The service formerly known as banking

Open banking has the potential to transform how both retail and corporate customers choose between their banking providers and switch financial products. According to Martin Ekenbäck from Tink, being a first mover and adding payment initiation services are key requirements for a company to achieve success in this area.

The Swedish company Tink launched its direct to consumer app in 2013 with the objective of helping users stay on top of their finances. Proving popular from the beginning, the Tink app quickly grew to number 500,000 users in Sweden. Moving on from the initial consumer app, Tink now focuses on providing B2B services by licensing out its technology primarily to banks in order for them to create services on top of the underlying technology. Tink’s offering primarily provides account aggregation, personal finance management, payment initiation and data enrichment. Nordea has partnered with Tink to develop new products and services for its customers and beyond.

Martin Ekenbäck, Business Development Director at Tink, says: “We all know that the world is changing, and everything is becoming more digital. People are using digital services and connecting with other people and devices like never before. Our entire society is producing much more data now than it did five or ten years ago. This changes things because it is becoming a competitive advantage for those who can leverage that data to create better services for end-users.”

Despite the fact that companies with almost entirely digital business models are disrupting and transforming entire industries, Martin notes that retail banking is an industry that hasn’t actually changed that much.

“Retail banking is now more or less the same as it was 100 years ago. It has been a very locked down industry with low transparency and high barriers making it an imperfect market as its very hard for people to optimise which products they choose. In a way you are more or less born into the bank that you use and from a retail banking perspective the only way to acquire new customers is to wait for your current customers to produce children!” he adds.

Open to change

However, due to advances in technology as well as regulatory changes, notably PSD2, change is also beginning to happen in the banking industry.

Martin Ekenbäck continues: “We now see that customers are selecting a more diversified portfolio of products. You might have your mortgage with one institution, your pension with another and so on. We believe that PSD2 is not really the big game changer but rather the catalyst that speeds things up. The underlying momentum is really driven by technology. With PSD2, I as an end-user will be able to access my financial information and provide it to anyone who I think can create value from that information.”

“You will also be able to move money without necessarily needing to interact with the bank. This will create a whole new dynamic in the marketplace, basically enabling customers to bank from anywhere and with anyone. This means we will have an even more liquid market in a way that we haven’t seen before. People will have the ability to look at the banking market as a fully transparent market and people will have far fewer barriers when it comes to switching products.”

Making use of data

As the banking industry adapts to the new normal of digital openness there is a real opportunity for company’s best able to adapt to this environment.

Martin Ekenbäck says: “While this change can be seen as a threat by some, we really believe this is an opportunity of a life time in digital banking. There is no Netflix or Spotify in retail banking yet but there is a real opportunity to become more data driven in the way banking services are offered. Understanding your customers is of course key. Given that you have access to data, you will be able to gather data, not only your own data but data from other places, about the consumer. That data should be used to gain real understanding of the customer.”

“As you will be able to bank from anywhere, it becomes extremely important to create a good user experience because users will do their banking where they believe they get the best user experience. If you have gathered the data and have the end user on your app, you then have a fantastic opportunity to do data driven sales and really present relevant products to users that improve their value. Mastering this at scale, to be very good on an individual level in an automatic and targeted way is a fantastic opportunity. Everyone will have their private banker on their phone and the question is who that’s going to be?”

Payment initiation key

When developing the Tink app, things took a leap forward with the addition of payment initiation which allowed customers to directly act on the data driven advice that they were receiving.

“By infusing payments to the Tink app, we were able to let customers move money from one account to another account regardless of their bank. In the Tink case, before we added payment initiation, we could only really advise them which was not really a great user experience. You’re not really that relevant until you are actually able to move the actual payment,” continues Martin.

“We now see companies that aggregate information, not only payment information, so that you can have all of your accounts in one place regardless of which banks you are engaged with, giving you a nice overview of where and how you are spending your money. Moving from that descriptive and static presentation to being really personalised and data driven so that you can provide advice that is relevant is the next big step and a shift that we are now starting to see. When we talk about PFM (Personal Financial Management), it’s about adapting to each user’s financial profile their financial behavior and financial products and giving proactive advice.”

Customers and other users

With a fluid movement of users and financial services, apps can be opened up to include users that are not actually customers of the bank.

“If you provide a front end where people want to go banking and you are able to aggregate the user’s complete engagement across their banks and provide related digital advice, the front end should not be limited to a bank’s customers only but opened up for anyone to use. If you can include payment initiation as well, you will be able to one by one look at the products customers have with other banks and challenge those products by presenting more relevant ones based on your product portfolio. You can provide a quantifiable offering: ‘You will save this much money if you change product’,” adds Martin.

You will be able to onboard users smoothly by using payment initiation. In Nordea’s case, customers from other banks can be onboarded to Nordea products without leaving the Nordea environment. This can be done directly in the app.

Martin Ekenbäck, Business Development Director at Tink

“This is the way we believe that the industry is going; full transparency, data driven sales and technology that enables customers to switch. We usually talk about money on autopilot. We already now use advanced algorithms that are automated in terms of executing on trading strategies, but why stop there? I as a customer could put my entire finances or at least part of them on autopilot telling someone ‘I have this money, I want to have the best interest rate on my savings account’ and then push execute. Then that is automatically executed into a fund or a mortgage, etc. That’s far ahead but maybe not that far ahead so being able to be that player where consumers go to do banking is really key.”

First movers win

The first movers able to provide an app with the best user experience and data driven opportunities for optimising the selection of financial products will gain a strong position in the market.

“We think that there is a first mover advantage here. While we see many different aggregation and PFM services appearing, not many have added payment initiation to their offering. Also, services are still quite descriptive rather than prescriptive. As the user, I am given a lot of information, but I’m not advised how to act on it. The next step is to enable customers to execute on the information. You can do that if you are within the limits of your own bank but the challenge here is to embrace the opportunity of open banking. You should really aim to be relevant for everyone, regardless of whether they are customers or not and really take the challenge to onboard all users. That’s where we see that payment initiation fits in,” concludes Martin Ekenbäck.

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