How Open Finance Fuels Innovation and the Democratization of Data
May 3, 2022 | 2 min read
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March 19, 2020 | 0 min read
A note from MX CEO Ryan Caldwell:
Given all the recent headlines about the novel strain of coronavirus, some financial services companies might think the best way forward is to “wait and see” how this all plays out.
Normally, this is the right response to uncertainty. However, the current crisis requires that financial services companies think differently when it comes to at least one area in particular: digital banking. After all, the spread of covid-19 is revealing just how essential digital banking solutions are in the current global marketplace. People not only want to avoid brick and mortar locations, they often can’t go to brick and mortar locations. In light of this, financial services companies that don’t have a strong digital presence are losing out to those that do — and this will continue to be the case as time goes on and uncertainty grows.
At MX we have a philosophy to grow during the good times and take advantage of the potential growth that is only possible through tougher times. This is particularly important when it comes to digital initiatives. As Peter Wannemacher, principal analyst at Forrester, says in American Banker, “There's really not a good reason that a customer of a bank can't accomplish any task through a digital touch point. I wouldn't be surprised if in two years the state of digital applications had grown and matured faster than it has in the past five years because covid-19 made them take it more seriously.”
Put simply, right now is the time to prioritize digital initiatives.
Financial services companies are asking people to self-serve through mobile and online channels to limit traffic in branches and reduce the number of employees at contact centers. One of our clients in the Seattle area has already seen a 10% increase in mobile money transfers from the middle of February 2020 to the middle of March 2020, as well as an uptick in mobile banking sessions.
Digital channels enable you to service your customers while taking care of employee wellness. Giving customers an immediate solution to accessing their money and understanding their spending is exactly what they need right now.
Your customers are being hit hard by the current financial downturn, and they’ll need help to navigate it. In fact, the number of U.S. consumers who are “somewhat” or “very” concerned that covid-19 will hurt their financial health jumped from 68% to 83% over the past two weeks, according to data from J.D. Power.
This situation represents an enormous opportunity for financial services companies to build long-term loyalty and win life-time customer value. With the right tools, you can automatically notify customers where they can reduce spending and make their money last longer. For instance, there are certain subscriptions, such as gym or spa or massage subscriptions, that people might consider canceling for the time being. Most people aren’t thinking about that right now, but those small changes could make a big difference in the months to come.
Using common-sense financial insights to bring awareness to customers about their spending habits right now is critical.
With enhanced digital analytics, you increase your ability to see what’s coming and mitigate risk. For example, you can see which customers are in industries that are directly at risk of job loss or layoffs (service industry, travel, etc.) based on direct deposit info. You can also see which concentration of customers are already in financial crisis or will be if their income stops from their income, savings and spend ratios.
Based on this data and more, you’ll have a far clearer picture of which customers and sectors could be possible default risks. You’ll be able to mitigate risks other companies aren’t aware of. It’s true that you may have CIF data on some of these things, but that data is likely not as real-time as the transaction insights that can come with advanced data analytics. And in an era of fast-moving stories, real-time is key.
To illustrate, we’ve seen sharp decreases in spending on airplane tickets, hotels, and cruise ships while spending on fast food, groceries, and general merchandise has held steady or gone up. MX clients can track this data in real time and note any new trends as they happen.
Financial data aggregation can help you see opportunities to increase revenue and offset losses. As customers consolidate their accounts in one place, you can see which of your financial products will best serve those customers at the right time.
For instance, let’s say that digital technology enables you to see that a customer who has aggregated all their accounts has a car loan rate of 4.5% with a competitor. Since you can offer them the same loan for 3.5%, you serve them up an offer to do so, and they accept. Now you are making revenue off that loan instead of your competitor. Or say that you see a customer who has a 24% APR on a credit card from your competitor, and you get them to switch with an offer of 16%. In this way, you’ll enjoy the revenue recovery that’s only possible with enhanced digital technology — a strategy that’s especially important during a time when people are looking to optimize their finances.
Again, while the impulse to “wait and see” typically makes sense during a time of turmoil, one notable exception has to do with digital banking. As more and more people commit to social distancing, the demand for exceptional digital experiences will skyrocket. If you want to thrive during this time, the safest route is to commit to digital. Whether it comes to data aggregation, data enhancement, data analytics, optimizing the user experience, or more, MX can help on this front.
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