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3 ways CFOs must harness the power of open banking

Andrew Gilboy
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Last editedSep 20225 min read

The modern business is lean and responsive. The need for agility has infused every function, and the CFO has not been immune to the pressure. What was once a role built on stewardship - running a tight ship and ensuring compliance with a rearward-facing view to the business – is now a proactive role built on insight, planning and responsiveness with a forward-looking view of the business. Analysts Accenture call CFOs “architects of business value. With visibility and access to data and analytics across the enterprise, leading CFOs collaborate across the C-suite to understand risk and levers of growth.”

A host of innovations is making access to data easier. The cloud has made it easier to store and connect large amounts of data. Another good example is open banking, which is putting more financial data securely in more hands, more quickly, than ever before. According to The Balance, “open banking is the practice of sharing financial information electronically, securely, and only under conditions that customers approve of.” Now rapidly gaining traction in the US, open banking is seeding an extraordinary burst of innovation in FinTech. The Balance again: “Application programming interfaces (APIs) allow third-party providers (TPPs) to access financial information efficiently, which promotes the development of new apps and services.” 

And there is plenty of consumer and business demand for these expanded services. PYMNTS reports, “The economic headwinds and rising fraud trends wrought by the pandemic have caused consumers to scrutinize the trust they have tied to FIs and their own financial data. In the U.S., 56% of consumers would like more control over their own digital data… the pandemic has helped shine a spotlight on the infrastructure underpinning the great digital shift toward online and contactless transactions.”  This demand is predicted to power open banking to a market value of over $43BN by 2026, with a consistent sector growth of 24.4% for the next five years.

The open banking opportunity for CFOs

Analysts Accenture believe that open banking will become a part of every business’ everyday financial cadence. Indeed, they say: “Think open banking for retail is big? Commercial will be bigger… As banks become innovative data traders with third-party providers (TPPs), small- and medium-sized enterprises (SMEs) and larger corporates stand to gain open banking solutions that improve the way they operate/interconnect their finances.”

When financial data is freed from the typical silos of individual financial institutions, it can be put to use for financial management and governance (understanding a company’s financial shape, reporting on it easily, monitoring for problems in advance rather than retrospectively, and demonstrating fiscal competence to stakeholders). And – just like the CFO – this information will also play an increasingly customer-facing role. This data can prevent fraud, allow more tailored offers to be created and speed up the payments process (whilst making payments cheaper, too):

1. Get more visibility and go further

Way back as far as 2018, a KPMG survey found that over 40% of early adopters would gladly pay for a dashboard of all a business’ financial accounts; or for software that managed regular payments. 32% would pay for rapid loan application processes. Today, the day-to-day financial management applications built on open banking are hugely diverse, new ideas are proliferating, and industry’s trust of open banking is improving all the time (not least because we are increasingly happy with open banking services in our personal lives). A report produced by PwC and the Open Data Institute points to several typical key areas in which CFOs could leverage open banking to improve their businesses:

  • Aggregation platforms: financial information all in one place for a better view of the business

  • Process improvement: automating previously manual tasks for fewer errors and less wasted time

  • Advice and analytics tools: insightful trends for better financial management

  • Enhanced banking product offerings: relevant and tailored financial products

2. Engage with customers, and de-risk them, too

Open banking can help CFOs sleep easier because it brings new predictability and simplicity to much of the customer journey. For example, open banking is making customers’ financial data available to combat fraud – and these techniques can be embedded seamlessly on websites or at checkouts. PYMNTS reports, “While fraud detection loses some battles, it’s starting to win the war against cybercrooks. Much of that success is coming down to ingenious uses of artificial intelligence (AI) and ML, together with biometrics and other unique identifiers as part of a robust multi-factor authentication strategy that hardens cards and accounts against various forms of intrusion and abuse.”

That same data can be used to give customers recommendations on products which are within their financial means. Financial services businesses, for example, can recommend loans which customers can afford (and which won’t lead to them being painfully rejected at the last minute). And retailers can offer products which are similarly affordable, and which won’t lead to either bad debt or accusations of taking advantage of the consumer. And if you’re selling online, open banking can reduce cart abandonment at the checkout by filling in form fields automatically and minimizing redirection to third party websites. All of these innovations remove clicks, typing and complexity; moving the customer ever further forward towards a successful transaction. 

3. Cut cost and hassle with faster, cheaper, smarter payments

But perhaps most importantly, open banking can smooth the way for both one-off and first-time payments– essential as many businesses have developed their online sales capacity in order to survive the pandemic (Digital Commerce 360 reports that “consumers spent $861.12 billion online with U.S. retailers in 2020, up 44.0% from $598.02 billion in 2019.”) GoCardless, for example, has just launched its Instant Bank Pay functionality (live in the UK and c to drive low-cost one-off payments.

Open banking can help ensure that a customer has funds in their account - and make contact for remedial action rather than dropping the transaction. It can therefore reduce the number of void transactions and customer churn; and add predictability to subscription or repeat order operations – all wrapped in a seamless customer experience. As Arjun Kakkar, VP Strategy and Operations at ID/verification specialists, Ekata told PYMNTS, “Merchants can offer checkout options way beyond our imagination that could optimize customer value creation.”

And you can also save on transaction costs with open banking as these new payment methods easily rival card payments. As a bank-to-bank payment, open banking transactions are faster, more flexible and avoid the expensive transaction fees associated with credit cards. For example, an analysis of UK transactions by The Fintech Times took typical purchases via Amazon, eBay and Shopify, and calculated that moving credit card transactions to open banking transactions would cut transaction fees by 92% and save over £80M.

Now is the time for Open Banking

As GoCardless CFO Catherine Birkett has experienced, the role of the CFO is ever changing. “In my role as CFO for over 20 years, I’ve experienced some pretty huge changes in the financial world. The dot-com bubble, the 2008 financial crisis and, most recently, the global pandemic all brought some pretty complex challenges with no real rule book on how to overcome them. 

As leaders, and as businesses, we’re always going to face further unforeseen challenges that we can’t control.” Open banking provides an effective way for CFOs to protect against some of these challenges, especially as we head into a period of economic uncertainty.

Open banking offers increased visibility over your payments, better conversion with less risk and faster payments at less of the cost, that will help create significant efficiences that can arm CFOs in the face of any economic challenges and help them to look forward.  

GoCardless’ own Duncan Barrigan sees open banking growing with usage and time. “Over time, we see open banking payments mounting a very credible challenge to the dominance of cards, once consumers and businesses alike experience the advantages.” London’s Financial Times writes, “The CFO role has to be a lot more strategic, especially because of the need to make fast decisions in the modern market.”. Open banking offers a new source of valuable data to support those rapid decisions and changes needed to keep pace.

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