App Engagement in the Open Banking Era

This article was originally published on Finance Derivative. 

The emergence of Open Banking and the opening up of APIs to third-party providers is paving the way for innovation and collaboration to challenge traditional processes — according to research from CACI, mobile banking transactions will more than double over the next four years. While the rise of Open Banking represents a huge opportunity to banks and Payment Service Providers (PSPs), it also poses challenges. It’s easier than ever to change banking providers, and opening APIs to third parties means areas which have traditionally been dominated by banks are now far more competitive. Accountancy firm PwC has predicted Open Banking sector could be worth £2.8bn by the end of the year, and £7.2bn by 2022.

Customers now have enhanced digital services thanks to Open Banking, giving them choice and flexibility in the ways they manage their money. We’ve already far greater seen the growth of digital channels encourage dramatic shifts in other industries, like retail, in which the high-street is struggling to fend off the convenience of online shopping. These expectations have permeated into the banking sector. In fact, according to Forrester research, “Thirty-four percent of European online adults now use a smartphone app and/or their bank’s mobile website for banking activities at least monthly.” (The State Of Digital Banking, 2018, Forrester Research, Inc., February 7, 2018) – a number expected to rise as bank branches continue to close across the UK.

Further to that, 64% of adults are expected to adopt Open Banking in the next four years, creating another channel for banking and financial services to connect with their audience, while providing the opportunity for the sector to integrate new third-party services, allowing banks to innovate even faster. This offers a competitive edge and enables financial institutions to launch apps and other innovative services in order to create ‘wow’ moments for customers, improving the overall open banking experience.

The Potential of Connected Money

Leading global banks including Lloyds, RBS, HSBC and NatWest have already made inroads into Open Banking. For example, HSBC released an app in May, Connected Money, which allows customers to see a single view of all their UK current and savings accounts, mortgages, loans, and cards held across 21 banks – including Santander, Lloyds, and Barclays – all in one app. The result of a $2 billion investment in technology, the app provides consumers with a better understanding of their money and also creates scope to attract customers from other providers. The potential of Connected Money is further amplified as the app uses Open Banking APIs for a feature that actively makes suggestions about where consumers can cut day-to-day costs, saving users money and enhancing their customer experience.

Connected Money not only enables HSBC to provide an enhanced and more convenient user experience, but it also better positions the bank to take on emerging fintechs and challenger banks, including Monzo, which saw its user base grow by 300% to 450,000 in just nine months last year due to its appeal amongst tech-savvy millennials and its focus on customer experience.

Adding Value with Personalised Marketing

When using a retailer’s app, users may be window shopping. But when it comes to finances, users are often more task-focused and tend to be looking for specific information, meaning they’re highly engaged.

By adding value through timely and relevant messages, financial institutions can use their apps as another method of communication for customers. For example, using location-targeting, financial institutions can determine their user does a lot of travelling and that they might be interested to see a bank or provider’s exchange rates or travel insurance offers. Timely and personalised in-app notifications and messaging around relevant content can delight the customer by adding real-time value and result in additional services being used, making an impact on the bottom line. Likewise, fraudulent activity can be identified using both physical and digital data points, and customers can be immediately notified through all opted-in channels (SMS, email, push notification, in-app message).

Why Data Is Your Friend

By 2020, mobile interactions will outnumber interactions by all other channels 10 to 1. In fact, according to a recent survey, marketing executives’ number one challenge today is understanding these behaviours and reaching people in the right moment. Financial institutions should be making the most of real-time data to orchestrate marketing messages that relevantly and helpfully serve customers in their exact moments of need, and on every level.

There are typically big milestones in a banking customer’s journey – starting a family, buying a first home, taking out a loan to start a business – and banks are becoming more aware of customers’ situations and introducing innovations to help them prepare. For instance, Cleo, which is described as an “AI friend” monitors customers’ spending habits and alerts them when a particular purchase is likely to take them over their monthly budgets. The AI-driven chatbot interacts with customers, without unnecessary jargon, giving them helpful advice on managing their money.

Open Banking represents a great opportunity for banks and fintech companies to enhance their app or service, by providing customers with improved functionality to assist their financial management. Further to that, on a more personal level, it can help customers to set targets and achieve life goals; giving the financial services industry the chance to exceed consumer’s expectations.

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