Cross-national banking is Open banking’s new frontier

Open banking is happening. Although slower than hoped for, its progress is permeating the global banking industry as real-life use-cases are implemented in a variety of areas, from personal finance management to customer on-boarding and risk management.

Boundaries of banking experiences are being pushed, especially for those customers with unique needs big banks used to ignore. Customers, who bank across countries and regions, are one particular population that Open Banking serves marvelously.

Immigrants, expatriates, frequent travelers, SMEs with cross-national operations usually maintain bank accounts in more than one country: the country of origin and the country of residence or activity. They contract mortgages, invest in assets, and subscribe to life insurance plans in their countries of origin and residence. They transfer funds from one place to another, and they pay in different currencies.

European expatriates in Dubai, Indian nationals residing in the UK, German retirees in Thailand, or French citizens with North African ancestry are just examples of such communities. Their financial lives expand across regions. Often, nothing connects their accounts, investments, mortgages, and policies in countries of origin and residence. It is not only limiting their choice and freedom but also exposing them to higher fees and administrative complexity. Open banking is a promise to bridge this gap.

Why have cross-national banking experiences been so lousy?

Regulations, license restrictions, and lack of interoperability of IT systems are some of the obstacles limiting smooth customer experiences for cross-national banking. For banks, financial products for expatriates and immigrants are often impractical as they’re hard to design and hard to sell. This is not to mention the bank’s lack of incentive for hyper-personalization. Except for companies specialized in remittance, it made little sense to adapt products and services to such a tiny market segment, while no competition does a better job.

Notoriously, expatriates have a hard time contracting mortgages in their countries of residence to own property in their country of origin. Banks find that managing collateral, fighting fraud, ensuring revenue is a significant hurdle.

Even banking groups with a large footprint across continents such as Banco Santander, Société Générale, BNP Paribas, and BBVA had found it difficult to market such products when subsidiaries in two countries or more are involved.

SMEs struggle as well to keep track of banking accounts in more than one region/ country. Managing cash flow is also a notoriously hard as it supposes manual aggregation and conversions. Although some retail banks do offer multi-currency accounts, transaction fees make it impractical to keep accounts in one country and use it to pay employees and suppliers and to receive payment from across the region.

Four ways open banking revolutionize cross-national banking

  1. foster hyper-personalization

As doors are open for more competition, incumbents and challengers are increasingly hyper-personalizing products and services to new market segments. Emerging players enabled by banking APIs do target expatriates, immigrants, and SMEs with cross-national banking needs. They are working to improve banking experiences for them.

For instance, UK based Fintech Revolut, who is offering easy to use multi-currency accounts, target a segment, banks believed it was too small to waste time and resources adapting products. Revolut has made its intention to allow customers to connect bank accounts from different parts of the world public. In early 2020 customers can link their UK banking accounts to their Revolut wallets. As deployments of open banking expand in other geographies, Revolut-like products will suppress the pain of paying in different currencies.

2. reduce transactions fees for cross-national payments and transfers

High transaction fees get customers to split their assets and bank accounts and to limit cross-national transactions. Open banking is helping to drive down these costs with better technology and by cutting go-betweens.

Transferwise and WorldRemit are examples of Fintechs that use Open Banking payment APIs to initiate transfers. Customers save up to 1.5% of the amount transferred when using payment PISP APIs as compared to payment cards.

3. enable easy and secure access to financial information

For SMEs that are looking to gain a global view on their cash flow and manage their money across geographies, it has never been easier to aggregate bank account transactions.

Similarly, customers applying for mortgage overseas have never had a better way to provide lenders with accurate and secure access to their financial information. It becomes virtually irrelevant to provide bank statements, payment stubs, tax reports as all of this information is somehow embedded in open banking data customers can share in a few clicks

4. improve customer experiences, reduce time and effort to for processing transactions

Delays in processing transactions are one of the key reasons customers prefer to minimize transfers and operations across regions. Bank transfers often take many steps to complete and require several hours to fulfill. Open banking based transactions are instantaneous and easy to make; they are very close to being as easy as a payment card transaction. Customers usually need to log in to their online banking, click accept a couple of times, and in some cases, they also need to write down a code they receive by SMS as part of the SCA security scheme. Some of the proposed user flows involve fingerprint-based identification which reduces the number of interaction required as showed below

Cross-national banking is the next frontier for Open Banking.

The beauty of open banking is that it puts customers first in terms of customer experience. It also puts them first by altering the market structure and foster competition and innovation to serve them better. For cross-national banking, this is the first regulation that makes the lives of customers easier while banking sector structure was systematically penalizing them. Exciting times lie ahead!

Board member for SaaS companies, advisor to banks, obsessed by growth, I write about fintech, data-driven growth , product management and Design