In the past, banks relied heavily on lending and borrowing to generate their own revenue. They would take what deposit reserves they had and lend out from that pool of cash, charging the borrower interest on the loan. All of a bank’s lending products would operate on this principle, and all interest generated from these loans would represent the entirety of a bank’s income.
With the arrival of open banking, competition and collaboration from financial technology companies, and vastly different client demands and expectations, this model has been turned on its head. Banks still do generate much of their income from their loan products, but now, they also have opportunities to leverage new income streams that require more modern revenue management solutions. Bank leaders must now learn how to maximize the earning potential of today’s true golden goose: data.
Here’s how to unlock a new revenue stream for your bank, while also ensuring that it stays relevant throughout the current digital transformation occurring in the financial sector.
Offer Modular Pricing with Consideration for User Behavior
The days of one-size-fits-all pricing have come and gone. Today’s consumers expect greater granularity in terms of options on their purchases, whether in their personal lives or while selecting API integrations and datasets to subscribe to. This new mindset must be integrated into your bank’s pricing strategy when it comes to opening up its data foundation to other players in the financial services industry. Because open banking will soon be the norm, banks must provide pricing packages for data access that accounts for actual user behavior.
For example, some clients might prefer to purchase access to the entire database that a bank maintains on its depositors. On the other hand, other parties that may also be interested in depositor data might need access to a certain segment of it. They may, for example, want visibility on customers with deposit accounts that exceed a certain value or those who have had accounts in good standing for more than five years. Banks must have a system in place to evaluate and establish pricing for these possibilities to ensure that they do not pass up on engagements and sales opportunities.
Provide More Value to Potential Clients with Access Bundling and Perks
To maximize their earning potential and win a place for themselves within the Banking-as-a-Service space, banks must do more than provide the bare minimum for their prospective clients. They must also be agents of value, adding to and refining their own products and services to align with changing client needs.
One way to accomplish this is to modify the bank’s charging structure so that it directs invoices and charges to the appropriate parties within the API value chain. This ensures that billing documentation is directed to merchants, developers, or third parties, independently and without the needless intervention of personalized account management.
Another way to drive value for customers is to provide perks and incentives along with the packages they subscribe to. Building in value-adding rewards like free access for long-standing customers encourages continued engagement and repeat purchases.
Adopting other methods for clients to make use of bank APIs on a trial basis is a great way to win new customers. Offering API usage on a freemium basis, where some of its basic functionality is available free of charge while other parts of it are locked behind paywalls, allows potential customers to try before they buy. This, then, circles back to the need for modular payment systems. Once customers have been able to try the system and have a complete capture of their data requirements, they should be able to communicate these requirements to the bank. Meanwhile, for its part, the bank should be able to assemble a product package that has been priced appropriately.
Finally, banks must also explore co-branding and marketing opportunities, especially with their fintech app and third-party partners. As banking and fintech apps become more widely used, their brands become more deeply ingrained into user psyches. This has the unfortunate consequence of dislodging bank brands from top-of-mind status when it comes to investment, loan, and savings products. Banks must fight to win back at least some of the direct market share by seeking their partners’ permission to inject their own branding where applicable.
For example, if a digital wallet app offers a bank-powered savings account with a higher interest rate, bank management must negotiate with the app developer to have their institution’s name and logo displayed prominently on the pages that they power. This will reinforce the idea that fintech apps, while new, are still supported by the same banks that depositors have used since they began banking. This grants instant credibility to the app, while also ensuring that banks remain a part of the industry zeitgeist.
While it may seem as if the banking industry has changed dramatically over the years, many of the principles on which it is built remain largely the same. Sound pricing strategy, product bundling that appeals to most customers, and even rewards systems and free samples are all marketing strategies that have proven successful and timeless. Bank leadership must leverage all these to remain viable and relevant.
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