Thriving in Open Banking: A Blueprint for Regional Banks

Open banking is a seismic shift for financial institutions. It will increase competitive intensity across the industry, redesign the value chain and impact customer primacy. In this new ecosystem, all banks will compete for their place. However, regional and superregional banks ($300 billion+ in assets) are uniquely positioned to capitalize on their customer centricity to carve out a strong position in open banking. Companies must think beyond compliance obligations and prioritize their unique value propositions in order to be successful.

The Consumer Financial Protection Bureau’s (CFPB) 1033 open banking rules promote greater consumer data transparency and will implicitly require investment. While many institutions view open banking as another compliance hurdle, savvy banks understand that a strategic investment in customer centricity is beneficial and crucial. Preparing for these regulations offers banks a significant opportunity to review their engagement model and strengthen their position in the new ecosystem.

"We do need to be compliant and it's our number one priority to do so. We are also looking at this as a critical initial baseline, to create a channel, to provide better opportunities for our customers.”

—  Anthony Burton, SVP, Head of Open Banking, Truist
Navigating CFPB's 1033 Open Banking Regulation - Mastercard Webinar

To succeed, regional and superregional (collectively, regional) banks must rise to the occasion by understanding the new competitive landscape, bolstering innovation and capitalizing on customer data to drive growth and revenue. They’re at a crucial inflection point, struggling to balance growth, capital allocation, and mounting regulatory and customer pressures.

Standing pat is not an option — regional banks can seize control of their future by evolving their strategies, improving customer engagement and navigating the new ecosystem. This proactive approach opens up a world of growth and innovation, and L.E.K. Consulting believes open banking is only the first step in the cosmic shift in financial services.

The good news is that U.S. institutions can learn from leading open banking markets, including best practices around ecosystem collaboration, scalable technology and customer-centric innovation.  

In this edition of L.E.K. Consulting’s Executive Insights, we explore how regional banks can cement their place in the new ecosystem by leveraging key frameworks.

“Open banking is more than just a regulatory requirement for regional banks. It’s a significant growth opportunity that will reshape the competitive environment and set a new standard for how customers have access to direct their data.”

— Aaron Byrne, Partner, Financial Services, & FinTech Leader | L.E.K. Consulting

Showcasing the benefits of open banking

With fraud alerts and data theft becoming more common, convincing consumers to switch to open banking may be challenging. While consumers will embrace the concept of data ownership, waning trust in banks and fears of third-party apps accessing their information could amplify their concerns. To foster trust and promote consumer acceptance of open banking, institutions should simplify the complexity, highlight the advantages and clearly illustrate how data is handled and protected.

Customers must see and, more importantly, feel the value of sharing financial data. Offers should be tailored, genuine and competitive. Consider customized loans and insurance plans that respond to a customer’s economic profile and behavior. Successful institutions will also make customers and prospects feel empowered. While personalization is a crucial perk of open banking, regional banks must also focus on educating customers about the advantages of enhanced financial management, faster loan approvals, quicker payments and more explicit credit access. 

By gaining a 360-degree view of customers’ financial lives, a bank can effectively understand and serve both their professional and personal needs. New offerings can encompass lending (commercial or personal), insights into improving financial position (e.g., enhancing credit) or investment opportunities. Most importantly, this enables the creation of unique offers that directly address specific business or personal needs. 

Conclusion

Open banking offers regional banks a significant opportunity to enhance customer relationships, discover new revenue streams and take the lead in the changing financial landscape. However, these banks must look outside their traditional walls to maximize their capabilities, exploring strategic technology, data and partnership investments.

Recognizing that every bank has unique institutional goals and varying stages of open banking readiness, these institutions should refrain from direct peer comparisons, as they may prove unhelpful and counterproductive. Exploring the strategies of more developed open banking markets and institutions they aspire to could be more beneficial.

The urgency of compliance demands prompts institutions to move swiftly, but the real winners will be those who embrace innovation thoughtfully and secure their place as leaders in the next generation of financial services. For related insights on regional banking growth strategies, click here.

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