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Open banking: The Perfect Banking Personalization Platform

Stuart Meiklejohn

October 19, 2017

  • Transformation
The Open Banking agenda ushered in by the European Commission’s revised Payment Services Directive (PSD2) comes at a time when the customer relationship has never been more fragile. In our first blog, we discussed what the PSD2 directive is and how analytics can help banks to survive. In the PSD2 era, the ability to personalise a customer’s experience will be a key factor in success and will form the basis of new value propositions.

In the UK, the Competition & Markets Authority is driving the Open Banking agenda. It aims to create a market in which innovative and secure apps will provide personalised services and information to cover all the financial needs of individuals and to increase competition with and between banks.

Already, competitors to the traditional retail banks are emerging to take advantage of Open Banking by offering personalised services to niche but substantial markets. For example, the UK’s Redwood Bank will focus on commercial lending to small companies and another new entrant is focused on providing banking services for armed services personnel. These banks are creating targeted value propositions in areas where the traditional banks are thought to be under-serving the market. Niche markets are generally too small for the big banks as it has been perceived that there are not enough potential customers to create a business case for tailoring products and solutions.

PSD2 will enable banks and other organisations to access account information from other banks in real time which is the real game changer. 25 years ago the CRM became the foundation of good banking relationships and marketing, but they are only as good as the information within it. Earnix has been enabling our customers to leverage their customer data for over a decade but this new flood of data will require a more advanced approach to tackle both the volume and complexity of data generated by PSD2. If the CRM was a revolution 25 years ago then PSD2 will require banks to take an evolved approach to personalise the customer experience and capitalise on the opportunity.

Data and the ability to analyse it in real time is the cornerstone of personalisation as it enables organisations to deliver unique services and meaningful insights: 83% of respondents to a recent Earnix survey believe it will be common within five years for banks to offer data analytics-based services to help customers manage their lives, not just their finances, more effectively. The use of data analytics to offer new value-added, insight-based services will be critical to maintain margins over the next five years. This will be increasingly important as competition intensifies.

Not only will data enable banks to more effectively ‘slice and dice’ their customer base, understanding different groupings and targeting specific products at them, but it also enables banks to become more proactive. By analysing data in real time, banks can offer personalised services such as pre-approved mortgages (via a mortgage pricing engine), personal loans, and other products to customers. Previously such services were customer-driven; a customer would approach a bank for a product, such as a mortgage or personal loan.

With advanced data analytics, a bank should be able to pre-empt a customer’s needs. By analysing transaction data, a bank could quickly identify when a customer would benefit from a particular product or new account type. Just as online providers such as Amazon suggest other products its customers may like, so too could banks proactively offer complementary or related products that match the customer’s circumstances.

Analytics will also help banks to more closely manage their relationship with customers. Transactions may indicate that a customer might move to another institution; analytics and access to third party data will aid a bank in more accurately understanding the current relationship value and the lifetime customer value. Also, banks will be able to target customer segments that are most likely to move more activity and assets to the bank.

Personalised experiences and products powered by advanced analytics and machine learning will be key to woo customers in this new era of extreme competition. Knowing the importance of personalization, the Earnix analytics software is designed to use the most innovative techniques to empower bankers to make faster and more informed decisions that can drive personalized customer engagements while meeting their business objectives.

For more information about how data can help banks to personalize the customer experience, download our report here:
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Stuart Meiklejohn