Educating consumers about the benefits of open banking, which include offering products and services that help them save and better manage their money, can enable open banking participants to rebuild trust, and position them to innovate more broadly. This could include using a holistic view of consumers’ financial behavior to design entirely new products and services. Or, as Australia’s open banking ecosystem expands to include energy, telecommunications and eventually other industries such as health and retail, banks could consider cross-sector partnerships to further drive innovation.
Progressive participants can leverage their brand beyond finance to offer consumers an entire suite of “lifestyle” services. This is similar to models adopted by some of Australia’s biggest airlines and retailers, and has proven successful in other Asian markets. These models succeed because they have a holistic view of customers - including the products and services they want and how they like to experience them. If banks can use the data available in open banking to develop that deep understanding, they can design and deliver different products and services that add more value and build deeper customer loyalty.
Challenger banks should move early
But, open banking is also a huge opportunity for Australia’s tier-two and challenger banks. These banks have a further one-year delay to adopt open banking. They could be tempted to use this as an opportunity to wait and see. However, global experience is that this delays the compliance activity, leaving others to test and learn their competitive positioning and partnerships. Our advice would be to move now to understand how to compete, rather than wait for the compliance deadline.
With both the big and smaller banks subject to the same open banking rules, the challengers have a rare opportunity to leverage customer insights and gain market share from the major institutions. Those that think cleverly about how to compete, rather than just comply, and use their own brand strengths which are often in customer experience, will be in an excellent position to unlock the value of a market currently dominated by incumbents. Tier-two banks may want to consider collaborating as a group, to better leverage their investment in open banking and compete more effectively.
Competition from global players and tech companies
Both Australia’s big four and tier-two banks will need to consider strategies to compete against new players in an open banking world.
The commonality of Australia’s open banking standard with that of the UK and other jurisdictions lowers barriers of entry for global companies, both from the financial sector and beyond. Many of the world’s tech giants already offer payment services. They have won huge consumer favor with Australians who, as our survey found, are relatively mature adopters of FinTech services — 37% of digitally active consumers use two or more services.
The ability of newcomers to the sector to use application interface programs (APIs) to access a wealth of customer data previously available only to incumbents puts them in a position to move fast. These new competitors often bring new technologies and platforms, a nimble culture and an ability to innovate and iterate more quickly than any incumbent.
Embedding innovation across the business
The onset of open banking in Australia will change the nature of the competitive landscape, not just in finance but across sectors. Consumers will benefit from better services and prices, and more choice. For financial institutions, the opportunities to use open banking to deepen relationships with customers, develop new products and services, and even explore new roles are huge - but there will be lots to do to unlock the real value of the upcoming changes.
The key message to all players is to recognize the complexity and diversity of the work required to prepare for open banking. While it’s true that the right technology tools and capabilities will be imperative, this is not just a technology problem. Innovation will be central to success in open banking, but standalone initiatives will not be enough. Embedding a culture of innovation, collaboration and partnerships will be essential - and may offer smaller banks and newcomers an edge over the incumbents.
For Australia’s major banks, open banking presents a strategic dilemma about where they would like to position themselves in this new ecosystem. Will they merely comply and risk becoming relegated to the status of a utility provider? Or move to own the customer experience? Can they innovate and pioneer the next game-changing ecosystem with frictionless access to financial products and services? Do they want to become the go-to institution for customers - not just for financial services, but in many aspects of their lives? And, how could new partnerships help achieve these goals?
Whichever strategic direction they choose, maintaining consumer trust must be a priority - without it, banks simply cannot move forward to leverage the opportunity of Australia’s open banking revolution.
Author contribution by Mike Booth, Director, EY Australia Financial Services.