All banks must prepare for the impact of open banking and the new ecosystem, but regional banks will have specific challenges to address. Any successful strategy must consider the following components.
Data trust: The currency of open banking success
As cyber breaches dominate the headlines and data-sharing benefits remain unclear, consumers may hesitate to embrace open banking. The CFPB’s open banking rules give customers control of their financial data, enabling them to share it with third-party providers of their choice, fostering trust and transparency.
Consumers need to know how their data is used and how sharing it enhances products and services, particularly with both traditional and fintech companies competing for market share. Successful open banking participants will continuously educate customers and demonstrate the value of sharing data. Without trust, regional banks will lose customers and market share.
Although many benefits of open banking will be transparent to customers (think overnight updates to Apple IoS), any disruptions or security issues will quickly draw attention. Closing this knowledge gap is essential yet difficult, as only 42% of people in the U.K. and Europe understand its implications despite years of policy efforts.
Data governance and activation — not just data out, but data in
Accessing and activating customer data are crucial for open banking. However, regional banks face hurdles, especially as CFPB regulations lower the barriers for consumers to switch providers. Many institutions haven’t prioritized data governance, and open banking will up the ante, challenging them to export and ingest financial data in order to glean insights and capitalize on opportunities.
“Getting data to be manageable, highly portable and transferable is a big challenge for our clients. Layer on data governance and management and these institutions have some work to do,” says Aaron Byrne, L.E.K. Partner, Financial Services, and FinTech Leader. Efforts to fully support open banking initiatives with artificial intelligence data management face distinct challenges.
The real opportunity is how effectively these institutions can absorb data — creating economic value by improving customer understanding and customizing services based on fresh insights.
Personalized solutions over one-off products to drive primacy
Educating customers on the benefits of data sharing is critical. Creating personalized and innovative products that meet customers’ needs is the key to overcoming adoption barriers. Banks that don’t provide this won’t be able to advance account openings into lasting relationships (primacy). To be successful, these banks will have to address customer needs more broadly, expanding from the one-off solutions of today. Banks must seamlessly wrap a more holistic and encompassing product set around a client, but the approach must come across as a seamless and insightful and an engaging customer experience.
Customers will easily recognize when an institution is trying to upsell or cross-sell irrelevant products, leading to trust and relationship erosion.
From fees to features, banks must evolve to stay relevant
Open banking encourages a more collaborative and dynamic ecosystem where banks, fintech firms and nonfinancial entities can cocreate value. Traditional banks, which have historically relied on their control of customer data, will need to adopt new approaches to maintain customer relationships and build loyalty. This is crucial, especially as fintechs and tech giants continue to enhance and expand their offerings.
Traditional banks must transition from relying solely on interest and fee charges for revenue to offering innovative features such as flexible, no-fee installments and extended checkout periods. This evolution is imperative for them to maintain a competitive edge. Companies that prioritize reducing friction and enhancing customer experience will significantly transform the value chain.
We see many great examples of these offerings already in the market. Fintechs Stripe and Chime are revolutionizing finance with quick loans, early pay access and credit-building tools, tackling real financial challenges head-on.
“The real differentiator in open banking is simple: adding customer value where others have not,” says Byrne. “The challenge is crafting a compelling value proposition that persuades customers to let you serve them more broadly. Staying relevant with personalized, thoughtful offerings will be key.”