On our recent live panel discussion on Open Banking with industry leaders and experts from Standard Chartered Bank, Zuhlke Engineering, Fintech startup Upside, and open banking API provider TrueLayer, we took in questions from the audience and discussed topics around new business models and opportunities that we see are emerging in financial services. Originally largely driven by regulators in Europe to level the competition ground, open banking has taken on a new wave in Asia recently.
New technologies (e.g. APIs, big data, blockchain), a rapidly changing market, evolving customer needs, habits in the New Normal, and regulatory changes (e.g. PSD2, GDPR, PDPA, CDR) are pushing traditional organisations to rethink business models and strategies, triggering a fast transformation in the financial world.
Open banking has the potential to revolutionise many areas in financial services beyond traditional banking, reinvent new ways we save, manage our assets, shop and buy products and services online. For SMEs, managing cashflow and receiving payments could be automated to be much more efficient and effective. This shift can also bring welcoming benefits to consumers, aggregating their financial products, providing data and insights on their spending patterns, making timely recommendations on financial decisions, automating administrative processes, and even offering new ways to pay.
Open banking could widen access for lesser-served markets to existing products like loans, credit, debt advice or financial advice, and bring new product offerings to markets across industries. The innovation that new technologies make possible today is endless, and today we will explore and look at three possible use cases.
Use Case #1: Quick loans for out-of-pocket medical spent
In many situations, consumers are required to fork out a substantial out-of-pocket amount for medical purposes, either because their services are not covered by insurance or require tedious administrative procedures for clearance, while medical institutions often require an upfront payment.
By connecting insurers, hospitals, and banks in an open ecosystem connected through APIs, these players will be able to serve customers who are in need of urgent, additional financing for large out-of-pocket medical spending.
A mobile app connecting banks, insurers, and hospitals using public-facing APIs. Hospitals will send bill estimates to the customers’ app, whose integration with insurance providers will allow customers to review over and check their policy cover. If coverage is not sufficient, the app can then connect to the bank APIs and push a request for a loan. Once accepted, the bank will transfer the money to the hospital and open the credit to the customer, who will now be able to receive the hospitals’ services in peace.
Business & Customer Value:
Each ecosystem player reaps its own benefits in this setup. Hospitals will be able to receive an upfront payment for their services immediately, while insurers will reduce resources and costs required for claim handling and banks can extend their income sources from such diverse, quick loan issuance.
On the customer side, this solution solves the major problem of lack of funds to cover a major medical expense, an extremely relevant problem for a wide segment of lower and middle-income customers. According to a 2019 World Health Organisation Report, household out-of-pocket expenditure accounted for almost half of total health expenditure in lower-middle and low-income customers in Asia-Pacific countries in 2015.
Patient insured by Company A comes to the hospital to receive a costly medical procedure. The doctor quotes the price and uploads it to the system. The system notifies the customer about the amount covered by his or her insurance and whether there are any out-of-pocket expenses that are not included in the insurance coverage. The customer can then apply for a lending product to pay for the remaining amount not covered by the insurance. Upon client identity verification and authorisation, the bank will then transfer the funds directly to the hospital.
In a similar setting as Scenario A, let’s look at a scenario where the patient is uninsured. The app suggests for the patient to use the quick loan service and thereafter, the bank underwrites the individual customer and issues a loan. The bank makes payment to the hospital immediately. The patient then repays the lender in separate installments. As an option, patients can subscribe to a relevant insurance plan pushed by the recommendation engine in order to reduce future costs (as insurances usually have reduced costs for each procedure).
Market Case Study:
An example of similar existing services provided by Fintechs is Parasail Health, which offers as their key proposition, patient financing options, and zero percent interest payment plans for patients with medical bills they can’t pay. Approximately 15% to 20% of hospitals in the United States are now working with lenders to offer loans to patients.
Use Case #2: Enabling transparency on open saving and investment plans
We are seeing a key role played by fast-growing Fintechs in helping the public respond to the New Normal post-pandemic. Since the beginning of the crisis, statistics have shown that consumers are putting much more focus on savings and investment. In April 2020, the total minutes spent in finance apps increased by 22%, showing an uptick on the adoption and usage of finance apps.
By analysing spending patterns across multiple bank accounts, a potential app solution could make timely recommendations to a customer the type of insurance, investment and saving plans they qualify for and provide a seamless journey for purchasing any suggested product.
A standalone app that will leverage banks’ open banking APIs to analyse spending patterns by connecting to customers’ bank accounts and querying day-to-day transactions. The result of this analysis will be a customised set of product recommendations that matches users’ behaviours and allow immediate timely purchase by tapping into products’ APIs and pre-filling application forms using customers’ personal data.
Business & Customer Value:
On the business side, this solution unlocks huge potential in upselling and cross-selling opportunities, creating tailored micro financial service offerings to tap into a distinct lower-income audience.
This also addresses a major trend of financial inclusion and financial education for user segments previously not qualified as a target audience for both insurance and investment plans. For consumers, this means building ongoing financial awareness and increasing their financial health with such diversification.
The bank develops an algorithm that analyses the customers’ bank account history including regular expenditures, deposits, charges and withdrawals. As a result, the algorithm will identify a small sum that is regularly affordable for the customer to be put aside automatically into a savings account. Eventually, these funds can be used for investment purposes towards a certain goal or just long-term savings.
Market Case Study:
Examples of similar apps powered by open banking implementation in the UK are Moneybox and Plum. With Moneybox, users can easily and seamlessly invest their spare change by rounding up the cost of digital payments.
Upside is another one such example of an innovative Fintech on a mission to improve people’s financial security using open banking and AI. The London-based startup is proposing an effortless solution to help customers automate their savings so that any future economic downturns will have much less impact on households.
Use Case #3: Boosting the sale of insurance products through banks
By combing and analysing the customers’ account history, spending patterns, credit history, and their existing insurance policies, banks and insurers will be able to:
- identify customer needs at the moment of their emergence
- offer the relevant insurance and wealth products at the right time
- onboard customers through the purchase journey seamlessly
A section within the day-to-day banking app that suggests insurance policies based on spending analysis. Leveraging insurance providers APIs, the solution will be able to connect bank customers to specific products, pre-fill insurance product forms and offer a smooth purchase experience for consumers.
Business & Customer Value:
On the business side, there are opportunities to increase sales channels by cross-selling to existing customers and unlocking new customers. Banks and insurers stand to boost customer loyalty with relevant recommendations and seamless end-to-end experience.
For consumers, they get to enjoy increased financial protection for the right needs while saving time with this reduced complexity to get started on new plans.
A customer has initiated a bank transfer to the property agent with the deposit for the new apartment lease. The bank has recorded and identified this expense and triggered a tenant insurance offer. If the customer is interested, the bank calls the insurance page through APIs, where the form is pre-filled based on the bank’s customer profile. When offered at the right time to the right consumer, the bank and insurer are drastically increasing the chances of a successful sale.
As seen, the most powerful open banking model is the collaboration among ecosystem players, including both banking and non-banking, using open technological platforms, sharing knowledge, work environments, data and customer bases, to create new opportunities and real value-added services and products for the industry.
With more sophisticated data analysis and further flexibility of product offerings, businesses will be able to create and offer more granular tailor-made products to customers addressing their individual needs at relevant timing. Low hanging fruits include tackling travel and lifestyle needs at the first horizon, with both lower premiums and relatively higher adoption rates among consumers.
We look forward to sharing more resources on how innovation and technologies can support the New Normal in the industry moving forward. Stay tuned!