Respected US Financial Banking Strategist and Financial Advisor to the White House Jim Marous argues most people have had poor traditional banking experiences, and says open banking will force banks to finally deliver on decades of empty promises; so which imcumbent will lead the charge in merging the best of fintech and the traditional?
Technological disruption and increasing consumer demand for more control over personal data are transforming the banking industry, which is often considered conservative and resistant to change. Open banking, which describes the use of APIs to connect business and consumer financial data to third parties, is gaining traction in many jurisdictions, as a means to meet consumer expectations to have truly seamless, and personal, banking experiences. With regulations being discussed and proposed around the world, open banking is hot on the boardroom agenda.
According to US-based Financial Banking Strategist Jim Marous, traditional banks and financial institutions that want to remain competitive in the new era of open banking need to begin with a digital transformation strategy that embraces digital culture, rather than addressing specific one-off needs.
While technologies like mobile banking are having a major impact on businesses, Marous says truly successful companies will rethink business models instead of addressing the last line of delivery.
“The promise of open banking is to deliver true customer centricity. Traditional banking has talked about this for decades but they never really walk the talk because they had all the chips in their hand. Right now, virtually any consumer today that uses digital channels is building their own open banking solution. For example, in my world, I have traditional banks that I work with for personal and business accounts. I also use other solution providers that provides me a better combination to address my financial needs. My business bank for instance, connects me with a credit card processing company that is very costly, nor are they responsive to my needs with regard to cheque processing. When I brought PayPal into the mix and use them as my credit card and payment processor for my subscription business, it became a stronger relationship. As PayPal knew everything about my business and money inflows, I moved to the point of paying all my suppliers with PayPal. What ended up happening was PayPal now offers me lines of pre approved credit or bridge loans for my small business. If I asked for the same services from my traditional bank, there would be a lag in approval time. They would make me come into the branch to apply for the business loan and there’d be no guarantee I’d get the loan,” says Marous.
According to Marous, the question becomes, will traditional financial institutions combine with the best of the best of FinTech to answer the needs of the consumer in such a way that will make their experience better, safer, and more seamless?
“I want the experience that my digital financial providers give, and the safety net of traditional financial providers. Who will lead the charge? Who can bridge the traditional with fintech to make relationships seamless because we need to move from consumers patching a solution themselves to getting it through a Fintech or big tech firm or traditional banking firm through partnerships that they develop. We have a lot of moving parts in play at once. Traditional finance institutions need to rebuild their entire structure on how to deliver and innovate from a digital foundation, rather than providing traditional products through digital channels which are not truly digital,” says Marous.
Marous argues that what makes open banking beautiful is that any industry can be offered tailored solutions, with very personalised services, and highly competitive price points.
“This will create fierce competition from banks to really try to solve my personal issues. We will truly see the best in the marketplace. At the end of the day, what I want is to save time. I want to save money. And really what I’m seeking from a financial institution is to know me, look out for me and reward my loyalty. This is probably more available today through an open banking environment than it ever was available in the past,” says Marous.
We asked Marous whether the market may see more non-banking SP startups offering white label digital financial solutions to traditional banks.
“Yes. It’s not going to be open banking, but open platform solutions. Why shouldn’t my bank combine my shopping, my travel, my hospitality, all the different components of my life as it has all my overarching financial data to get me from point A to point B. When I look at an Amazon or Google, they have all my search and purchase behavior data… Incumbent financial institutions have the advantage of trust and legacy, why not combine this with big tech to authentically connect with the consumer? However, this trust and legacy is coming to an end. I will ask a roomful of bankers, ‘how many of you have Amazon Prime, and everybody says yes’. I asked, ‘how many of you considered changing or closing your bank account?’ and all the hands go down. Once free shipping stopped with Amazon, people continued to stay with Amazon, to shop with an entity that they trust, and get amazing service… over time, the more time it takes traditional banking entities to get where this is going, the less likely they will have the trust and experience advantage,” says Marous.
This scenario of absolute seamless experiences between banking and everyday living invariably raises the issue of data privacy and trust in handling, and storing personal data. Marous argues that the majority of consumers will allow somebody to use their data, as long as they receive a greater value exchange.
“Nobody ever questions all the insights that Google or Amazon obtain because they continue to provide a value transfer for use of that data, which goes beyond what you think is possible, and, they’re setting the tone and the bar very high now. Consumers know their data is worth something, but I think what’s going to happen is if you can build value, save me time and money, then it won’t be hard for me to say, I guess I’m okay if a hybrid app uses my data. In the past, financial services asked for data, and used it for their own purposes to save them money. Now, banks must use our data to truly benefit us, to stay competitive,” says Marous.
Marous argues that this linkage between what’s in it for me versus what’s in it for you with the banks is becoming more and more fragile.
“Banking organisations that realise the future will belong to companies whose organizational goals is centred on better customer experiences. The fact that people are willing to pay for better experience will improve the challenges. The traditional banking world has continually burnt bridges; when it comes to being in it for the consumer between fees and lack of transparency, poor communication, linkage between services where if you open up one service they don’t even know you exist in another part of the organization… SPs like OpenText and a lot of other organizations really make it so that you can have the potential to make it the best of all worlds in the banking environment. When you start to get proactive recommendations, based on your information, your activities, it’s very powerful,” says Marous.
In the marketplace, Marous claims that recent research on digital transformation in the banking sector revealed that its the very smallest firms that are actually taking digital transformation and innovation seriously. The larger brands continue to lag with what the marketplace wants now.
“As long as banks continue to make money doing it the same old way, it will be difficult for them to make the changes that are necessary. However, in the payment space, when you look at China, you don’t have to go very far, just look at Alibaba and Alipay and Tencent, there’s significant momentum in digital transformation there.. with regard to traditional banking perspectives, I continue to hold BBVA, in Spain, at a very high regard because it is way ahead of everyone else… Around the world, with regard to open banking, over the past decade, innovation is peaking because they’ve not had a banker in charge. They’ve had engineering and technology people as CEOs of those organizations and as a result, they don’t have to unlearn what banking is known for… They are a tech company that offers financial services, as opposed to financial services trying to make traditional products tech based,” says Marous.
We asked Marous for his thoughts on the home remittances sector, and the unbanked in Southeast Asia, given the large migrant populations moving for work, whether open banking will also open up opportunity pathways for the unbanked and, help people move away from the costly Western Unions of the world.
“In many ways it already is. I was in Peru recently and I found that BCP Peru has entities in 7,000 retailers countrywide. Clients can open an account, pay bills online, cash cheques etc… in South America and Africa too, there’s so many people that are in that category too. In France, BNP Paribas acquired Compte Nickel, which was building banking relations into corner stores. The ability to expand becomes possible when we no longer need all the overhead of putting banking branches into that equation. Open banking provides the opportunity to really serve micro segments. It gives the ability for organizations to build affordable solutions for the underbanked, which never would have been possible previously. In the perfect world of open banking, there will virtually be no consumer that goes underserved,” says Marous.
(Ed. We would like to thank OpenText for brokering this interview with Jim Marous. To read the recent report Gaining a Competitive Edge During Digital Disruption sponsored by OpenText, click here. Featured image of Jim Marous provided courtesy of OpenText.)