With regulation directed toward open banking imminent, now is the time for banks to set a strategic vision for their data management. A coherent data management strategy not only addresses compliance issues but also meet customers’ evolving needs in an increasingly data-rich society.
Customers may be uncertain about what open banking entails, but there is still an opportunity for financial institutions to define the process for them. Javelin defines open banking as enabling customers to easily and securely share their bank data with third parties. Given this focus, the first step a bank should take toward open banking is developing a data strategy to serve as a solid foundation.
Unfortunately, much of the conversation has been driven by regulation, leading many financial institutions to be guided primarily by legal considerations.
“Before open banking starts kicking into high gear, the digital banking folks need to make sure they’re in the room and that the lawyers aren’t running the show just by themselves,” said Dylan Lerner, Senior Analyst of Digital Banking at Javelin Strategy & Research. His new report, Open Banking: A Vision for Customer-Driven Data Management, provides a “3 Cs” framework for bankers to follow as they embark down the road to open banking.
A Customer-Centric Framework
Javelin’s “3 Cs” framework for customer-driven data management outlines a strategy for FIs to develop an open banking approach: centralization, consent, and control. One challenge banks face today is that customer options are fragmented. They manage marketing opt-outs in one place and privacy preferences in another. “It’s completely unorganized and a mess for customers to deal with,” said Lerner. “The first thing a bank needs to do is centralize all of those options and information.”
A customer’s digital banking experience should feature a central data management hub that consolidates these functions. When changes are needed, there should be one place for customers to manage their connections. Centralization is about making it easy for customers to find what they need.
Consent—specially informed consent—ensures that customers are making their own decisions. A strict policy for “informed consent” transforms transparency into education and understanding, ensuring that terms, conditions, and functionality are not just disclosed but are also presented in clear, understandable language.
Lastly, control is about empowering customers to act on their decisions. Customers gain control through granular permissions, allowing them to share only what they feel is necessary. This means providing not just the controls but also the capability to manage their digital footprint effectively.
“My favorite analogy here is those cookie consent pop-ups,” said Lerner. “You might have seen some of them that will just give you a nuclear option: all cookies or no cookies. We want to change that to something that emphasizes that there’s more going on here. We want to give you the control to say what exactly you want to share.”
Winning the Customers Over
Another important step toward open banking is demonstrating to customers that it serves their best interests. According to Lerner, the best way to generate excitement is showcasing the potential benefits of having all their data in one place.
About half of the top 20 financial institutions are dipping their toes into services like external account aggregation and third-party access oversight and control. A handful of them are advancing further with capabilities such as automated direct deposit switching and card-on-file management.
For instance, Bank of America allows access to a range of information, from student loans to credit scores. Being able to combined all this data to create a comprehensive, value-added service is what will truly engage customers.
Lerner’s report offers examples of how some larger banks are experimenting with new ways to engage their customers. U.S. Bank’s data-access reports, for example, enhance transparency and keep customers informed, while using YouTube videos and other multimedia educational materials to promote accessible learning.
Above all, Lerner emphasizes that financial institutions should not let lawyers dictate the digital banking experience. It’s important to not only meet regulatory requirements but to exceed consumer expectations.
“The compliance requirements and regulations are out there now, but that’s not where a bank needs to start,” Lerner said. “Before we can address those concerns, though, a bank needs to develop a solid data strategy as its foundation for open banking.”
