Open banking use cases: a goldmine of actionable intelligence for banks willing to open up

Many of the discussions around open banking use cases have centered on the benefits for individual consumers – from greater data portability and privacy to easier account management and more personal finance options, or even social goods like green lending, debt reduction, and expanding accessibility to the unbanked. But many traditional banking institutions have experienced the open banking wave as a threat to their business models, a rupture in their hard-won customer trust.

While open banking does require banks to become an API provider, securely exposing their data for greater interoperability and competition, it also offers up a goldmine of actionable intelligence that, if leveraged, can yield rich cross-selling opportunities and beyond. Here’s a look at some open banking use cases that are of particular interest for retail banks.

This article was first published in Global Banking and Finance Review here.

Account aggregation paints a more complete customer profile

Let’s take a quick step back for a basic overview of account aggregation, one of the most immediate open banking use cases that’s already been leveraged to great success by companies such as Finicity or MX.

Account aggregation predated open banking, which relies on APIs to securely share data directly. Historically, it was done via screen scraping: a customer logs in to their primary checking account, 401k, and credit card via an aggregator’s platform and then allows that aggregator to collect data from their accounts, logging in as if it were them and “scraping” on-screen data.

But screen scraping has its limits: for one, it isn’t particularly secure, and connections often break or need to be reset. This is where APIs come in – the enabling technology for open banking.

Financial institutions expose data via an Application Programming Interface (API), which fintechs or other partners can securely connect to and leverage in an app or for other backend use. An aggregator can connect directly to a person’s raw account data, with their consent.

A note on mechanics: one challenge specific to North America has been the standardization of financial APIs. Because the effort here has been largely market-driven, there hasn’t been a common requirement (like Europe’s PSD2 regulation) to define how these APIs are formatted. The Financial Data Exchange’s FDX API has emerged as the de facto North American open banking standard, and financial institutions are quickly realizing that in order to participate in this new economy, they must become FDX compliant and speak this dominant “common language.”

Account aggregation offers immense value, because it is collecting in one place multiple data points about an individual across the various institutions where a customer consumes and manages their financial assets. Maybe a person has a checking account with your bank, a savings with another, has a mortgage with a third, and took a personal loan with a fintech. Having access to an aggregate view can teach you that this person often shops at Petco, makes recurring payments to a daycare, and has donated to PETA in the past… now you have a clearer idea of what cross-selling or up-selling opportunities might appeal to this customer.

By leveraging operational intelligence gained from account aggregation – whether you choose to become an aggregator yourself or partner with a third-party aggregator – banks can gain a richer understanding of their customers and develop new business models to better serve them.

Subscription management can be a two-way street

Being able to view and manage all your subscriptions in one place is of clear value to consumers, allowing them to save money by canceling unused, possibly forgotten subscriptions and more proactively manage their finances.

My kids have laptops for school and personal use, and years ago we began subscribing to antivirus software to protect them. But I still get billed every year, and some of those laptops aren’t even in use anymore – none of us know who is even using the service or how to cancel it! So, a platform like this is helpful because it demystifies the subscription and puts the information front and center for us.

But other than making customers happy, what advantage is there to a bank in providing subscription management services? Once again, the answer is actionable intelligence.

Providing a nice automatic dashboard to view all their subscriptions means that you need access to their banking transactions and subscription information. Now, you have an opportunity to analyze this data and learn more about your customer.

Next, you can leverage that intelligence you’ve just gained from their subscriptions with real time analytics and look for patterns. Let’s say 10% of your customers are subscribing to a specific service. And 20% of those are getting a loan from your competitors. Now you can cross-reference with their profile and offer personalized, data-driven loans to compete.

Acquire customers faster with digital wealth management

Open banking APIs offer a distinct advantage when it comes to the KYC (Know Your Customer) and onboarding process. Today’s tech-savvy clients expect quick and simple digital experiences, and banks that can streamline onboarding by instantly pulling a customer’s data via APIs gain a competitive advantage.

A financial institution can use APIs to instantly access a person’s credit and transaction history, personal information (name, address, occupation, income…) and onboard them or assess their creditworthiness much faster as a result. Not only is the customer delighted and more likely to recommend the bank to friends, but the bank has also simplified and sped up their onboarding process and significantly reduced the administrative burden.

Having access to more detailed behavioral data also allows financial institutions to segment and prioritize customers based on their risk, lifetime value and/or growth potential. And another advantageous open banking use case in wealth management: payments can be transferred directly between bank accounts, without the need of any intermediary – which can be up to 80% cheaper than card payments.

Financial advisors can draw from higher-quality, real-time information

Because APIs enable an instantaneous to data, they cut out much of the friction of gathering or searching for information and waiting for updates.

Wealth advisors typically have to go through an onerous onboarding process with new clients, which takes precious time away from the business of actually advising them on their wealth. A Deloitte report on promising open banking use cases notes that APIs would allow them to streamline the data gathering process and even fundamentally change the relationship:

“Continuously monitoring client data through analytical models will allow advisors to proactively initiate meaningful dialogue when a client’s portfolio or income fluctuates, which will result in higher quality and more dynamic advice and investment strategies.”

Changing the way customers and banks interact

The Deloitte report cited above astutely pinpoints a fundamental shift at the heart of Open Banking: it has the ability change the point-in-time aspect of financial events like transactions, borrowing, or discovery.

Canadian small business owners, for example, face up to 90 days of wait time when applying for loans because of the time it takes to gather, analyze, and process paperwork. Imagine being able to make funds available immediately because banks can offer continuously available, real-time prequalification by aggregating transaction history and other external data sources.

Exposing data via secure APIs may seem like a daunting prospect to traditional retail banks, and it certainly is transformational. But we’re only just scratching the surface of open banking uses cases – beyond the examples shared above, banks can use APIs to help build their personal brand, improve customer relations, and offer multi-channel touchpoints.

It’s time to seize the open banking opportunity. Yes, it requires banks to provide a service in the form of APIs, but it also has the benefit of breaking down walls in the financial services arena, opening up a two-way flow of information. Savvy banks can gain access to a whole new wealth of intelligence they do not have today – if they have the courage to open up.