Primary Bank Status Is Now About Data
OCTOBER 17, 2024
By: Tyler Brown
Open Banking
Nearly 40% of bankers in a study conducted by Bank Director said they believed their bank had at least 50% of their customers’ financial data. But that number may be optimistic given customers’ potential relationships with competing institutions and nonbanks, like neobanks and consumer payment services, that consumers also use to perform financial activities. That universe of consumer financial data will become easier to aggregate following the compliance deadlines for the Consumer Financial Protection Bureau’s (CFPB’s) open banking rule, and the final rule is expected soon.
The notion of a primary relationship — in which a financial institution (FI) is the source for most of a customer’s financial products and the first choice for future ones — implicitly includes customer data related to those products. FI primacy in this context is about which institution has the most and highest-quality information about a customer’s product ownership and financial habits. The spread of open banking in the US opens the possibility that collecting data via an FI’s products alone will not be enough to be competitive.
In this new age of financial data, it’s useful to examine the buckets of consumer data that exist and what data FIs might read from other FIs that supplements their own cache:
Getting access to product data from other FIs becomes important when a customer has relationships with multiple FIs, especially when those relationships include products that generate data of particular value to the bank, such as credit cards (which are included under the CFPB’s proposed open banking rule).
Using credit cards as an example: Product characteristics may include credit line, card balance, payment terms, fee schedule, interest rate, and transaction data. Those can be extrapolated to a customer’s spending power on credit, spending behaviors, debt tolerance, and payment preferences, but only accurately when the FI has a complete view of those products the customer owns at other providers.
An FI could use this aggregate product data from multiple institutions to better market products and services to their customers that best fit those customers’ interests and needs. There are two prerequisites:
FIs may create this incentive by centralizing banking capabilities, like payments, or aggregating information into a holistic view for all accounts connected via open banking. Strategists need to start thinking about FI-centric open banking, even when the priority is regulatory compliance.
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