The Banking of the Future

Digital trends and innovative approaches continue to alter the way people manage their finances and banks conduct their business. New terms like Open Finance and related applications such as multibanking are two particularly striking examples of this.

As Swiss experts in data-driven banking, we at Contovista are at the forefront of these developments – and are pleased to share our insights with you in this overview of Open Finance and multibanking in Switzerland.

An essential driver of these new business models is the data economy, based on the exponentially growing volume and sharing of digital information. Under the motto “Open Finance”, ambitious financial institutions are now opening their data interfaces to third-party providers and offering data-driven services themselves. As a result, customers reap the benefits of a wide range of innovative digital services.

Open Finance represents a particularly promising digital field of the future because the financial data from banks is incredibly rich and valuable. Account data provides insights into the consumption, behaviour, and preferences of users. Integration of data sources into digital solutions usually takes place via API interfaces (application programming interface).

Technical effort is minimised as a result, while services can be obtained as-a-service from third-party providers (“API economy”). The Open Finance trend is currently enjoying considerable success on the international stage. The United Kingdom is the leading European country in this respect, with the number of regulated third-party providers growing by 47 percent per year (average annual growth rate between September 2019 and March 2021).

The platform effect means that customers can use additional third-party services through Open Banking and Finance. Providers of these services include developers of digital tools, FinTechs, and startups.

Multibanking solutions have already established themselves in the business customer segment. For retail users, offerings such as budgeting and analysis options are emerging, for example, to track the carbon footprint of individual consumers. Thanks to multibanking, these features can be more effectively utilised for all finances across all banks (see section 2 below).

With such value-added services, customers gain greater functionality from their accounts. A requirement for this is often the categorisation of transaction data. This information can then be used by other applications.

The benefit of Open Finance is crystal clear for customers, coming in the form of new services if they want them. In turn, banks gain by positioning themselves as customer-centric partners for their customers. This allows them to offer value-added solutions that drive customer loyalty and open up new business areas (see section 3 below).

For established banks in particular, such offerings are vital for standing up to their digital competitors. But the general public also benefits. As McKinsey points out, using open financial data could increase a country’s economic output by 1 to 5 percent by 2030.

Open Banking and Finance opens up a plethora of new digital possibilities. Among these, multibanking stands out as particularly appealing. The term “multibanking” refers to access to account data and functions at other banks via a central digital banking system. In other words, multibanking provides access to external account information and account functions such as payment initiation.

Although multibanking has existed in Switzerland for some time, until recently it has been for business customers only. Now, however, multibanking is gaining momentum in the retail customer segment. Corresponding standards and consortia are already available, such as the API platform bLink.

So, how do customers view the opportunities afforded by multibanking? According to surveys, they are very open to it – but it must not cost anything. According to the survey, around 70 percent of Swiss citizens have more than one bank account, with an average of 2.2 banking relationships. Consequently, a multibanking service with the option of centralised account management would be highly relevant to them.

For retail customers, multibanking offers many advantages and, above all, services that were simply not available before. In their normal account overview, customers now have an overview of all their financial information. Depending on the technical design, they can also obtain additional information, analyses, and features.

To ensure that multibanking offers are well received by private customers, they should meet the following requirements:

• Real-time account updates
• Consolidated bank statements
• Improved security and data protection
• Cost efficiency
• Seamless money transfers
• Integration with third-party services
• Transaction history and analyses
• Simplified account opening process
  Efficient customer support

From a bank’s perspective, Open Banking offerings such as multibanking also provide many advantages. They are useful for customers – and what benefits customers, of course, also benefits the bank. The satisfaction of bank customers increases, while the data-driven 360° overview of customers facilitates customer-centric value-added services. A bank with a multibanking offering is an ideal main bank, acting as a one-stop-shop for all financial matters. With multibanking, banks can strengthen their customer interface while boosting customer loyalty.

All this makes multibanking the perfect entry point into Open Banking and Finance, as it paves the way to further forward-looking options that can bolster sales and market position: tailored offers, cross-selling and upselling, as well as other new revenue streams. Banks can also benefit from earning fees and commissions paid by third-party providers.

With multibanking, banks are able to accelerate their digital transformation – as well as digitalise, automate, and optimise processes in the long term. Established banks in particular can secure their future viability by leveraging their core strengths:

• These banks typically enjoy a high level of trust as an institution among their customers.
• At the same time, as a main bank, they have extensive data and information about their customers, which they can use to make better, more personalised offers.

Trust is a crucial factor influencing the general willingness of account holders to engage in Open Banking, i.e. to use transaction data.

The primary prerequisite for Open Banking and Finance is the opening of interface(s) to third parties. At this point, some institutions might still hesitate out of caution. However, this opening should definitely be viewed as an opportunity: after all, the partner companies, third parties, and even competitors with whom the data is shared are also opening their interfaces. Reciprocity prevails – and all participants can reap the benefits. If banks proactively introduce Open Finance offerings to the market, they will certainly be several steps ahead of non-participating institutions – representing an attractive opportunity that must now be seized.

Building on this foundation, the platform effect enables a vibrant ecosystem of innovation that constantly generates new solutions, benefiting all participants. Security, data sovereignty of the participating banks as well as the customers, and consistent access rules are centrally ensured, creating a reliable and enduring basis of trust.

Established banks cannot ignore Open Finance if they want to maintain their competitive position. However, there is still a lot to do in Switzerland in terms of implementation: a recent Open Banking Study showed that around 17 percent of Swiss banks have completed the API opening, while 67 percent are planning to do so.

In part, Open Finance is still regarded as a purely IT issue, yet it holds immense strategic significance. According to Accenture, Open Banking could hold a global revenue potential of up to $416 billion for the financial industry. In other words, everyone really does benefit, customers and banks alike.

The government has long seen it this way, too. Unlike in the EU (PSD2), there is no regulation in force in Switzerland (yet) that makes Open Finance mandatory. However, the Federal Council has called on Swiss banks to show initiative in this area by 2024. If they don’t, regulations could still follow.

In Switzerland, the focus is therefore on industry self-initiative rather than regulation, which opens up important leeway, especially for first movers. Banks should now live up to this claim – not only in terms of regulation, but also out of strategic self-interest.

The Swiss financial industry has responded to the call of the Open Finance initiative by recognising multibanking as a suitable first major contribution from the industry. To this end, a Memorandum of Understanding has been signed by over 20 Swiss banks, including UBS, Valiant, Luzerner Kantonalbank, Hypothekarbank Lenzburg, Post Finance, and Migros Bank.

Various implementation options are described here, which interested institutions can use as guidance, according to their level of ambition and individual circumstances. Depending on the time of participation, a distinction is made between first movers (Q3 2024) and fast followers (Q2 2025). Late followers (2026 and beyond) can also be added as a third option, as outlined in by Synpulse.

Entering the digital world of Open Finance brings with it a whole range of key benefits. What’s more, multibanking is an ideal use case for the implementation of hands-on Open Banking. The added value for customers is clear, as they can also manage their accounts from other banks in the institution’s digital banking system – having this overview makes managing their finances better and easier.

In turn, banks can use the offering to expand their special position as a main bank that supports customers as a reliable partner in their everyday lives. Multibanking enables banks to create more touchpoints and retain customers by offering them additional services and products. Such a customer-centric approach is a major advantage when competing with mobile challenger banks.

To meet these requirements, Contovista already offers a multibanking solution for financial institutions that is easy and quick to implement. This way, banks can seamlessly offer Open Banking to their customers within their existing system.

Onboarding is smooth and convenient for customers – requiring just a few clicks. They will have access to third-party account information in the account overview, providing a consolidated view of all connected accounts. Among other features, the solution offers an assets page and a breakdown of transactions. Data refinement based on machine learning enables the specification of “pretty names” and merchant logos, which significantly enhance user convenience.

If financial institutions aim to position themselves as digital first movers, this Open Banking enabler in the retail banking sector provides them with an effective lever. The powerful API solution developed by Contovista for multibanking follows the standards of bLink. This forward-looking platform for Open Finance in Switzerland is provided and operated by SIX.

The data-driven opportunities of Open Banking and Open Finance are only partially exploited by a pure multibanking approach. Additional potential can be realised when it comes to the intelligent use of data. For this purpose, Contovista has developed the Personal Finance Manager (PFM) – an intelligent financial cockpit for retail customers that offers institutions even more advantages. It also gives customers access to a digital financial assistant.

The multibanking solution with PFM opens up a diverse range of functions based on current transaction data. The transactions of all connected accounts can be filtered and searched. Customers can create and manage budgets. Advanced analytics and personalised, actionable insights are provided. When combined with multibanking, the benefits of these PFM options are compounded as they are now available across all accounts.

Other features include a subscription overview, which helps identify regular payments such as media subscriptions. Savings targets, product recommendations and an optional Carbon Footprint Manager complement the range of services. In summer 2023, the PFM will also be enhanced with an intelligent tax deduction feature: tax-relevant outgoing and incoming payments will be automatically categorised to help customers with tax reconciliation. This approach is in line with Contovista’s motto: Understand. Coach. Enable. Multibanking is all about ensuring customers reap the benefits.

Multibanking will be the first comprehensive use case for Open Banking in Switzerland. And that is just the beginning: Open Finance will open up many more financial areas. Insurance, pensions, and investments will also be managed via digital platforms in the future, which will also generate copious amounts of data. Providers such as insurers, pension funds, and brokers etc. are opening up their interfaces, making new offerings possible. The prerequisite for this is universal interoperability.

The ongoing expansion of Open Finance use cases will boost competition and innovation, with entirely new services beginning to emerge. These include real-time services, for example, when applying for a loan, personalised offers (vouchers, trips, bonus programmes), and new types of financial products. Among other things, the main bank will then profit by receiving commissions.

The financial world of tomorrow is generally trending towards greater decentralisation. In this context, there are various roles that financial institutions can align their business models with in the future:

• Universal bank
• Banking-as-a-Service (BaaS) / Supplier bank
• Aggregator / Retail bank
• Orchestrator

Even if much of this is still a pipe dream today, established banks must proactively shape, expand, and strengthen their role in this new world right now. Collaborating with a technology partner like Contovista can really help simplify this process for you.

Contovista’s Open Banking solutions are ready to go and can be integrated into existing environments in the shortest possible time with minimal effort via an API. With our multibanking option, we rely on extensive practical experience as a proven technology provider. For example, we have already implemented multibanking capabilities in the business customer segment as a partner of Valiant.

The multibanking solution can also be extended by the PFM or BFM for business customers. Users benefit from continuous optimization.
Open Finance and multibanking are changing the financial industry – and with Contovista, banking institutions are at the forefront of this transformation. When they make the most of these trends, they:

• Meet their sales targets
• Improve processes
• Enhance quality

And above all, they support their customers in finally taking control of their finances themselves.