For years, banks have been losing facetime with their customers.
From the push to get customers to use ATMs instead of branches, to the shift to online driven by banks and fintechs – and most recently by COVID-19 – a the opportunity to spend quality time with customers that going into branches afforded banks has actively been eroded in the name of innovation and operational efficiency.
Drawing money from ATMs forces people to interact with the banking brand, at least momentarily, and that quick tap or swipe of a bank card at a till means they hold the bank’s logo in their hands for a few seconds. But when they shop online, it’s not their own bank’s logo you see — it’s the MasterCard or Visa logo. When they pay with Zapper or Snapscan, the money is leaving their bank account, and the bank has lost that link to its customer.
It’s hard to create a meaningful, let alone a marketing relationship with a customer if you’re invisible.
It’s a choice for each individual bank to make. A bank can actually extend its reach if it allows its ecosystem partners – retailers, telcos and other fintechs – to own the end user relationship while the bank becomes a provider of banking services in the background. In this way, Open Banking is driven by banks and ecosystem partners, for the mutual interested of both parties in the service of the customer experience.
Still, in this model, the bank cedes its customer relationship to a third party. So how else could banks see this as an opportunity instead of a threat?
To answer that question, I looked at Hong Kong.
In January 2019, the Hong Kong Monetary Authority (HKMA), which functions as a central bank, launched Phase I of its Open Banking initiative as one of its seven priorities for the industry.
When the Hong Kong Monetary Authority (HKMA) launched its seven priorities, one of those was Open Banking.
In fact, it launched its Open Banking API framework in January 2019 with Phase I, and followed that in October 2019 with Phase II.
That was a year ago. So we can see how the banking industry is responding there and draw some lessons.
Twenty retail banks participated in developing APIs for information about products and services. There are now more than 500 different open APIs, and mobile apps and websites are using them to provide exchange rate information as well as deposit rates and loan product comparisons.
Phase II launched a year ago in October 2019. This allows third parties to process applications for banking products and services.
Dates have yet to be set for Phase III, which will allow third-party providers access to account balances, outstanding credit card balances, transaction records and related information; and for Phase IV, which will allow third parties access to inter-account transfers.
Accenture researched what banking customers in Hong Kong thought of Open Banking. You can read the report here.
I wanted the banks’ point of view, so I found some information from the Hong Kong Institute of Monetary and Financial Research.
Banks in Hong Kong mostly see opportunity in open APIs, but plenty of players see some threats as well. What is interesting, is that pretty much all the banks are adopting fintech and using the APIs. They see themselves as adopters, not followers.
Deposits have become moderately less sticky as a result. But banks’ improved cost-to-asset and return-on-asset ratios are correlated with their investment in fintech. Does their fintech adoption improve those ratios, or are there other factors at work? It’s impossible to tell.
The most important nugget is that these banks are making sure they are avoiding the APIs where they can possibly be disintermediated. Hanging on to the customer relationship is seen as very important for them.
When Phases III and IV of Hong Kong’s open APIs are launched, we will start to see the ground shift rapidly. Suddenly, customers will be able to use a third-party app to move money between accounts — even at different banks. They will be able to get a holistic view of their accounts across all participating banks. When that becomes possible it will be interesting to see how the large banks make sure they are still investing in their relationships with their own customers.