Assembling richer pools of data from multiple sources will give banks more angles from which to view their customers and more ways to understand them than they could gain simply from transactional information. They could profile and segment their customers more precisely and look for behavioural patterns that can be used to refine predictive models. The insights they gain will power new services and improve existing ones.
It’s here that the ‘tech titans’ lead: they assemble and analyse data at scale as a matter of course. Companies that have data at their heart are becoming ever smarter, because they’re building deeper layers of data. It allows them to make behavioural inferences that enable them to build more predictive, preemptive and personalised services.
The collaboration with those banks that hit the deadline and show some imagination could make them ideal partners. This will be critical, because in an open-data market that banking is becoming, the ability to form the most effective partnerships is a vital skill and a new source of competitive advantage. In banking, this will be especially true, because banks don’t have a history of using data to generate innovative customer propositions, as opposed to using it to improve internal processes such as fraud detection and credit risk management. They need to work with outside partners, seeking out new data sets to create new services.
Banks that choose to engage fully in the new market based on open data will focus on the element of their environment they can control: which organisations they choose to collaborate with to create new services based on pooled data. Those four banks that were ready for PSD2 should be at the front of that queue. These will be partnerships of mutual advantage, with the potential to create new sources of profit for both parties that will be shared between them. Banks cannot expect to generate all the business ideas themselves that combining data sources will make possible.
Success will come from the ability to collaborate most effectively and be open to ideas from outside. In this new world, the banks with the best-quality APIs that allow the fastest, cheapest flows of data will be the winners, because they will be best placed to attract the most innovative partners to work with.
They will succeed by finding the best fit between their data and that held by other organisations, whether mobile phone companies, energy providers, transport companies, airlines or any number of others. But to succeed in the competition to collaborate most effectively, banks will need the best possible tools for data sharing and analysis. An Open API that complies with the minimum required standard will not be good enough.
The flip side is that perhaps the laggards, those heading towards being the data donors, are more suitable targets. They’re further behind, they need a helping hand and there’s more of a Greenfield opportunity for GAFA and other fintech firms to collaborate and influence. Choosing to do no more than comply with minimum standards for the Open API will make a data donor bank a less attractive partner for collaboration and so reduce its access – and its customers’ access – to new ideas developed by others. While GAFA and others can immediately help, the danger is they will want nothing to do with institutions that seem so diametrically opposed in imagination, creativity and courage to their own.
A bank that has chosen to not actively participate has effectively submitted to a process it cannot control, allowing others to extract its data, and has opted not to engage in processes it can control by collaborating with others to develop new propositions and realise the value of the data it holds.
The reality of the new open banking market is that becoming a data donor is not an option – all banks are obliged to do it – no matter how they approach it. What will set the winners apart, however, is the extent to which they go beyond that and actively seek commercial partnerships based on data pooling. This requires a different mentality: one that sees open data not just as an obligation, but as an opportunity to learn and find new sources of value.
It’s perhaps early days for the open future, but the opportunity is too large to not be embraced. Whether it’s the banks themselves that do so, or another player, remains an open question.