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Many banks are using technology to better connect with customers beyond traditional financial services. Customers can use their bank cards for anything from online shopping to opening their doors at home.
Now, financial technologies (fintech) promise new possibilities for business and personal banking consumers, such as smoother, more intuitive online and mobile banking options, more tailored products and more efficient transaction processes.
By adopting open banking platforms, banks can collaborate with third-parties in the commerce ecosystem to enhance their service offerings, improve customer engagement and build new revenue channels. This is achieved through sharing data, algorithms, transaction information and other business functions, thanks to technologies such as artificial intelligence (AI), cloud computing, biometrics and blockchain.
International banks such as BBVA, Barclays, Capital One and HSBC have already started building their own open banking platform. Chinese banks such as ICBC, China Construction Bank and China Merchants Bank have also signaled they plan to build their own platform.
Even small- and mid-size banks can get involved. There are two key advantages for small- and mid-sized banks to adopt an open banking platform. First, open banking platforms can use more comprehensive data analytics to help banks deepen relationships with customers by offering richer and personalized services. It helps banks to retain existing clients, revitalize inactive accounts and attract new customers.
Second, an open platform can help banks enhance risk management. With access to data from multiple sources, banks can refine their risk management models and make more accurate assessments of client risk profiles.
An open banking platform must offer a variety of products to succeed. The platform must be able to address customers' different situations, such as opening accounts or applying for a small business loan, to win their trust and loyalty. A client-centric approach helps banks decide what kind of fintech solutions they need. For example, offering instalment payment options would require technologies such as credit-scoring tools and anti-fraud tools. It is beyond many small- or mid-sized banks to acquire or develop these tools on their own.
Fintech solution providers such as OneConnect can offer one-stop services to build a tailored platform for banks that can handle customer scenarios, such as insurance, guarantees, credits, leasing, securities, funds, and e-commerce. These banks get access to technology that they cannot develop on their own, such as mobile apps.
For many banks, the potential loss of autonomy in adopting an open banking platform may be a major concern. Most small- and mid-sized banks have cultivated a core group of loyal clients over the years, which is one of their key strengths.
When setting up an open platform with a fintech partner, banks should carefully select the areas of cooperation that suit their own business strategies. Banks can benefit the most from these collaborations by focusing on deepening relationships with their core clientele while maintaining solid risk controls.
As technology transforms all aspects of the economy, the challenge for small- and mid-sized banks is to adapt to changing customer needs and expectations while managing profitability. A strategic collaboration with a fintech partner could help mid-and small-sized banks use an open banking platform to transform their business with greater speed and cost-efficiency than an ad hoc IT approach.