In open banking and Open Finance, stay customer-focused: A discussion with Bruno Cambounet from Sopra Banking Software

We have been talking about open banking for 15 years, and more recently Open Finance, which expands the ecosystem and encompasses open banking. Many publications have discussed how beneficial open banking offerings are to the end customer. And yet, a recent survey showed that only 24% of respondents in the US know what it is.

That’s not a big surprise, indeed, by definition, open banking is focused on financial players — whether it is market- and innovation-driven (such as with fintechs) or regulation-driven (such as with PSD2 in Europe). And if open banking and Open Finance aim to put the customer at the heart of this ecosystem, we need to go back to the value they bring to the end customer.

How to truly position the customer at the center

Reading all the articles that push the importance of customer experience (CX), one would think that it would be enough to implement a digital customer journey for the sole purpose of selling a financial product more easily, Open Finance being the enabler.  

However, that would mean merely pretending to care about customers, and they are not easily fooled: despite all the efforts to make traditional services more accessible on mobile, in particular, consumers’ confidence in the ability of traditional banks to serve their interests has dropped by more than 40% (going from 43% to 29% during the COVID period).

Another study explains that 70% of consumers willing to switch banks will do so based on the value and personalization of services offered. So, while a poor customer experience will devalue or even kill a service offering, the customer experience alone does not create value.

Customer experience (CX), a link in a value chain that serves the customer

The challenge is to understand and define the value proposition that will be perceived and understood by the customer. Personalizing customer value means knowing how to set up value chains that combine a variety of skills depending on the customer’s situation.

 Fintechs are particularly adept at identifying situations that are poorly addressed by traditional players. Ideally, value chains result from the combination of different services based on the situation or personal data of consumers.

Let’s take one example: Buy Now, Pay Later (BNPL). In 2021, countless players are launching this type of offer or partnering with others to add it to their catalogs.

The value to the consumer is simple: a person goes to a store to buy a brand-new TV. She is seduced by the latest model, a large, super-thin 4K screen. However, she doesn’t want to pay for it all at once. Luckily, at checkout, the store offers her a deferred payment method, and a few minutes later, she leaves the store and will have her beautiful screen delivered the next day.

For the store and all the players who support this service, BNPL is far from simple. To effectively deliver on this promise quasi-instantly, they need to accurately assess the financial capacity of the person, offer a payment plan, secure authorization while minimizing the risks of default — not to mention fraud protection measures.

Of course, with the consumer’s consent, the key contribution of Open Finance to the value chain is immediate access to banking transactions. But it’s still necessary to finely categorize the transactions, analyze the consumer’s financial capacity (real-time credit scoring) and feed the associated regulatory reporting. Let’s also stress that the financial actor must not push consumers into too much debt either.

BNPL depends on a whole chain composed of different, highly specialized services. 

Viability of the value chain

At the tip of the iceberg, the customer relationship remains the result of a value chain whose strength depends on its weakest link, and it’s essential that every link remain viable.

On the one hand, each player must control its revenue/cost ratio, but overall, the gains between players must be balanced, meaning that all players must remain winners. And underestimating the value of some players – or elevating some over others – can kill innovation.

A financial player might imagine they can provide the entire value chain for every customer situation, but many innovative fintechs have already shown this is not the case. And even Big Tech companies, who may have colossal resources, cannot yet do everything on their own.

What is also clear is that the more we know how to personalize the customer experience, the more use cases there will be, and the more we will be able to deal with particular moments in life on sub-segments. We will need to draw on all players in the ecosystem, both the smaller ones, which are often more agile and more innovative and the larger ones, which provide solidity and durability.

 The market will be “fractal” — it will constantly sub-segment.

We must be open to models in which:
*we keep the customer relationship where we have established it and feel capable of enriching it with new services (or new customizations);

*we’re ready to share the best of our knowledge with partners who have established a direct or indirect relationship with customers and understand how to get more value from the services we offer.

Then a myriad of possibilities within constantly evolving markets can be offered. Now we can talk about evolutionary business models that take advantage of the power and the best of each of the players in the ecosystem.

Open Finance allows financial organizations to treat financial consumer data like the person’s individual property, which no single player in the ecosystem can own.

So how do we go about it?

The BNPL example shows the extent of the different specialties that must be combined to create real value for the end customer. These specialties are of different natures:

Financial services

Payment and credit are essential financial services to integrate into a value chain. The same goes for other financial services such as account management, investments, etc.

This covers the entire portfolio of a financial player’s offer and it’s precisely to open up these services and associated banking data that Open Finance standards have been being created for many years (in Europe, the most widespread standard is that of The Berlin-Group openFinance)

Platform

The digital economy requires players to be able to integrate into ecosystems as service producers, aggregators, or distributors to enhance the value of their offerings. The success of several fintechs has demonstrated the weakness of traditional players’ positions in integrating all of these roles. And 76% of banks expect growth to come from Improving business and IT integration with their partners.

Thus, identifying platform-level technologies and services allows them to be pooled to support the flexible and agile creation and integration of the services above. These include Marketplace services (Developer Portal, Partner on-Boarding, Monetization), Digital tooling (Customer Journey Design, AI and Analytics, API Management), and Infrastructure (Cloud-native stack, Security and DataLake).

CX

Beyond these services, creating a seamless customer experience requires addressing a set of customer engagement services across the entire customer lifecycle, from the initial acquisition phases to the final phases. This includes “classic” CRM engagement services that can be found in all economic sectors, and services specific to the financial sector concerning the responsibility — particularly regulatory – financial players bear, such as KYC, service eligibility, fraud protection, etc.

There is much to be said about the different capabilities presented above, especially because it’s imperative to integrate players (including fintechs) to be able to consume their innovative services or produce the services they will integrate into their own services.

In the BNPL example, the bank is almost invisible in the transaction, yet essential. The major challenge for a traditional player certainly lies in the cultural and operational changes that will enable it to insert itself into or master these new value chains.

How to continue to evolve in the world of open finance

To be clear, “open” does not mean everything is free. These exchanges and APIs can be monetized, as demonstrated by those who understand the power of open ecosystems.

“Open” means you can open up, exchange, and that implies having the ability to expose your data in a secure way to make your business functionality consumable, allowing rapid participation as ecosystems and opportunities present themselves. We shouldn’t be afraid to open up because real life is about exchanges: the digital economy opens the way to multilateral relationships with customers.

This is the start of a story that can be scary for financial players who are used to managing their clients in a closed bilateral relationship. Yet, if we dare to open up, expose our data, and have this flexibility, each player can have a seat at the table and contribute their expertise to enrich the network and discover new business models.

A recent study Sopra Banking Software conducted with Forrester (Master Ecosystems To Be Future-Ready In Banking) reveals that only 12% of banks consider themselves ready with a clear vision of their capabilities to collaborate with their ecosystem partners. And yet, this is how leaders are putting the customer at the heart of this new open ecosystem.