVID-19 has hit many people hard, and may have forced those that have not received enough support to consider switching financial providers. Organisations can boost support by analysing customer data to tailor lending products to them, or a repayment plan that best works for that individual. In other countries, like Australia, banks are using authorised access to customer data to make them aware of what government benefits they are eligible for or help them switch to a better energy deal.

All in all, banks still have much to do to help customers make the most of Open Banking. Whether that is creating an income and expense tracker, setting up pre-emptive services or using analytics to provide better savings advice, banks need to be bold in trying out new services to help customers capitalise on the opportunities Open Banking provides. The positive impact this will have on customer retention will make it worth their while.

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Comments: (1)

Loreta Bahtchevanova
Loreta Bahtchevanova - Glue42 - Sofia 23 March, 2021, 09:46Be the first to give this comment the thumbs up 0 likes

Interesting article, Steve! Thanks for sharing!