Introduction:

While big data and its associated algorithms and analytics are a powerful step to gaining insight, a more fundamental building block for the data market is access. Most industries have started leveraging an easier access to data through API. The financial services industry considers it to be a priority too. Some of the global steps that have been taken to adopt data for public sector transparency and integrity include the G20’s Anti-Corruption Working Group and the European Union’s Payment Services Directive (PSD2).

Data sharing can be seamlessly accomplished through API or more popularly known as application programming interface. According to a Mckinsey report, API is an intelligent conduit that allows for data flow between systems in a controlled yet seamless fashion. APIs are in use in banking systems for years now. However, with the breakthroughs in advanced analytics and the positive market response to numerous non-banking fintech companies, APIs are once again in the limelight. Experts believe it has the potential to enhance the delivery of financial services across sectors, including retail and business.

Open banking with its benefits to consumers, banks and non-banks is expected to usher in a new financial services ecosystem where the roles of banks may undergo a marked shift. It also raises issues around compliance and data privacy. This is the reason why global markets have been leaning more towards increasing governance. There is a global momentum towards open banking models, leading to an overhaul in the blueprint based on which these systems have been previously operational. This requires banks and fintechs to position for success in a new environment while anticipating what its impact on customers could potentially be.

What is open banking?

As per the same McKinsey report, open banking is a collaborative model in which banking data is shared through APIs between two or more unaffiliated parties to deliver enhanced capabilities to the marketplace. API has been popularly adopted for decades, particularly in the US. This helps to foster the growth of personal financial management software, show billing details on bank websites and connect platform developers to payment networks like Visa and Mastercard. However, API was primarily used to share information rather than to facilitate the transfer of monetary balances.

Benefits of open banking:

The benefits of open banking are substantial. They include improved customer experience, new and increased revenue streams and a service model that can cater to traditionally unexplored markets. Examples include Mint, Lending Club in the US to Lenddo in the Philippines.

However, these advances are not as easy as they sound. Research says that with the emergence of integrated digital ecosystems, these ecosystems collide threatening operating models and preventing business innovation. Additionally, most of the breakthroughs have happened outside the realm of financial services. This makes rich data and their associated data flows look more like a threat than an opportunity. The non-banking sector has demonstrated a more serious market traction so far. Hence, open banking is a model still in its nascent stages.

However for the banking sector, there are inherent risks in sharing data flows. This makes data security and matters of compliance and governance of utmost importance.  The real API value proposition lies in streamlining systems integration for data access. The aforementioned issues of privacy and security makes it a monumental infrastructure challenge.

Facilitation of a futuristic collaboration:

Open banking models can facilitate a series of services for all stakeholders in the financial services. For example Wechat has enabled e-commerce through their platforms. This model can evolve into a one-stop-shop platform integrated with personalized experiences and commerce centered apps. Other services like Trustly provide credit extensions at checkouts, where a purchase decision can be influenced.

Open banking also ensures financial inclusion. This helps banks and financial networks arrive at a more precise risk and credit analysis of members who have been potentially excluded from the financial system. For example – Angaza in Africa. This is a unique way of introducing and including more consumers to the formal financial system.  This has the possibility of expanding market opportunities in a particular geography. Incubators and venture capitalists from around the world have shown particular interest in newbies who are aspiring to incorporate nonfinancial data with transactions based on data insights.

While it is true that open banking will reduce control in traditional banks, the banking ecosystem will however gain from larger profit pools. It can also position itself to play a leading role in combining artificial intelligence and predictive analysis. This in turn will improve integration of banking services for customers and the enhancement of business offerings.

Challenges:

The challenges vary by geography, demographics and the ecosystem development in that particular country. Banks with larger global footprints expect to face challenges in the future regarding regulations and standards. By 2023-24, banks should leverage their incumbent advantages by doing the following:

1. Be a game changer by staying ahead of the curve, exploring data sharing with fintech and non-financial services.

2. Explore the value of APIs and how they can benefit the bank’s service model.

3. Fully understand data privacy mandates and determine if their institution has the appetite for a less conventional approach. Also examine how API could facilitate future customer messaging without incurring any damage.

Final thoughts:

Open banking and API banking are two terms that are becoming universally popular. They have the potential of radically transforming customer experiences and making banking experience a more personalised and less time-consuming process. It is important that banks, fintechs, investment houses and other payment service providers look into its potential and explore opportunities around it.

Change is rarely comfortable, but with the market evolving across countries, it is slowly coming across as inevitable. It will be better if banks start defining the trend rather than waging a futile battle to repel it.

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Like other businesses, if you too are looking to develop IT Solutions in Financial Services industry, Mindfire Solutions can be your partner of choice. We have gained significant experience over the years working with Fintech Companies. We have a team of highly skilled and certified software professionals, who have developed many custom solutions for our global clients over the years.

Here are a few interesting projects we have done with API in Fintech industry. Click here to know more:

Case study on Student loan approval system

Case study on Smart card for pocket money

Introduction:

Consumers today are more inclined to turn to credit unions due to competitive product pricings and personalized services. Building on these strengths and showing commitment to local communities, is a strong way for credit unions and microfinance organizations to attract and sustain loyal members.

To reimagine member experiences for these organizations, it is important to build on member engagement, technology and personalization. An important part of attracting new members and retaining the existing ones is by knowing who they are and what they want. This information can be utilized to provide data that can be managed, assessed and analysed to exceed the member’s expectations.

What areas should credit unions focus on:

Personalization:

Having one-on-one and personal interactions with your members is an important part of increasing members. Adding a personalised and human touch in the times of digital connectivity makes an interesting experience to begin with. Some of the ways in which credit unions and microfinance banks can add a human touch to their experiences are by following the strategies below:

1. Creating a culture when members can speak and feel heard

2. Customer engagement through surveys and feedback taking processes.

3. Share member feedback with other office members and management, including staff meetings

4. Acceptance of constructive criticism.

5. Matching staff experts to member needs because a tele-caller or a customer service executive might not be the best person to solve all needs

6. Hassle-free contact and communication experience for the member.

For example – if someone has a question about buying a home, they should be paired with a home loan or mortgage expert. This helps quicker problem solving and a smoother transition for both the interested customer and the bank. Various softwares are available to manage bookings between members and staff. Without a doubt, technology plays a big role in streamlining affairs for both parties.

In times of the Covid-19 pandemic, it is important to focus on targeted communication to build member loyalty. Periodic newsletters from experts in your company to members can help bridge the gap in times of uncertainty. This is a small way in which members can feel confident and included post the pandemic.

Relationship Building:

Across a spectrum of consumers, credit unions and microfinance banks have a core set of interests. As per a 2019 study by Accenture, most consumers said the following:

1. They expressed interest in a one-stop-shop for checking accounts and all the different loans.

2. 1 out of 2 customers said that they preferred customized services based on their spending habits.

3. They were comfortable with sharing data as long as they saw benefits in it and customer experience improved.

4. Integration of physical and online channels for a more integrated experience.

The report additionally found that consumers generally fell into one out of the four categories of pioneers, pragmatists, skeptics and traditionalists. This information helps to pay closer attention to each audience type along with the background and the demographic they represent. Credit unions and banks need to therefore ensure that they are meeting customer expectations.  Also, they can come up with a range of products and services, revamped for the post Covid-19 era and beyond.

Positive employee engagement:

Having a happy employee might not appear as an overt advantage, but an employee who is more comfortable at his workplace is bound to be more productive and build greater assets for the company. Flexibility in work schedules, a warm workplace and potential for growth are some of the parameters for employee well being.

The benefits of a positive employee experience include lower staff turnover, improved staff productivity, higher sales and better customer service. As per a latest study by MIT, company profitability can increase by 25% with high levels of employee experience. .

Thus, taking a proactive approach in recruitment, training and advancing staff skills means a better utilization of human resources who will be well equipped to local communities and a growing consumer base.

Technology Trends:

Majority of consumers prefer a superior digital experience over competitive rates and fees. While banks are investing billions to improve their mobile banking and overall digital experiences, credit unions and microfinance banks do not have the capital bandwidth to make that level of investment. But making some small changes can yield a huge impact for this sector. An easily navigable website for instance helps customers organize their time and queries better while avoiding long queues. It will also be helpful in guiding both potential and existing clients to find what they are looking for.

As per the 2020 Credit Union Innovation Index, only 11% of credit unions have innovated their data analytics in the past 3 years. Having 24/7 access to the credit union or microfinance bank through online chats is the easiest way to adopt digitization to ensure members feel supported and communicated with. Going digital is the best method of creating positive and accessible experiences for one and all. While digital strategies are associated with tech giants and industry leaders such as Amazon, Apple, Google and Microsoft, smaller organizations can adopt inexpensive and accessible strategies to improve overall customer experience.

How can Credit unions benefit from these trends:

There are online tools and digital channels that can not only prove to be an improved sales and marketing experience but useful for a personalized experience with your banking organization. This includes capturing big data to have a complete understanding of each community, geography and member.

One way in which one-on-one connections can be enhanced is by using appointment-setting software. Also, Dynamic queuing system can provide a quick and efficient way to cut to the chase for the customer.

CRM is also another important piece of the data analysis, an inexpensive medium to help track important members’ information such as birthdays and anniversaries. This can also help for further personalization efforts, spoken earlier in the article.

Credit unions and microfinances can improve their member experience by creating a data and digital driven strategy to strengthen employee engagement, embrace simple yet effective technology innovations and create a personalised experience for every member. Hence, CUs and microfinances can explore easy methods to drive member engagement.

In today’s tech dominated world, digital transformation cannot be overlooked by credit unions and microfinance banks. Attracting the younger, tech-savvy and smarter generations, will involve smarter products and services along with a higher trust quotient. This will in turn allow these institutions to be differentiated from the banking industry and not get lost amidst the growing competition of the post pandemic world.

Final thoughts:

Like other businesses, if you too are looking to develop IT Solutions in Financial Services industry, Mindfire Solutions can be your partner of choice. We have gained significant experience over the years working with Fintech Companies. We have a team of highly skilled and certified software professionals, who have developed many custom solutions for our global clients over the years.

Here are a few interesting projects we have done. Click here to know more:

Case study on e-Wallet mobile application.

Test automation of digital payments.

Case study on Smart card for pocket money.