Insight & Analysis

Banks eye revenue-generating opportunities from open banking

Published: Dec 2018

Many banks are becoming increasingly enthusiastic about open banking and believe offering solutions around it to their commercial clients could help generate handsome, new revenue streams.

Many large banks regard open banking as a “key strategic initiative” and expect offering the service to their commercial clients will help them achieve double digit revenue growth, according to a global study.

Open banking enables financial services commercial customers to share their financial data securely with banks and third parties, making it possible to easily transfer funds, compare products and manage accounts using application programme interfaces.

According to the global study by Accenture, 90% of large banks said they plan to provide open banking services for their commercial clients, with more than half (54%) of large banks expecting open banking to help them grow their revenues up to 10% and another one-third (35%) expecting it to help them grow their revenues up to 20%.

The report findings are based on a survey of more than 750 executives at global banks, small- and medium-sized enterprises (SMEs), and large corporations.

The research also found that commercial bank customers often want the same things that retail bank customers want — more innovative processes and a better customer experience — which open banking can facilitate.

When asked to identify the most significant benefit of using an open banking ecosystem platform, respondents most often said gaining access to convenient and innovative banking services, cited by 30% and 23% of executives at large corporations and SMEs, respectively.

Commercial bank customers also expect open banking to enable them to reach more clients and partners (cited by 19% of large corporations and 25% of SMEs) and optimise their processes (17% of large corporations and 20% of SMEs).

When asked to identify the business areas that could be most improved in partnership with their bank through open banking, respondents at SMEs and large corporations cited payments, finance and cash management.

Win-win scenario

“While the discussion around open banking to date has centred on retail banking consumers, we found that commercial customers are looking for much of the same things from their bank,” said Alan McIntyre, a senior managing director at Accenture and head of its banking practice.

“Open banking provides banks an opportunity to use platform ecosystems to deliver more and better services, including helping their SME and large corporate clients extend their market reach and leverage cutting-edge banking services.”

According to the report, the overwhelming majority of large banks (90%) have invested in open banking initiatives for their commercial customers or plan to do so next year; more than two-thirds (71%) plan to invest up to US$20m, and a quarter (24%) plan to invest more than US$20m, to build out their open commercial platforms, offer third-party services and explore open banking use cases.

One-third of commercial bank customers already participate in open banking platforms and another 42% plan to do so in 2019. When asked who they would prefer to partner with on open banking initiatives, nearly three-quarters (72%) of large corporate clients and two-thirds (65%) of SMEs cited their bank. Only 15% of commercial clients would prefer a non-bank technology provider.

“There’s an influx of nimble, non-bank digital newcomers using open banking innovation to woo commercial firms from their traditional banks,” McIntyre says. “To stave off these competitors, incumbent banks can quickly position themselves as leaders in open banking by adapting business and operating models that embrace platform ecosystems. Banks have a distinct advantage to lead this charge — their existing bonds with their commercial customers built on trust, security and privacy — but they should leave their comfort zone by offering solutions that tightly align with their customers’ needs rather than the products banks want to sell.”

Fintechs targeting open banking

In the UK, the open banking regulation came into force in January 2018, with nine banks mandated to open up their data to third parties. The nine banks – Barclays, Lloyds, Santander, Danske, HSBC, RBS, Bank of Ireland, Nationwide and AIBG – are required to adopt an “open standard” that would enable third parties such as fintechs to easily tap into their data to create new products and services. The nine banks account for 85% of all UK personal and small business current accounts.

The Open Data Institute, an independent, non-profit organisation co-founded by the inventor of the web Sir Tim Berners-Lee and artificial intelligence expert Sir Nigel Shadbolt to champion open data and its innovative use, played an instrumental role in creating the technical framework that underpins the initiative.

David Beardmore, ODI’s Commercial Director, believes open banking will be a big boon for corporates, especially SMEs, and urges them to explore its potential, especially in areas such a near real-time management of cash, payments and multiple accounts.

While consumers and firms may currently be wary of sharing their data with parties other than their banks, Beardmore believes that will change with time and growing confidence in third-party providers.

“Right now, there is an absolutely thriving, burgeoning fintech sector around open banking that is growing at an exponential rate. There are about 50 fintechs out there already accredited by regulators to operate in this open banking space and behind them there are more than 150 looking to secure the same privilege.

“That all amounts to an awful lot of creativity, resource and enterprise being expended on open banking. Corporates absolutely need to take notice of open banking and all it can offer – it would be an absolute folly for them to ignore or believe it is irrelevant to their business models or financial operations.”

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