A major recent study conducted by Accenture on the state of global financial services for consumers in 28 markets in Asia, Europe and America, found five key findings about customer expectations:
- They want integrated propositions addressing core needs
- They want a fully personalized offering
- They are willing to share data with their providers in return for better advice and more attractive deals
- They want better integration across physical and digital channels
- Trust in financial institutions is increasing
As this research demonstrated, customers today expect added value services which are truly relevant to them. However, one of the findings that caught my attention focused on customers’ attitudes towards sharing their data for reciprocal benefits – such as lower prices, personalized services, improved advisory, faster and easier services.
While the study found that consumers are willing to share their data, this varied significantly according to their demographic and other factors. It’s also worth noting, that despite the benefit consumers may receive from actively sharing their data with a financial provider, it is usually less than it is if they share their data with other types of companies.
As one of the speakers from the consulting company, EY, pointed out at the recent Fintech Americas event which I attended, if financial institutions, “haven’t personalized services based on customer data we already collect, why should customers trust us with more”.
From my point of view it is crucial that financial institutions and providers create stronger incentives to encourage customers to share their data. It’s also imperative to build abilities to properly use both active and passive data in order to gauge the customer and their journey, and then provide services in their moment of need.
This is because what really matters is focusing on the customer’s life and their moments, not transactions. Whether it’s buying a house or getting married, consumers need financial services for highly personal events that mean the world to them. As digitization takes over more of the financial world, consumer-focused financial institutions need to shift their strategies to differentiate on “trust, financial health and bundled offerings” that transcend product-centric selling. Doing this will enable them to offer more holistic and personalized value propositions.
The move towards hyper-personalized product bundles
We’re seeing a fascinating move from discrete, individual financial products, to more integrated service offerings. Again, at the Fintech Americas event, industry observers spoke about how new financial products are becoming personal financial operating systems. Financial offerings are gradually moving away from individual products “á la carte” which are not integrated in an ecosystem and are not personalized. They are moving towards “product bundles”, aligned to life-events that customers need.
In the future we will increasingly see customers subscribe to different services as their situation changes – thus requiring hyper-personalization from the financial provider. This trend is starting to happen in the UK where certain companies already provide advisory to customers to choose their optimal services, in order to reduce expenses and increase their savings, according to their unique customer profile.
Even though data and technology are not the only enablers for this, platforms driven by analytics, AI and open APIs are crucial to making this happen.
The role of open APIs and the impact of PSD2
In order to deliver this next generation of financial services, open APIs will become increasingly important. This is because APIs provide the pathway to the data that banks hold on consumers.
Currently, many fintechs and third party providers use screen scraping in the absence of APIs. This is where the customer provides their details to a “replica” log-in page to their financial service institution, and the third party providers then use this to access their data. However, the move towards using APIs has clear advantages over screen scraping, particularly with respect to security, and also giving customers more control over their data. Indeed, the EU’s second Payment Services Directive (PSD2) will ban screen scraping (albeit with some exceptions and delay), whilst mandating that banks and financial institutions provide APIs to enable third party access to their systems.
For financial institutions across the world, not just in Europe, PSD2 will have a major impact – partly because any bank with a European presence, will have to comply. The emergence of open APIs should provide consumers with a greater array of services based on their data, and will foster the move towards more personalized financial services that help them in their moment of need.
Despite the potential of open APIs to foster this disruptive change, many industry participants have been reluctant to embrace it. According to the consulting company Strategy&, in a report published back in 2016, there were three schools of thought about the upcoming change:
- Those that see adopting to PSD2 as an objective in compliance. They see it as a threat to their business.
- Those that are waiting to see what will happen.
- Those that see PSD2 and the focus on APIs as part of the fundamental change occurring in the financial industry, and recognize the need to make major changes to stay ahead of the curve.
Today, I believe many of those that were in the first category, will have changed their mind. My advice to the banks and financial services companies that I speak to, is to look at this as part of a fundamental change.
The move to open banking is just beginning
PSD2 promises to dramatically quicken the pace towards open banking, not just in Europe, but around the world. Leading financial institutions, particularly in the US, need to make sure they make the necessary investments to keep ahead of global competition, which is threatening to overtake them. Doing this will enable them to offer the personalized and integrated financial offerings which consumers are looking for.