Open Banking

Open banking to retain customers and drive revenue

Open banking allows organizations to quickly and effectively create personalized offers that increase customer retention. Dive into how open banking can help increase customer retention, and revenue.

Despite the intense focus in many companies on customer acquisition and new sales, customer retention makes up a significant portion of revenue and profit. According to Bain, a 5% increase in customer retention can boost profits by up to 75%. This is because retaining customers can be cheaper than gaining new customers, and customers who are happy with their services are less willing to switch. Loyal customers also tend to increase their level of service, leading to greater lifetime value. 

There are many ways that companies can affect customer retention: improving customer service, expanding lines of products and services, providing incentives and more. However, one strategy stands out: providing personalized offers that create engagement and meaning for customers. To do this well, companies should consider the tools that open banking and open finance allow. 

In this article, we discuss how open banking opens the door for greater personalization, cost reduction, and meaningful data-driven insights. 

Hyper-personalization with open banking

With the growth in data availability and service levels, customers have grown to expect hyper-personalization from their providers. Netflix is a classic example of this in action. Based on the company’s algorithm and the viewer’s watching habits, Netflix can accurately predict and recommend shows the viewer is more likely to enjoy. These personal recommendations have led to 80% of Netflix viewer activity and saved the company an estimated $1 billion in subscription fees. 

As the example of Netflix shows, the cornerstone of customer service is understanding customer needs and preferences. But unlike Netflix, many companies don’t have the AI and ML capabilities, not to mention decades of viewer data to work off. 

Thankfully, this is where open banking, a system of customer-permissioned data between banks, customers and third parties, can help. With open banking, companies can gain access to richer information, allowing for more meaningful customer offerings. It also becomes possible for businesses to offer rewards and bonuses based on usage and user behaviour.

One way that open banking can be one driver of hyper-personalization is in the retail space. Retailers and brands often struggle with loyalty and rewards programs. The top three reasons for this failure include a lack of meaningful rewards or overcomplication in the program. With open banking, retailers can help customers set up in the program with their primary card within seconds. The customers can then use their card as normal and gain rewards and cashback on eligible purchases. Additionally, retailers can offer rounding programs, whereby customers can save and dedicate the rounded difference towards a large purchase. The retailer can also offer to match rounded savings at a certain level to help their customers get to the final amount needed. 

Using open banking to create cross-selling and up-selling opportunities

Customer retention also relies on creating opportunities for cross-selling and upselling. By doing so, companies can increase purchase frequency and amounts. Here are some of the many strategies and product ideas that companies can pursue to leverage open banking and drive customer retention. 

  1. Account aggregation: Companies can use open banking to provide customers with a holistic view of their financial life, allowing them to better understand their financial needs. 
  2. Personalized advice: Robo-advisors and investment platforms can use open banking to assess a customer's risk tolerance, financial goals, and current assets, providing personalized investment advice and portfolio recommendations.
  3. Loyalty and Rewards Programs: Retailers and financial institutions can use open banking data to create targeted loyalty and rewards programs. These programs can offer rewards and discounts based on a customer's spending patterns and preferences.
  4. Budgeting and Financial Management Tools: Fintech companies can develop budgeting and financial management tools that analyze a customer's financial transactions and provide insights into their spending habits. These tools can offer personalized budget recommendations and savings strategies.
  5. Streamlined Loan and Mortgage Applications: Open banking can streamline the loan and mortgage application process. Lenders can quickly access a customer's financial data, assess their creditworthiness, and offer personalized loan or mortgage options with competitive terms.

Executing customer focus with open banking

Open banking has the potential to offer a real competitive advantage to companies seeking to galvanize their digital offerings. It offers a wide variety of products and services that would add real value to customers and enrich their experience. 

With open banking, businesses can improve customer retention by personalizing customer offerings, increase revenue and reduce acquisition costs, and gain data-driven insights into customer behavior. However, there are obstacles that businesses must first consider before undertaking open banking initiatives. 

First, security and data privacy are top priorities for businesses and customers alike. Open banking, with its potential to increase access to customer data, stirs concerns about data security - about 48% of customers had negative opinions about open banking due to this. 

However, if proper management and steps are taken, open banking promises to make data access more secure than ever. These steps include putting the customer in control, evolving authentication and authorization, employing standards like KYC and maintenance and monitoring. 

Second, while Europe and Asia are leading in open banking regulation and frameworks, especially the United Kingdom, the United States and Canada lag behind. Regulations, which have been promised for years, have yet to materialize, leaving fintechs, banks, FIs and other actors in the dark about the rules. 

However, there are ways that forward-thinking companies can get a head start. For example, with Olive’s embedded finance platform, businesses can start building fundraising, financial wellness and membership and loyalty customer programs due to our integrations with Visa/Mastercard. Our years of experience successfully launching rounding, matching, and cashback reward programs have shown the potential for customer delight and retention with these capabilities. 

Get started today

The digital products and services field is constantly evolving and expanding. To remain competitive, businesses have to be customer-obsessed and ready to leverage emerging technologies. Open banking, open finance and open data will be among the most influential tools available in the near future, and the time to get started is now. 

Request a free demo to see how Olive works, or reach out to an Olive specialist to learn more.

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