New regulations in the UK are changing how customers interact with their banks. John Ott, a partner with Bain's Financial Services practice, discusses why banks in Asia are paying attention to these new regulations and how they are preparing for the continuing shift in consumer expectations.
Read the Bain Brief: Coping with the Challenge of Open Banking
Read the transcript below.
JOHN OTT: Asia-Pacific banks are looking keenly at what's happening in the UK and Europe in what's called open banking. The reason for this is because there are regulatory changes in Europe and the UK, in particular, that are allowing customers to be able to access their information, or transaction information, and to initiate payments via a third party. And this is potentially transformational as a consumer.
And by the way, it's not just consumers too. It's also SMEs included. And so it's quite important to see that this could have a commercial impact as well.
But what a consumer can do is basically say, I'd like the information in my bank, my transactional information over a history of years, to be transferred to a third party, usually a digital platform, that can then search the entire market and find the best product for me at the lowest price. They can search for new lending opportunities, on the one hand, or they can search for new investment opportunities. On the other, they can make payments. So they can ask a third party to go into their bank, send a payment to another player, to somebody they're trying to buy something, e-commerce player, let's say, a taxi or whatever. So that's a big difference for the banks and how that's working. It's obviously working through open APIs, as they're referred to.
In Asia, the reason why banks are focused on this issue now is because some of the regulators, Singapore, Hong Kong, Australia, in particular, but also in China, Japan, Korea and India, are very keenly thinking about what they should do, some more aggressively than others. But actually, consumers themselves are demanding this because they actually see this in the rest of their life. They see this when they go online, and they're trying to book airplane tickets. Or they want to buy a house.
And what they really want to see is banking inside of that process. They don't want to have to come out of booking concert tickets, for instance, and then make the payment via their bank. They want to just be able to click on a button and have it move through quite seamlessly, from something simple, like I said, booking a ticket, all the way to buying a home.
Now, the implications for banks is significant because what they need to do is think very clearly, who are my customers at risk? We think of the top sort of 15%, 20% most profitable customers could be at risk, which are responsible for half or more of the profits, usually the wealthiest customers and also the most digitally savvy. So we have to figure out who those customers are, offer them real value propositions that are simple, easy to use, banking inside as we've called it, but also very low cost.
That means that the banks themselves actually need to dramatically lower their costs across what they're doing. They can't be slow, inefficient and high priced and be able to do this. The last thing that they need to do is, of course, change the way they're working. They have to be much more digitally enabled, much more agile, in terms of how they're going to develop these value propositions, change their IT platforms to be much simpler, easier to use, and then deliver to customers' expectations.
Coping with the Challenge of Open Banking
Major UK banks enter 2018 facing new regulations that make it easier for smaller rivals to lure away customers. Here’s how the big banks can fight back.