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As it is assumed within the open banking framework, traditional banks are projected to initiate a new wave of fintech innovation by authorizing different external parties to connect securely with their core banking mechanisms. How realistic is this expectation, though?
Of course, established banks could also work on the development of consumer innovations without any third party involvement, yet this would be a much more expensive and lengthy process. It is well-known how slow and conservative banks tends to be in relation to similar practices. In a Morgan Stanley report of 2018, it is suggested that only 7% of banks worldwide are putting effort into the development of in-house technological solutions, while the rest favors partnerships with fintech companies.
It is, however, seldom mentioned how difficult it is for third parties to connect with the banks to enable data exchange, which is fundamental. Regardless of the type of the third party, bringing to life a great and sophisticated idea, which will fully upgrade customer experience, tends to be problematic. Financial institutions must accept and integrate the use of innovative technology for a smooth transition. Consumers are the ones who will benefit the most from the new services and experiences provided by open banking, as money management will become much more intuitive and practical, while making payments will be simpler than ever. Yet, services providers will also gain a range of advantages, improving customer-experience and increasing revenues. For app development businesses it will be highly convenient to optimize accounting for a better cash flow management, but also to access new opportunities for currency exchange and borrowing. As for challenger banks, innovation will also have an influence by allowing them to extend the services range.
With open banking all of the latter becomes possible, yet words are not equal to actions. In order to ensure that relevant data and funds flow easily through a secure and reliable channel, there is a need for increased cooperation among banks and the inclusion of third parties for information exchange. These steps, although challenging, have a crucial importance for the future survival and success of the banks. The latter must attract creative actors from outside the system for an efficient upgrade of their core activities. Just like in the telecoms industry, ‘over the top’ service providers, such as Netflix, conferencing platforms etc., have a higher chance to establish deep and long-term customer relationships. By contrast, traditional telcos have a difficult time supporting the popularity of their core business.
The perfect path for banks to pursue would be the adoption of innovative tools and technologies for a healthy growth of income streams and provision of value-added experiences that are highly encouraging for the customers. It is a mistake to think that work should only be done in relation to financial services. Customer loyalty may also be increase through such tools as ID verification, which can speed up the process significantly. Strategic collaborations and the use of artificial intelligence can also be highly beneficial.
Today, banks simply cannot afford to stay away from the global technological trends, as the entire business would be put at risk and failure would only become the question of time. The range of developments to be taken advantage of is quite wide, which gives banks the choice of the direction to follow. Next generation of financial services is already here and only the best of the best will win the battle for customer attention and loyalty.