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Still trying to figure out Open Banking? You are certainly not alone.

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Although there are numerous Open Banking initiatives around the world, each one with different shades, the core principle of Open Banking remains constant: to simplify the way customers interact with their Bank and enable non-financial service offer. This means that customers will be able to decide which provider to interact with to initiate payments or to check account balances regardless of the financial institution actually holding the balances. This is creating a transformation in the industry, with Fintech and Neo-banks competing with incumbents to gain the customer interaction. These new players offer simple, fast and innovative services that most incumbents struggle to implement For example they help customer to identify the most suitable and coherent energy offer according customer’s profile or they let customers avoid unnecessary overdraft fees making automatic sweep from a saving account into a current account.

On the other hand, incumbents can leverage on a large amount of information about their customers (data on how and where they spend, family ties, investments, risk appetite) that would allow them to obtain insights that are not accessible to other players, guaranteeing them a significant competitive advantage. This transformation is accelerated by emerging technologies, ever challenging competition by technology firms (GAAFAs) and regulatory changes.

In order to succeed in this new environment, incumbents and new entrants alike need to adopt a multidisciplinary and holistic approach to Open Banking. It is critical to transform products and services to better suit the needs of customers by implementing a customer centric approach. This may be achieved with the use of Data Analytics to learn more about the customers, revamped UX/UI to simplify customer journeys and the re-thinking of services that focus on customer value.

Open Banking comes in many flavors, colors and sizes. If you are in the Financial Services industry, you have certainly heard about this model that allows non-banks and Fintech to find their spot in the Financial Services industry. However, Open Banking is not only about who participates from the financial industry, it fundamentally reshapes the relationships between players in different markets, opening the boundaries to a new cross-industry offer. Open Banking has the potential to open the industry to new business models and innovative Financial Services.

The aim of this article is to clarify what Open Banking means, some of the challenges to embrace it, as well as offer some advice on how to approach Open Banking.

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Improve customer retention

Open Banking is about openness

Open Banking allows players to focus on what they do best, and rely on an ecosystem of partners to deliver additional functionality. Traditionally, banks have relied on developing a wide range of services to attract customers. However, much like a soccer player attempting to succeed at basketball and tennis at the same time, Banks may fail to provide exceptional services in all departments. In the highly competitive environment of today, customers are not as loyal as they have been in the past and new generations are becoming highly demanding.

Therefore, all players – challengers and incumbents – need to define a role in the new ecosystem and gear up to offer exceptional services in their roles. Some will bet on customer experience, relentlessly dedicating themselves to understand better their customers, offer exceptional user experiences and improving continuously their offerings. Others will bet on enhancing and streamlining their processes to achieve highly efficient services and rely on the first group to reach customers in need of those services. Thus, opening the opportunity of successful Financial Services companies that do not hold in fact customer’s accounts.

Collaboration among players is the key

Although the banking and Financial Services industry is heading towards a more competitive landscape with new entrants in the market, we must not forget that it is an industry highly regulated with several challenges and constraints. Ultimately, it is an industry that deals with one of the most sensitive areas of customers lives: their personal finances. Trust is a key ingredient in this recipe that new entrants will struggle to gain from customers.

Create trust, gain a client

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Unlike traditional banking projects, Open Banking should be seen more as a strategic exercise rather than a compliance project. Banks can approach Open Banking in two ways: with a “Transformation Program”, or through a “Use Case Approach”.

The Transformation Program starts from the bank’s strategies and needs: once the Bank has agreed upon future positioning, target revenues and level of competitiveness, this approach requires the identification of a long-term strategic roadmap impacting the Bank in a cross-functional way. The Open Banking transformation project brings to a complete change of the Bank’s operating model and therefore requires significant implementation effort and high investments from the early stage. Commitment from top management is critical and needed for the global coordination of the program.

In both cases, the project success is strictly linked to a strong Top Management sponsorship. Given the effort needed to develop an evolution project towards Open Banking is cross-functional in nature, revising the corporate culture and organization and experimenting the innovation should always start from the top of the house.

However, the implementation of such a structured approach provides a transparent view of the long-term strategic goals and higher benefits in the long run.On the other hand, the Use Case Approach addresses the problem with an outside-in strategy: it starts from the customers, understanding their needs, developing specific and tailor-made use cases, and trying to adapt the structure of the Bank always taking the end-customer’s perspective. However, choosing a “Use Case Approach” does not prevent the Bank to move, in the future, towards a more radical change of the entire Bank. Indeed, the Bank will develop its strategy gradually and refining this strategy through several iterations. Since the use cases developed have a shorter time to market, the Bank will be eventually able to re-adapt its strategic moves based on market feedbacks, thus adopting a trial and error approach supported by Agile methodology.

Use cases approach Transformation programme

Single and specific initiatives carried out in a «trial & error» approach.

Identification of the top services to be developed and definition of the overall strategy around them considering internal and external factors.

Vertical functions involved in short projects (called “sprint phases”), working together from the use case ideation to the implementation.

Project governance managed by a central focal point that supports the team in Agile Methodology helping to smooth the transformation process.

Strategic Project developed through traditional approach.

Definition of the long term strategy and positioning based on external market factors and company objectives, definition of the changes to be implemented overall the firm.

Establishment of Innovation Lab / Hub dedicated part / full time to the definition and management of initiatives related to the transformation program.

Involvement of the vertical structures to contribute in use case definition supported by Innovation departments or dedicated transversal structure.

Banks and financial institutions, in order to understand which approach is the best fit for them, need to consider a set of key topics and questions that are relevant to define their evolution path towards Open Banking.

How to approach Open Banking?

Bottom-Up Top-Down

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Who are your customers? How much do you know about them? Do you target a specific customer segment?

In order to gain a deeper knowledge of their current and prospect customers, Banks need to ask themselves which data are useful for them, where to retrieve them and how they can best utilize them, also leveraging on collaboration with third parties and alternative sources. The amount of data at Banks’ disposal has increased exponentially over the years, but without a sound data management and Data Analytics tools, it risks remaining unused and becoming a burden for the organization.Both approaches require Banks to develop proper procedures of data storing, enrichment and analysis, in order to better identify customers’ needs and consequently calibrate the offer to attract them. Data Analytics and machine learning tools allow Banks to profile target customers in a sophisticated way, enabling one-to-one marketing campaigns. Players that have been involved in a Transformation Program need to start investing immediately in data management systems. The ones that preferred a Use Case Approach - also to reduce the initial investments - might consider in a first phase the option of analyzing single segments of the customer’s base to whom address specific services.

In an Open Banking model, Banks should put customers at the center of their development process. Since it is not possible to serve all the potential segments in the market, as a first step towards Open Banking, Banks have to start looking at their current customer base, defining the key target segments to address a new value-added offer considering specific needs. Independently of the approach to adopt, it is important to involve the relevant stakeholders in the first decisional stages in order to understand the current positioning of the Bank in the scenario. In fact, a Bank may choose different strategic approaches for its positioning: for instance, to be a customer experience leader in a specific sector

Which data are relevant? Are you collecting data in the most appropriate way in relation to your channels? Are you able to analyze correctly data to gain relevant insights on your target customers?

A customer and data-centric approach

Collect Analyze and Classify Deliver insight

From unstructured data … to Business Insights

(i.e. in the retail consumer loans), or an efficient service provider in other segments.A Transformation Program should be approached defining from the early stage the strategic goals of the Bank both in terms of customer segments to address and the business model of the new offer in place to reach them. On the other side, the Use Case strategy, characterized by its step-by-step approach, allows Banks to analyze customers’ needs gradually. Players implementing a step-by-step approach can develop a single solution and test it on the market with a lower effort. Therefore, Banks can receive feedbacks from their customers every time a new product is launched, and change their strategy accordingly.

Document Clustering

Contact Center Automation

Customer Satisfaction Monitoring

Compliance Matching

CV Parsing

Risk Score Evaluation

Robo Advisory

…........

Conversational Analysis

Social Network Analysis

Information Extraction

Question Answering

Sentiment Analysis

Document Classification

Natural Language Generation

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Moreover, the service design phase should take into account not only the service features but the experiential aspects as well. Therefore, taking care of the entire customer journey becomes relevant, and involving in the co-creation sessions UX experts can facilitate the resolution of potential pain points of the experience in advance.

it is not important to avoid mistakes, but to investigate them as much as possible in the early stages of the process.

it is essential to test and re-test ideas and concepts until the achievement of affordable and valuable use cases.

it is crucial to include all major Stakeholders in the co-design phase and to work with multidisciplinary teams.

Embrace mistakes

Allow Iterations

Ensure Engagement

The new client-centric approach requires Banks to design services and products customized on the ever-evolving customers’ needs. In addition, the User Experience becomes always more a focal point of the service delivery and must be drawn carefully. For this reason, the approach of service design holds a key role in the new Open Banking model and new innovative methods for the idea generation and

What is the perfect product/service for your customers? Do you already know what your customers’ desires are? Are you able to design a User Experience tailored on customers?

A new way to design the offering

development have started spreading.In particular, methodologies based on the co-creation and co-design with customers of new products and services have revealed to be useful in meeting clients’ needs. Thus, Banks, irrespective of the adopted approach, should perform joint workshops and focus groups, until the products/services designed will not satisfy completely the target customers.

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Are you placing the client at the heart of the product/service ideation process? Are you able to catch the changes of customer’s needs and follow them along his lifecycle?

Banks need to understand that customer’s needs change over time and must react accordingly. For this reason, it results critical not only analyzing data to identify current needs, but also dynamically profiling customers to gain real-time insights and to intercept their new needs with the delivery of services always customized and tailor-made. This could seem a hard effort but the benefits deriving from it are noteworthy: if a Bank will be able to follow closely a customer during his lifecycle, it will be much more likely to retain him and obtain additional revenues from products sale and services delivery.

Therefore, in an Open Banking scenario, Banks need to direct their efforts to the creation of an offer of products that evolves over time during the customer lifecycle. The basic tool that enables to do so remains data analysis: without efficient and structured data management systems, it would not be possible to identify patterns and insights useful to follow properly the customers’ needs evolution.

2Food

7Entertainment

3Socialize

8Investment

4Shopping

5Sport

1Self-care

6Insurance

9Music

1

5

3

7

2

6

4

89

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Collaborations with Third Parties often allow shortening the time to market of a specific product/service and reducing the investment costs, but Banks need to evaluate whether plug-and-play solutions acquired on the market can ensure sufficient adherence to target customers’ needs. As written above, customization, innovative and tailor-made UXs are some of the key features of the new approach that is spreading. Therefore, the first aspect of an adequate Open Banking feasibility study should comprise both an internal technological and architectural assessment and a make-or-buy analysis of the market solutions. Players willing to start a Transformation Program might find themselves busy in structuring

For the implementation of an Open Banking value proposition, the technological aspect is fundamental: flexible architectures based on APIs are essential to communicate in a secure and efficient way with the other actors of the market, to integrate quickly and with low costs their solutions and to develop partnerships with them.

a roadmap for the evolution of their legacy systems to a new target architecture based on API, which should guarantee greater flexibility in accepting proprietary solutions and integrating Third Parties’ applications.However, also Banks implementing a Use Case Approach need to move their first steps towards an IT infrastructure renewal. The difference is that in this case, during the initial stages, Banks could implement only the architectural changes and develop the specific API needed for the identified use cases, postponing, at a later time, whether to expand the services offered with respect to the already existing APIs, in vertical logic, or rather to develop new ones, in a horizontal logic.

Do you have the supporting technology? Are you able to build products/services in-house or should you look for a technological partner? Can you assess the benefits of buying Third Parties’ solutions?

PwC analysis of the current technological landscape in term of international banks with an accessible developer portal and an available documentation on exposed APIs allows to have a clear view of the principal services enabled by the currently existing APIs.

Open architectures and processes re-design

Accounts

Cards

Loans

UtilityStatistics

InsurancePayments

Security NotificationsKYC

CrowdfundingInvestmentsLocators

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To serve in the best possible way their customers, Banks need to identify not only how to renovate their product offering, but also their internal processes. In this new evolved scenario, Banks need to redesign both their front and back-end processes to provide a frictionless customer experience in line with customers’ expectations.In order to set properly the processes needed to develop and deliver to the clients the new services, it is necessary to analyze the organizational structure of the Bank to define the Open Banking governance model. In both approaches, Banks have to design the target model needed to rule and manage the Open Banking operations, and eventually define roles and structures upholding the model itself. However, the global governance structures can be different according to the adopted approach.In particular, players that have chosen the Transformation Program define the long term strategy, and positioning based on external market factors and company objectives and define the major changes to be implemented overall the firm in a multi-year logic. Is usual the establishment of Innovation Lab dedicated part / full time to the definition and management of initiatives related to the Transformation Program, which coordinates the initiative taking input

Do you have a clear picture of the Customer Journey of the service in mind? Are you able to monitor customer satisfaction in all critical stages of the Journey? Are you able to identify where corrective measures are required?

Clients and market feedbacks to re-orient the offering

Are your products/services getting ready to go to the market? Have you set your processes to ensure a seamless experience to the customer and an efficient internal delivery?

Interaction with advanced tools

Continuous evaluation

Feedback

from the different product/business lines of the company. Sometimes the project governance is based on traditional structures (e.g. Organization) as a focal point for efficient management of the initiative and save the overall organizational cost.

On the contrary, Banks adopting the Use Case Approach prefer to start from the identification of the top services to be developed and the definition of the overall strategy around them considering internal and external factors. All the Vertical functions (Innovation, Technology, Business lines, Products lines, Multichannel, Digital …) are involved in short projects (called “sprint phases”), working together from the use case ideation to the implementation supported by specific “Agile methodology” and related facilities (spaces, tools, technologies). There is no a concept of traditional project governance managed by a central structure, but an overall involvement of the functions with a focal point that support the team with methodological guidelines. This approach helping to smooth the transformation process and can be a first step for a longer and more comprehensive Transformation Program.

After the launch of the product/service on the market, it is important to check if the Bank has undertaken the right path. The first way to do so is through customer’s feedback.

This concept has taken roots from the web experiences, in particular the ones related to social media, that consumers has started experiencing during the latest years. Feedback is a tool customers are used to and expect to find when using a service, and it enables Banks to monitor in a simple and direct way their customers’ satisfaction to identify potential pain points in the product sold or in the service delivered. In both approaches, an ongoing monitoring of customer satisfaction and the implementation of corrective measures based on their feedbacks is essential to guarantee a high level of service. By doing so, the Bank can really ensure that its

users feel like they matter and their opinion is taken into consideration.If the Bank, during the design phase, has defined the Customer Journey in a structured and precise way, the identification of all touch points with clients where a feedback monitoring system can be implemented will require a low effort and will bring great benefits in the future.

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The basis is the willingness to change skin

How is the market responding to the launch of your service? Do you need to re-orient the offering? If so, which aspects have to be re-oriented (e.g. pricing model, target customers, market)? What are the costs deriving from a re-orientation of the offering?

To embrace the Open Banking paradigm in a comprehensive way, the organization does not only need to innovate its ways of operating, but also its ways of thinking. Whether it is starting from a single business unit, or from a comprehensive change of the company, corporate culture shift is a transversal change involving all aspects of the Open Banking approach.

In order to complete this cultural DNA revolution, irrespective of the approach adopted by the Bank, the involvement of the Top Management, that must lead the change inspiring the whole firm, results fundamental.

Another aspect that Banks need to consider after the launch of a product/service is the market response. It is important to check the eventual necessity to re-orient the offering on the basis of volumes, customers and margins achieved. In fact, in order to understand the success of a product/service, analyzing customers’ feedback is not enough. Banks need to make a comparison of the estimates on expected satisfaction respect the effective results achieved after the go-live.A re-orientation of the offering may push the Bank in incurring in different costs, according to the approach to the Open Banking model it has adopted.

Is your company willing to do what it takes to grab the Open Banking Opportunity?

A Transformation Program requires more time to go to market and thus to obtain responses from it. Therefore, also given the high initial investments, it can be costlier to re-orient the offering and, for this reason, bad market results have a bigger impact on Banks utilizing this approach.On the other side, the specific features of the Use Case Approach, characterized by a shorter time to market and based on a trial-and-error logic, makes re-orientation easier and with lower cost impacts on Banks implementing it.

Operative model

Strategy

Corporate culture

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Find the right approach for you

understand which approach suits you; are you ready to undertake an overall company transformation or is it better to start with a lighter approach?

2 Get ready with technology Open Banking is about technology, flexible

architectures based on APIs are essential to communicate in a secure and efficient way with the other actors of the market.

3 Your client is your power

try to get to know him better and engage him; monitor feedbacks to acknowledge customer issues

and improve your service.4

Useful takeaways in approaching Open Banking…

Experience and Collaborate

find the right partners for you; create partnerships with third parties to extend and enhance your service offering.

5 Engage your team

spread an innovative and collaborative culture; to embrace Open Banking possibilities the Top Management needs to be a sponsor of the cultural change.

Where to start?

Marco FolciaPartner | FS-Transformation | Italy

marco.folcia@pwc.com +39 347 378 6843

Jan BäckströmPartner | FS Digital Services | Finland

jan.backstrom@pwc.com+358 040 721 4484

Contacts

The authors want to thank Sara Marcozzi, Gianmarco Zanetti, Heikki Härkönen Elena De Cagna, Jorge Prado,Kalle Kinnunen, for their involvement in the realisation of this study.

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