More choice for consumers. Frictionless digital finance. That’s the promise of open banking, a financial data-sharing approach just beginning to take off in the U.S. And with one-third of U.S. financial institutions practicing customer data sharing with third-party entities, it’s a sign that FIs are starting to see use cases and value in open finance, too. (Open Banking Excellence)

Still, challenges and questions remain. Connectivity failure is often common for first-time open banking users trying to link their accounts to third-party applications. (Bloomberg) And major banks remain hesitant. Though open banking holds clear promise for consumers, many FIs in the U.S. see uncertain monetization potential. 

However, the trajectory of open banking in the U.K. reveals that banks have little to fear — and a lot to gain. Five years after the Competition and Markets Authority (CMA) order, the top six banks continue to dominate the market, collectively holding 87% of the UK current account market. (Financial Times) And as these banks are discovering, open banking is all about data — and they’re starting to innovate, build value, and productize accordingly. 

Read on to consider four key open banking use cases that show how banks can thrive with data-driven innovation potential.

1. Enhancing Customer Experience + Value-Added Services

Delivering better customer experiences is a strategy for long-term success in an era where user-friendliness, flexibility, and personalization are must-haves for consumers. 

With open banking APIs, it will be easier than ever for consumers and businesses to share both financial and non-financial data with their bank — from retirement planning data to corporate accounts payable and receivable.   

Banks can then create financial management solutions, streamline payments, and other value-added services. Account aggregation services made possible through open banking data sharing can help: 

  • Consumers keep track of their savings and investments, manage subscriptions, or meet their financial goals.
  • Businesses manage corporate finance and centralize accounts for B2B invoicing.

With the power of machine learning and AI, banks can then deliver even more value to corporate and consumer clients, using predictive analytics to offer intelligent recommendations and drive efficiencies and cost savings. 

J.P. Morgan is a leader in leveraging open banking for the corporate finance space. Partnering with a startup to enable digitized, streamlined invoice management for enterprise resource planning (ERP) and treasury management, Chase is helping firms make real-time transactions across accounts and optimize B2B invoicing.  

2. Data-Driven Lending and Decisioning

As McKinsey suggests, banks have major opportunities to innovate and modernize lending for small and medium-sized businesses — a $5.2 trillion market, based on World Bank figures. Open banking practices offer one way that institutions are finding opportunities in SME lending.

That’s because, at its core, open banking is all about data sharing. For banks, that means better credit and risk decisioning. By combining consumer data and transaction history with credit risk modeling expertise, lenders can instantly and accurately score applicants to inform tailored loans offers. For consumers, exchanging transaction data means better loan offers and better financial product experiences.

DirectID is working to power lending with open banking data. In a project with the business lender, GotCapital, the company eliminated paper statements and enabled loan delivery within 24 hours. In partnership with Constant, a fintech provider for banks, DirectID is also helping credit unions make financing decisions. By automating a connection to consumers’ bank accounts, credit unions are now making financing decisions in less than ten minutes; that turnaround time previously took nearly a week. (Finextra)(Money20/20)

3. Enabling Data and Consumer Insights

Transaction data reveals a vivid consumer picture in real time — from creditworthiness to lifestyle to purchase method preferences. A bank statement may show that a customer is steadily accumulating fishing gear; so, maybe it’s time to offer a loan product for recreational purchases. Or a segment of customers may be purchasing a significant number of subscription-based services; FIs could micro-target this segment with a subscription manager product offer. 

With open banking, consumer transaction data can power a wealth of insights, enabling highly-curated offers and informing innovative product development tailored to customers’ needs.

DirectID uses this real-time transaction data to build credit risk modeling. For one leading financial institution, they’re using open banking data to enhance decisioning for SME lending — and predicting end-of-day balances three months in advance and with 93% accuracy. (Money20/20)

4. Leveraging Open APIs

Sharing banking data securely is one of the biggest challenges and opportunities of an open banking system, and secure open APIs are the answer. 

Through open banking API integrations, the immense potential of open banking comes to life, connecting consumers with a host of banking and financial service offerings. And firms outside of financial services can leverage real-time data sharing through open banking APIs, using consumer financial data to enable seamless customer experiences.

NatWest is a U.K. leader in this area with its Customer Attribute Sharing program, which grants businesses access to read-only financial data. Telecommunications and other service providers can use NatWest’s customer data for document-free digital onboarding. The bank also verifies and notifies businesses of customer profile information and updates, with use cases ranging from government filings to vehicle purchasing and registration.

For data-driven growth in financial services, work with Blankfactor

At Blankfactor, we’re always working to drive growth and innovation for financial services through data. From payments to capital markets to core banking, we’re partnering with some of the world’s leading FIs to rearchitect their data, enable ML/AI solutions, and design cutting-edge financial products and solutions. 

We help companies innovate and define high-impact use cases for the latest technologies, including open banking. Get a 60-minute solution session today to find out how our expert engineers and strategists can deliver the solutions you need — fast.