Personetics: How Open Banking Will Transform the Way Banks Build Powerful Customer Relationships

Banks have been closed-off and self-interested for too long, losing sight of an unwritten social contract with customers to promote financial wellbeing. When open banking is done right, it presents a huge opportunity for banks, as well as fintechs, to put customers back at the centre of operations.

Jody Bhagat, President at PersoneticsJody Bhagat, President at Personetics
Jody Bhagat

With this in mind, Jody Bhagat explores how open banking can move from a self-serving ecosystem to a flourishing ecosystem that transforms customer relationships. He argues that open banking still has the potential for a revolution, but that its biggest impact could in fact be a cultural one, identifying now as a generational opportunity for banks to reshape their business model.

As president of Americas at Personetics, Bhagat is responsible for creating market leadership and driving customer impact. He was previously a partner at McKinsey & Company, where he helped financial institutions define and execute digital transformation programmes to drive customer growth and operating efficiency.

Bhagat also served in senior digital operating roles at US Bank, Wells Fargo, and Providian. In these positions, he led digital sales and service functions and direct to consumer businesses to deliver organic growth and enhanced customer experience. Bhagat has an MBA from Northwestern University and a BS in computer engineering from The University of Michigan.

From ego-system to ecosystem: how open banking will transform the way banks build powerful customer relationships

Ask any customer to describe the properties they value in a bank, and security of money and data will be a recurring theme. That’s why open banking – and the idea that banks and their customers could benefit from sharing data with outside institutions – is an important phenomenon.

In recent months, however, open banking has been a target for criticism, focused on slow uptake rates and so-called lack of innovation. Yet, such criticism misses a fundamental point; the real potential open banking presents is the opportunity to completely transform banks’ business models and create new ways for firms to compete.

To understand what’s at stake, let’s take a look at the prevailing model in financial services. Historically, many banks have maintained a transactional relationship with customers organised primarily around bank products. Now we’re beginning to see banks moving to a much more proactive approach as trusted advisors to customers, and many financial institutions are looking for new ways to help improve their customers’ financial wellbeing.

With the rise of open banking, this shift will become a reality and banks will re-shape their business model with customers and their needs at the centre. Open banking gives financial institutions new capabilities to make decisions and recommendations with consideration for the lifetime value of the customer. If banks implement this model successfully, customers are the winners – and banks share in their success.

From ego-system to ecosystem

So how does open banking hold the key to kick-starting this change in operating model? Open banking pushes financial organisations to transition from a transaction-based ‘ego-system’ of selling products, to part of a complete ‘ecosystem’ of banks and financial services.

Through the process of opening up access to financial data, open banking also allows banks to build a more comprehensive picture of their customers than ever before. Instead of seeing each customer through the lens of one bank account, service providers are beginning to develop an aggregate view of individuals’ financial status and behaviour across checking accounts, savings, investments, pensions, mortgages and insurance. This allows banks to take a truly holistic view of their customers and develop personalised services designed to improve their overall financial wellbeing.

Meaningful metrics for a customer-centric model

Commercial teams might baulk at the idea of ripping up their KPIs – but this shouldn’t be the case. By emphasising the focus on metrics like engagement, NPS and customer lifetime value, banks will be able to deliver experiences that create deeper, longer and more profitable relationships.

Through open banking, financial institutions can wholeheartedly take on this position and understand their customers across multiple touchpoints in their financial journey, which provides opportunities that benefit all parties.

Look across the globe for lessons in open banking

Banks around the world are refocusing their efforts on open banking-led transformation, driven by a combination of regulatory mandates and pressure from new competitors, from neo-banks and non-bank fintechs alike. Markets that lag behind global leaders today can use this time to learn from successes and failures in different regulatory environments, prepare their own strategies and consider how to maximise value for their customers.

Today, the EU and LATAM lead the way in open banking adoption. The UK in particular has enacted some of the most progressive regulatory regimes to spur the adoption of open banking, supported by regulatory guidance of GDPR and PSD2 policies. This has helped the country reach key milestones in growth, for example reaching five million open banking users in just over four years.

Similarly, in Brazil, open banking is regulated by the central bank and has four phases of implementation. In December, Brazil announced its final stage, which allows the entire financial footprint of individuals to be opened up, including data on mortgages, savings, pensions, insurance and credit.

Meanwhile, the US has taken more of a market-driven approach, with fintechs and challenger banks spurring innovation. Yet, without any material government or regulatory initiatives to support the development of open banking, America trails behind other markets.

A solid regulatory framework brings a welcome shot of trust into the market and drives adoption and uptake rates. Yet, there are other strategic options for financial institutions to pursue, including partnerships with fintech or API aggregators, but banks need to be ready to take that step.

Communicate with customers to establish your value

Technical implementation is just the first hurdle. For banks to successfully reposition their role in customers’ lives, it’s important to effectively communicate the value of open banking, rebuilding stronger customer relationships on new foundations. It sounds straightforward, but banks can struggle to deliver a cohesive message about the overall relationship value across multiple product divisions across the enterprise.

Bank Leumi, Israel’s second largest financial institution, is one provider that’s found success through insights on its mobile app. Leumi’s insights share personalised feedback with each customer – including rewards points earned, cash back totals, fees waived and interest earned. By playing back the value of products powered by open banking, Leumi customers can be confident that their bank is working to promote their financial wellbeing. And to bring customers on board with a bank’s complete proposition, the next step is to show predictive calculations of the cash they could earn or save with additional financial products.

Banks are obliged more than ever to fulfil their social contract with customers to protect their financial wellbeing. Open banking now offers a generational opportunity for banks to live up to this expectation and fundamentally reshape their business models by serving as trusted advisors to their customers.

What we’ve seen over the last few years has been an open banking evolution, but with the right mindset and regulatory frameworks in place, this year could see an open banking revolution.