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The Five Pillars of Open Banking

May 2, 2019 11:51:36 AM

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At the root of many of the marketing strategies banks have adopted in the last few years is Open Banking: a new initiative that empowers financial institutions to work more closely and transparently with their customers while leveraging data and services through a wider variety of solutions and partnerships with external institutions. For banks looking to innovate, personalize and diversify their marketing, Open Banking provides a wealth of strategic options.

Still, while Open Banking is becoming more and more prevalent, many marketers aren't fully aware of what the term means, or what benefits it brings. With this in mind, we wanted to give you a quick introduction to the heart of Open Banking, and the five essential elements that make it such a dynamic marketing strategy.

Pillar 1 - Open APIs

Open Banking is a unique opportunity for banks to drive innovation. The term goes hand in hand with the Open Data Movement and allows external organizations such as FinTechs and third-party developers to design new products and services through use of APIs (Application Programming Interfaces). This type of initiative allows banks to enrich the customer experience and drive loyalty by providing insights, rewards, and external services that banks by itself would not be able to provide on their own. Open Banking projects are achieved when banks adopt an open-source mindset and make data available to third parties with the consent of its account holders for the exchange of added value capabilities.

Pillar 2 - Strategic Partnerships

With Open Banking, banks are able to create partnerships between their institution and third party organizations to make better use of customer data. These partnerships come in all shapes and sizes, and are limited only by the imagination of those on a bank's executive and marketing teams. In some situations, the partnership can be as simple as working with a FinTech organization. In other scenarios, banks might partner with major retailers and other types of institutions that can drive value to the chain.

Pillar 3 - Permissions-Based Marketing

While Open Banking is often portrayed as banks being able to do whatever they want with customer data, the true soul of open banking is based around privacy and trust: an agreed upon relationship between banks, tech partners and their customers. Although Open Banking does allow institutions to leverage data in a host of new ways, customers must consent to the use of their data in those ways, and always have the opportunity to put an end to communications and sharing. Having to opt-in, and then being able to opt-out whenever they choose puts customers in the driver's seat, and ensures their constant understanding of the marketing they're receiving. For banks using Open Banking, privacy and consent must be tantamount.

"Ideally banks should introduce to account holders a permission-based interface in their online systems, so clients can have transparency and power to decide with whom, what personal/account data they want to share, and for what purpose." says Pedro Rego at ForesightOne.

Pillar 4 - Obeying the Law

Because Open Banking involves the frequent and heavy use of customer data, it is essential that businesses take extreme precautions to remain compliant with any and all data protection regulations, such as GDPR (General Data Protection Regulation) and CCPA (California Consumer Privacy Act). For organizations to use Open Banking successfully, they must remain aware of the regulations that protect their customers and govern them at all times. Banks who fail to remain compliant face major penalties.

UK banks are already being encouraged to take note of this with major firms such as Ernst & Young pointing to the ways in which Open Banking provides an avenue for financial institutions to comply with regulators.

Simultaneously, the linked article explains that there is no singular strategy for banks to implement Open Banking strategies:

That dichotomy shows that there is no single regulatory path or approach to open banking; local customs, standards and expectations will dictate what is best.

Still, the malleability of Open Banking provides the best route for banks to meet their local standards and demands, giving these institutions a wide range of options to emphasize and enact policies that stress transparency, customer data protection, and data use consent.

Pillar 5 - Customer Data Platforms

Customer Data Platforms (CDPs) are some of the most popular solutions for consolidating and managing marketing and customer data at scale. With CDPs, banks are able to easily collect customer information across multiple channels, analyze it to create holistic audience and customer profiles, and then leverage it via a number of channel and single-point solutions directly integrated with the CDP. Customer Data Platforms act as a centralized hub for data marketing: the command center via which all of the information you have is collected, organized, and stored. Banks that use CDPs are better empowered to create hyper-personalized, omni-channel marketing that connect with customers in the exact ways they prefer. CDPs are by its nature the foundation for institutions to design and give access to their APIs, drive permission-based marketing with account holders, as well as keep up with the regulatory demands of the industry.

Conclusion

Many banks are wrestling with the best way to implement Open Banking, and there are numerous questions to be asked and answered about how, where, and when this strategy is best deployed. Forbes offers a look at how banks, who have considered the strategy of Open Banking beyond the pressure of major regulations, have dissected and analyzed the benefits of Open Banking, and the overall evidence both speaks to the benefits of the approach, and the attitude changes that must take place in order for it to be successfully implemented.

Ultimately, it will be up to banks to weigh the effect Open Banking will have on their institutions--facilitating compliance, but also making it easier for rivals to pluck current customers from their rosters with the promise of better offers. That Open Banking will be revolutionary when widely implemented, in the US as it is beginning to be in the UK. How that revolution plays out will boil down to the approach different banks take, and the values they hold supreme.

Change--no matter what are the circumstances--is, at this point, a foregone conclusion.

 

Michael Darer
Written by Michael Darer

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