The Tragedy of the Commons, outlined by biologist Garrett Hardin in 1968, describes how shared resources can be overused and eventually depleted. He compared shared resources to a common grazing pasture; in this scenario, everyone with rights to the pasture acting in self-interest for the greatest short-term personal gain depletes the resource until it is no longer viable.
The banking ecosystem and the data that binds it together is not all that different. For many years, through cross-selling scandals, cookie cutter products and inefficient and ineffective mass marketing, financial services organizations have been acting in their own interest in accordance to what they believe the ecosystem should look like, how it should evolve and who controls it.
The Realities of Open Banking
With the introduction of open banking, there are signs that new banking ecosystems are set to thrive. Taking Hardin’s notion, collaboration in the open banking future could benefit everyone in the ecosystem – the traditional banks, fintech firms, big tech titans with expertise in delivering services at scale, and yet-to-be-defined participants, likely to include the large data players such as energy firms, retailers and Telco’s.
However, this also uncovers some uncomfortable truths. The first is that the banks will have to realize they don’t own the ecosystem. They are participants, they help provide a healthy environment for innovators, and they can even attempt to kill it. But, they don’t own it. The vital element to the ecosystem – data – is no longer theirs.
Banks will be a part of the ecosystem, whether they choose to be an active (and positive) participant or not. To not participate will likely see them act as the rails on which all the transactions occur, but with none of the customer insights or engagement.
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The Power of Data
Deciding to become a reluctant “data donor” will not stop a bank’s customers from sharing their data with other service providers in search of a better deal or an improved experience. Banks will have no control over this process and there will be no alternative but to release the customer’s data, with their consent. Adopting this approach will also leave banks poorly positioned to engage positively in the new market for retail financial services that Open Banking will create, and to pursue the opportunities it presents.
An ecosystem based on open data encourages collaboration and networks of innovative companies that build services using common underlying platforms. For example, the ecosystem of developers and partners that use data and technology tools provided by Facebook, Amazon or Google to create new services. In these systems, collaboration between data owners and service innovators is the norm, and the leaders compete to provide the best environment for innovators to create applications that will attract the largest numbers of users. Crucially in this context, best means most data and most open.
Participating in the Ecosystem to Deliver Value
”It is easy to imagine a scenario where many customers never use their bank’s digital services because they are able to transact via third-party providers, using a platform they trust and associate with easy interaction.”
Companies that have data at their heart are getting ever smarter because they’re building ever deepening layers of data. It allows them to make behavioral inferences that enable them to build ever more predictive, preemptive and hyper-personalized services.
Banks that choose to engage fully in the new banking ecosystem based on open data will focus on the element of their environment that they can control – the organizations they choose to collaborate with to create new services based on pooled data. These will be partnerships of mutual advantage, with the potential to create new sources of profit for both parties that will be shared between them.
Success will come from the ability to be open to ideas from outside and collaborate effectively.
Banks attempting to alter their approach will find that the challenge cuts right across their business: from how their brand resonates, to how they talk and listen to customers and collaborators, to how they design and deliver services, to how their data dances. At this data layer, they will need to augment their data sources, expand their analytics capabilities and actually listen to what the data is telling them.
It is easy to imagine a scenario where many customers never use their bank’s digital services because they are able to transact via third-party providers, using a platform they trust and associate with easy interaction.
Assembling richer pools of data from multiple sources will give banks more angles from which to view their customers and more ways to understand them than they could gain just from transactional information. They could profile and segment their customers more precisely and look for behavioral patterns that can be used to refine predictive models. The insights they gain will power new services and improve existing ones within their own defined and managed ecosystem.
In this new world, the banks that succeed will do so by finding the best fit between their data and data held by other organizations – whether Telco’s, energy providers, transport companies, airlines or any number of others. To succeed in the competition to collaborate most effectively, banks will need the best possible tools for data sharing and analysis. An Open API that complies with the minimum required standard will not be remotely good enough.
What will set the winners apart is the extent to which they go beyond that and actively seek commercial partnerships based on data-pooling. That requires a different mentality, one that sees open data not just as an obligation but also as an opportunity to learn and find new sources of value.
Crucially, however, banks cannot expect to generate all the business ideas themselves that combining data sources will make possible.
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An Ecosystem That Benefits Everyone … Especially the Consumer
Having an open and honest discussion on collaboration and how that works brings immense potential benefits for consumers, business and the wider economy. We would create a thriving environment where there is genuine customer choice and competition is enhanced. An environment where fintech firms with a great idea can, through collaboration, bring innovative services to market at scale – whether that’s working with the tech titans, the data players, or the banks.
As banking and lifestyle ecosystems evolve over time into more open, transparent and collaborative landscapes, attitudes and cultures must shift. For banks, these are not things that you can train – it begins with the skill sets you hire for, nurture and build around, and the leadership that inspires and enables it.
Look at the makeup of an average bank board and compare it to the leadership at Amazon. The mix of education, employment history and personality types offers an array of thinking, taking in technology, science, psychology, the arts – and entrepreneurialism
So who is better adapted to influence and implement an ecosystem where innovation will thrive?