For years, banks, credit unions, and other traditional financial institutions offered their services under a “one-size-fits-all” business model. With the rise of fintech, things have changed. Today’s customers now manage multiple accounts using a single dashboard and even personalize rates through automated data analysis. It’s far easier to leverage at-scale payment services than ever before, and the results benefit customers and financial institutions alike.
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These changes are driven by open banking and APIs’ potential to leverage large volumes of financial data. Let’s take a closer look at the personalized options fintech APIs offer in 2019:
Highly segmented customer groups
The main reason personalized financial services are available in 2019 as opposed to, say, twenty years ago, is because modern data technologies and programming interfaces allow us to segment customers into highly specialized groups. Traditional banks do this (albeit in a limited form) by creating broad demographic clusters such as age or marital status when creating new accounts. Fintech APIs, on the other hand, leverage user data to create more comprehensive groupings that some refer to as “a customer segment of one”.
The full range of personalized service options will depend on new definitions of customer segments. According to one Accenture report, banks have already started targeting customers based on “lifestyles, values, aspirations, mindsets and underserved needs”. Some example categories:
● Marital status
● Number of children
● Employment status (full or part-time)
● Post-secondary education plans
● Current debts and mortgages
● Intent to move
● Retirement goals
These examples are far from exhaustive, yet each combination represents a unique customer group that cannot be fully accommodated by standardized services. Fintech APIs that aggregate user data can offer more specialized and personalized options at rates beneficial to both consumers and financial institutions.
It’s also worth noting that personalized services don’t need to be restricted to people. Businesses and organizations of any size can also be evaluated at scale to determine their precise financial needs.
Open banking
Beyond the technological capabilities of APIs, open banking regulations are driving personalized payment services across the world. Thanks to a combination of consumer demand and legislation like GDPR, banks are increasingly making their data available to software developers. This allows third-party developers to design APIs and dashboards that connect customers to banking information through digital-facing services. In short, open banking combines the reliability and stability of traditional financial institutions with the digital agility of fintech solutions.
The specific features of each API can vary, but all establish a foundation for clustering user data from bank accounts, eWallets, and various consumer databases. This data can be aggregated to match users with custom payment services, typically in real-time. For example, an API might enable businesses to upsell or cross-sell a complimentary product or service. Alternatively, it could allow marketers and product managers to highlight relevant insights for how existing accounts can be managed more efficiently.
While open banking APIs are still in their early days, the personalized payment services they promise are not theoretical. As of 2018, the Open Banking Implementation Entity has recognized 67 regulated API providers, which includes 44 third-party providers. The OPIE had also recorded 3 million API uses, which reflects rapid growth since the service launched.
What’s more, the data powering personalized services has additional benefits for customers. Affordability assessments can be generated by analyzing income and spending data, as opposed to waiting on credit scores. New “robo-brokers” have optimized and shortened wait times of application processes for mortgages, pensions, and investments. Some platforms can even reduce consumer costs, such as SafetyNet Credit, which automatically activates during transactions to prevent high overdraft fees.
Custom dashboards
Customers today are not limited to accounts with a single bank. Your typical user might have a checking account with one institution, a mortgage with another, and an RSSP with a third. Open banking Payment APIs can streamline these services by connecting each account to a single app, allowing customers to manage them all at once. APIs that also support eWallets and branded credit cards might become a one-stop destination for every conceivable financial management need.
As open banking’s capabilities grow, we’re seeing an increasing number of dashboard apps moving into the global payments space. There’s Money Dashboard, which provides a unified view of each user’s finances. The Connected Money app from HSBC provides an overview of accounts from 21 different banks. Then there’s Yolt, which connects banking and pension accounts through a single dashboard.
Where personalized payment APIs can go from here
Personalized payment services have accomplished much in a short period of time, but there’s still room to grow. Most open banking services are proliferating in Europe, where GDPR regulates financial data sharing. As similar legislation is passed globally — and as banks see the benefits of new solutions — the range of options will certainly increase.
What’s more, personalized API capabilities aren’t limited to dashboards. Many companies have begun experimenting with voice and chatbots linked to customer accounts through a connective API. This would allow users to pay bills or manage accounts through text or voice chats 24 hours a day, and expect a real-time response. One financial survey predicted these bots will be the third-most significant banking development of 2019 — sitting just behind machine learning and open APIs themselves.
We are witnessing the first, tentative steps of a revolutionary process that will change how customers interact with financial institutions. While the exact trajectory may be uncertain, its final form will be data-driven, engaging, and highly-personalized.