Building trust in an era of open banking

Digital transformation Banking
Banking's future
A bank is only as successful as the depth of its customers’ trust. With new players venturing into the realm of financial services and competing for customers, banks have reached a critical juncture in their digital transformation journey. Rik Coeckelbergs of The Banking Scene looks at how traditional financial services providers could safeguard the longstanding bonds of trust they share with their customers and increase their relevance in the era of open banking.

Banking’s future and the role of trust

I had a fascinating conversation with an executive banker a while ago that helped deepen my understanding of the role consumer trust will play in banking’s future, especially as it pertains to Big Tech. In this context, we should clearly distinguish between implicit and explicit trust.

While banks may score poorly in explicit trust compared to some other industries, they do rank highly in implicit trust. People may say they don’t trust the banking industry but they trust their banks implicitly. They count on them to safeguard their money and, depending on the bank, other valuable and personal assets. The pandemic has only confirmed this dynamic.

Essentially, this means three things:
  • Implicit trust allows banks to develop and test new business models.
  • Banks must make these changes carefully because it is easier to lose trust than gain it.
  • Banks are not typically top-of-mind for consumers for anything other than essential banking services, so they should find ways to be there whenever needed.

Banks that dream of being the single point of contact – developing the “super app” that provides everything – will need to find ways of earning explicit trust. While some banks might achieve this, most will not. Offering services that are far removed from essential banking is often a challenge for them and, in any case, people tend to think that banks are only good at what they have always done. Many will say that banks’ focus or restraint is as it should be.

So, the question for banks is: do they want to become a one-stop-shop platform or, instead, look for alternative ways to increase their relevance by building on their existing implicit trust? Which model will help them nurture trust in a way that enables them to keep experimenting?

The invisible bank

Each bank must evaluate its own situation. To determine whether they should become a comprehensive platform or a financial companion on other platforms, banks will need to consider their position in the market, how they are perceived by their customers, and their ambitions for the future. For most incumbent retail banks, the platform model would be ideal, but not necessarily a realistic goal. The alternative is to make sure the bank can assist their customers wherever that customer needs it. Banks really ought to start thinking about customer journeys in a way that goes beyond the controlled confines of their mono-brand physical and digital assets.

What is clear from my many conversations with bankers is that the branch will no longer be the preferred point of contact for customers. This is not a matter of cost or ROI, but customer expectations. As they do in retail, customers want to choose when and where they interact with their bank to make their lives as easy as possible.

Karin Van Hoecke, general manager of digital transformation at KBC Belgium, was clear in our Open Banking Interviews: “The more you can create this ultimate laziness for the customer, without the need to really be there, the more they will appreciate you. In creating this kind of experience, you also achieve the new loyalty. That is certainly a big trend.”

The new loyalty

To inspire the ultimate laziness, banks must understand their customers better than they understand themselves, by collecting details like:
  • What keeps our customers awake?
  • What do they do in their day-to-day lives?
  • Who do they turn to when making life-changing decisions?
  • How can we, as their bank, make our customers’ lives easier?

Banks cannot do this alone, not even with all the data they have access to. Partnerships with third parties, therefore, are essential if banks want to understand their customers better and vice versa.

Which brings us to open banking and open finance – more than just buzzwords or regulatory works in progress. Indeed, open finance invites almost philosophical discussions about the way banks could organize themselves in the future. The use cases and examples we see today are only the tip of the iceberg in terms of the opportunities available to help banks become both invisible and more robust than ever.

The time is now to start testing new models and partnerships because, if banks don’t, they can be sure others will. The key is to stop thinking about how to create digital transformation and instead reflect critically about why. Stop thinking about how to sell more mortgages or personal loans, and think about the advice and services their customers will appreciate when they’re looking for a new home or mobility solution, like a new car. With direct open banking integrations, banks could provide their mortgage solutions on real-estate websites or partner with vehicle companies to provide the ultimate hiring or purchasing experience. Instead of thinking about how to sell savings and investment products, the focus should be on connecting with customers to help them realize their dreams.

That is how the banks of the future will inspire loyalty.

A web of trust

To nurture customer trust in this new, expanded financial services ecosystem, conscious choices on authentication and user identification are essential. Only the highest level of security combined with the ultimate convenience will suffice in maintaining customer relationships.

Enhancing customer experience means tailoring security to a particular user journey and the precise context of the digital interaction.

No-one said it would be easy. It requires a whole new way of thinking about transaction services, whether that is for payments, contract signing, or credit approvals. Different channels require different forms of authentication; some transactions may require a greater level of security requiring user interaction. Ultimately, though, the user experience should be as frictionless and as consistent as possible, across all channels. After all, the complexity of this balancing act is your problem, not your customers’.

When building innovative new models, banks will have to continuously work to convince customers of their value. Successful new ventures are the only way banks will keep up with Big Tech and others in the future while maintaining the implicit trust that they have earned over centuries.

Finding the right partners is not just about creating new sales channels, it’s about finding the most secure solution that also delivers the convenience that consumers expect.

Check out what banking transformation and digital security experts have to say about the pursuit of friction-free access. Download the Entersekt Ideas Lab ebook New Directions in Authentication.