Customer Empowerment

Customer Empowerment & Concrete Lifejackets

In just over 12 months the whole landscape of banking will change forever. The new open banking standard, with its secure API, will make it possible for customers to access and share data that banks have historically held.

That will kick open the door to customer choice and will put the customer in a position of unprecedented power.

For the first time in the world of finance, the customer will be king, and financial institutions are starting to gear themselves up for what this means. In some of these boardrooms around the country, there is a dawning realisation that very soon, they won’t be able to rely on the concept of  “our customers”, because its going to be so easy for those customers to up sticks and move to another institution.

Other businesses, unfortunately, are adopting the ostrich position and with sand in both their eyes and their ears, they just aren’t recognising the enormity of the financial revolution! If you’re working for a financial institution, I truly hope its one of the ones that’s ready to embrace open banking!

This time next year, financial institutions will have to face the fact that customer loyalty is a thing of the past. Their customers will be shopping around, cruising comparison sites and moving their mortgage around in just the same way they have learned to juggle their utility payments to get the best deal.

Up until now, consumer loyalty to financial institutions was often unintentional and more a case of inertia, because moving an account is just such a tough thing to do. In fact there are whole layers of inertia:

  • inertia to change current and savings accounts
  • inertia to shop around
  • inertia to change direct debits and standing orders
  • inertia to aggregate financial data and present this to an alternative provider within that sector

Financial inertia ends

However, when open banking allows customers to move accounts and loans with ease, there will be inertia no more. Instead, people will be leaping off sofas to hit the computer and respond to a better deal.

That means that any retail bank which has indirectly benefited from customer inertia, and relied on technology constraints making it too arduous to move bank, is going to be left with products that are as appealing to their customers as a concrete lifejacket or a chocolate teapot! They are about to become victims of open banking. It is going to be open season, as first of all, the millennial early adopters respond with enthusiasm to the new financial landscape and click their business away. And then, soon after, as has happened so many times before, the older, more valuable customers follow hot on their heels.

Brave new world

Here is what the brave new world is going to look like in about 12 months time:

  • The 10-minute mortgage! The next generation of financial consumers will find it laughable that it takes anything from 3 – 8 weeks to complete a mortgage
  • A one minute loan! Can you imagine  regular consumers getting their money into their PayPal, Amazon, Apple Pay or current account (if they still have one) in less than a minute?
  • 30 second life and home insurance

I could go on, as with open banking’s resource of API and data aggregation applications, the possibilities are endless.

Cash for data anyone?

In this new world of financial data sharing, data is currency, as I’ve mentioned in an earlier post. Consumers will be rewarded for providing financial retailers with the most comprehensive review of their data, as long as it is demonstrably accurate and up to date. Any consumer who can present their financial data to financial service providers and show their credit behaviour, aggregated transactional banking data and demonstrate that they can manage their cash flow over an annual period, will become the new “Prime” customers of tomorrow.

Why? Because the art of risk management will be forever transformed and the new “Super-Prime” customer will be the one whose risk can be most accurately measured – not necessarily the lowest!

Sub-Prime consumers will be those who still depend on underwriting departments to pull all that information together for them, and as a consequence will pay a higher price for the product they are shopping for – or at the very least wait the longest for it to be delivered.

Data equals discount

Data equals discount is going to become the mantra of the financial services sector! Customers will be challenged to “show us the data” before their loans are approved and as inevitable, initial concerns around security disappear, the savvy customers will comply.

At Castlight we have a technology platform that uses secure API technology to aggregate a customer’s credit rating and transactional bank data and provide the most comprehensive financial data analysis possible. This data is turned into what we call an Affordability Passport® – all the data that a financial retailer will need to fast track a customer through the necessary processes of delivering a product.

We are ready and equipped for the new financial world and looking forward to the adventure!

Will you sink or swim?

However – if the boardrooms of financial retailers aren’t buzzing with strategies to align their businesses around consumers empowered with the currency of aggregated data and open banking, their institutions are in serious danger of becoming irrelevant and obsolete within the financial sector.

The data savvy customer as the norm is just around the corner and an 8 week mortgage is going to be about as much use to them as that concrete lifejacket!

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