Hyper-Personalization in Banking: Principles, Applications, Benefits, and Best Practices
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Open banking has promised a revolutionary transformation in the financial sector, aiming to empower consumers with greater control over their financial data. Introduced in the UK in 2018, open banking has the potential to reshape the way individuals interact with financial services. However, the reality of open banking’s impact has fallen short. In this post, I will explore some of the reasons behind the lack of adoption of open banking as well as the impact that this has on the ability to develop personalised financial products in the UK. I’ll end by discussing a technology that can enable financial organisations to realise all of the promises of open banking.

Limited Consumer Awareness and Trust

One of the reasons for the slow adoption of open banking data in the UK is limited awareness and trust among consumers. Open banking involves the sharing of sensitive financial information with third-party providers, and many remain skeptical about the security and privacy of their data when it is shared. Concerns about data breaches, misuse, and the overall security of transactions have hindered consumer confidence.

Changing consumer behaviour takes time. Even today, many individuals are accustomed to traditional banking models and are reluctant to explore new technologies and services, although this is changing.

Inconsistent Implementation by Financial Institutions

Although open banking regulations were introduced with the aim of fostering innovation and competition, the implementation across financial institutions has been inconsistent. Some institutions have been slow to leverage the value from open banking data due to concerns about costs, technical challenges, and the need for infrastructure upgrades. Many institutions also feel challenged in unifying large silos of data within their organisation, which is often required for leveraging open banking data. This lack of agility limits the value that such institutions can gain from access to open banking data.

Regulatory Complexity and Uncertainty regarding Open Banking

While regulations play a crucial role in ensuring the security and privacy of consumer data, the complex nature of banking regulations in the UK has posed challenges for both financial institutions and third-party providers. Navigating through the regulatory landscape and ensuring compliance with evolving standards is a time-consuming and resource-intensive task. Uncertainty surrounding regulatory changes and potential cost implications has made some organizations hesitant to fully embrace open banking, further hindering the development of personalised financial products.

The Lack of Collaboration and Interoperability

In addition, the inability to access all data within a bank undermines the value of open banking data.  This means that consumers see little differentiation in products, so they have less incentive to move from one to another. With limited access to data, neither financial services providers nor consumers can realise the promises of open banking.

The Potential of Open Banking

Open banking has the potential to revolutionise the financial sector, but with these challenges I just mentioned, financial services providers will have great difficulty in reaching that potential. Fortunately, some technology solutions can overcome many of these challenges. One such technology is logical data management, powered by data virtualisation, which enables organisations to create real-time views of disparate data without replication. This means that banks can unify their view of data across all data repositories without the need for yet another “big data” project. 

Realizing the Promise

The logical approach to data management is gathering momentum within the financial services sector. As this trend continues, more financial services providers will leverage the value of their own data to create differentiated products, and this is when we will see the full realization of the promise of open banking.