Most European bankers believe that open banking will have a dramatic effect on the market structure and competitive environment for consumer banking services, a report by Earnix suggests.
The company, which provides an advanced analytics platform for the financial services industry, conducted a survey of 300 UK and European bankers in January, with the focus on how open (API) banking will affect their business and their ideas on how they will need to adapt to the new competitive landscape.
Nearly 90% of survey respondents expect that Millennials – typically those aged between 18 and 35 – will be using banking services from a variety of providers that are accessed through a single aggregation portal, significantly impacting the relationship banks currently enjoy with their customers.
Four in five of the bankers surveyed expect a significant increase in competition over the next five years as a direct result of open banking, while 88% believe that most millennials will be using banking services from a variety of providers that are accessed through a single aggregation portal.
Among the survey’s other findings:
- Banks will need to overhaul their pricing and value models:
Open banking is part of the Payments Services Directive 2 (PSD2) that comes into effect in January 2018. It requires financial institutions to make customer data available to third parties, enabling customers to construct hybrid services from a variety of providers. Seventy-two percent of the bankers surveyed think that this will significantly diminish their existing customer relationships, making it more difficult to cross-sell financial services. Given this, 75% think that their bank will need to overhaul their pricing and value models to maintain market share.
- Analytics and machine learning will be the most powerful tools to win customers:
No less than 93% of bankers almost unanimously believe that open banking will bring a deluge of new customer data that will revolutionise how analytics will be used to create more customer-centric financial services. Seventy-three percent believe that predicative analytics and machine learning will become the most powerful means through which to win bank customers over the next five years.
“Open banking is a game-changer for the financial services industry,” commented Earnix chief executive officer (CEO) Udi Ziv. “Traditional banking services will be redefined, becoming more personalised and customer-centric.
“We believe that incumbent banks have a unique opportunity to excel in this new environment, and we are helping them deploy advanced analytics that leverages the gold mine of customer data they already have.”
The most interesting outcomes of PSD2 will be derived from companies combining open banking with data from other areas like social media or government, argued Miles Cheetham, Open Banking Ltd.
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