Open Banking was introduced during the Fourth Industrial Revolution (4IR), where technology profoundly changed our world, impacting businesses, societies, economies, cultures and personal lives. It all started with giving consumers more control over how and when their banking information is shared. This has steadily evolved into open finance, whereby data sharing with third-party providers can impact a broader range of financial services, payments and digital experiences, allowing consumers, for example, to compare products and offers and more easily switch between service providers – and for businesses access and consumption in more detail Real-time consumer data.
Thanks to the 4IR, industrial convergence has once again been enabled and encouraged. Today’s industries are changing dramatically – increasing digitization and new business models have changed various industries and will continue to do so. At the same time, the boundaries between previously separate sectors are disappearing, with financial services becoming increasingly democratized and embedded with other non-financial services actors such as commerce, government, transport, etc. Open banking has evolved into open finance, which has also accelerated embedded finance. Spurred by the rapid adoption of new technologies alongside the limitless demands of consumer preferences and behavior, this brings us to the next digital frontier – open data economies and monetization.
Go beyond compliance
To date, financial institutions have put so much effort and investment into compliance that they have not really taken the competition seriously. This misses the big picture – while compliance is complex and must be a priority, building an open banking foundation offers companies important new opportunities to derive value from consumer data. If data is the new oil, behavior is the new data. Every financial transaction generates data. The value of data lies in the ability to generate hyper-personalized, autonomous, actionable insights, often in seconds.
In financial services, for example, buying the latest LED LCD TV could result in an instant alert on the consumer’s banking app or laptop: “Click here to update your home insurance”. Or receiving a bonus could trigger a mutual fund message: “Congratulations on your bonus. If you put it into a mutual fund now, your retirement income would be $xxx different.’
In the energy space, retailers can leverage data access to innovate tariff structures using information from detailed household profiles, offer business customers low-carbon roadmaps, or offer add-ons such as battery storage as a service.
As open data innovations proliferate, we anticipate increased cross-industry collaboration and the rise of hyper-efficient new business models.
Data economy and monetization
Open data encapsulates the foundation of open banking and extends the concept of open finance. In the post-COVID-19 digital economy, hyper-personalized financial services have acquired a new urgency and demand, with consumers expecting fast, flexible, secure, simple, real-time, cross-channel experiences; and organizations looking for rapid, low-risk affordability and creditworthiness profiling of individual customers.
While new sources of data via Open Banking give financial institutions and other organizations such as Big Techs and Fintechs access to rich, real-time information to meet this new urgency, without the right people, data, technological skills, political controls, governance and operational models, the monetization of Data leads to data liability and loss of brand trust.
With this in mind, some important solution principles include:
1. Don’t reinvent the wheel
The big learning curve for the banking sector isn’t building your own compliance technology. Developing a consumer data rights compliance (CDR) platform requires an extensive and ongoing program to surface data, make it available and secure, and obtain customer consent for access. Cloud-based platforms are already available and can be delivered as a service, eliminating the need for internal resources to operate. For example, the EY Fuse Open Banking solution helps authorized depository institutions (ADIs) quickly become compliant with CDR regulations and standards while helping them leverage CDR data to compete in the data economy.
2. “Compete First” Mentality
Now is the moment to decide how to leverage Open Data Access to create new markets, attract new customers, and monetize high-value data. Otherwise, companies just end up paying the compliance costs and watching their customers give their data (and their relationship) to someone else.
3. Leverage the ecosystem
According to EY Global’s Future Consumer Index, 62% of consumers are willing to share more personal data in order to receive offers better suited to long-term goals. Consumers generally use over 5.3GB of contextual data across search engines and social media platforms to determine if a product or service is relevant to them. This puts pressure and also creates opportunities for institutions to innovate and leverage ecosystem data, but complex legacy systems make it almost impossible to experiment.
Partnering in a cloud-based, highly modular, event-driven, integrated ecosystem and scalable transformation platform becomes essential. EY Nexus for Banking, for example, helps financial institutions rethink products and services and bring new ideas to market faster, enabling a consistent focus on customer needs and use cases and less on the technology itself.
4. Determine your unique data monetization strategy
The path to data monetization strategy generally includes an ideation process, compliance reviews, and go-to-market and product plans. It’s especially important to identify your beneficial segments and customer-facing use cases that are relevant and timely. For example, in a time of inflationary pressures, financial advice to change customers’ spending patterns and restructure their finances can help customers reduce their debt faster. For lenders, the same data can be used to improve credit decisions with less risk and greater speed.
Open data is ultimately about the freer flow of information to improve knowledge sharing and access to information for the greater benefit of consumers, businesses, government and business (Emerging Payment Association Asia (EPAA) Open Data Workshop Report February 2022). We are moving into the fifth industrial revolution, an era focused on amplifying purpose, humanity and inclusivity to create more sustainable innovations that synthesize the power that comes from the collaboration between machine and human intelligence. The benefits of open data for consumers, businesses and financial institutions are clear and go beyond financial services to be truly purposefully embedded in our daily lives. We expect more technology-enabled interoperability, cross-border harmonization and collaboration between established institutions and digital disruptors.
The views expressed in this article are the author’s and do not necessarily reflect the views of the global EY organization or its member firms.
This article was first published in the Open Banking Report 2022. Click here to download the report.
About May Lam
May brings over 23 years of technology leadership and business transformation experience across the banking and financial services, fintech, payments and public sector sectors in Asia Pacific. Her areas of knowledge include payment ecosystems, enterprise agility, product and service innovation, operating model optimization, B2B2C go-to-market strategy, program delivery and governance.
EY exists to create a better world of work, to help create long-term value for customers, people and society, and to build trust in capital markets. Backed by data and technology, diverse EY teams in over 150 countries provide confidence through security, helping clients grow, transform and operate.