Open Banking – Consumer Impact

By Kunal Patel

I have read quite a lot on Open Banking over the last couple of years, what it means to the industry, the players and more importantly the consumer. The revised Payment Services Directive (PSD2) is required to be implemented in the UK by 13 January 2018.

This will definitely change the banking experience, bringing with it more competition and innovation in the sector, and a host of benefits for the consumer.

I don’t want to delve too much into PDS2, the technical aspects regarding API’s, how it will work and implementation. I do want to focus on the consumer and really understand the impact on them.

As we know, consumer awareness is always a good start in order to aid adoption of new products/services from different players in the financial services space.

Interestingly a poll of over 2,000 Brits conducted by YouGov on behalf of consumer and business insights venture, Equifax, reveals that 90% have not heard of the Open Banking initiative, with 45% adding that they are not likely to use it when it becomes available.

When asked about sharing personal data through Open Banking, 60% would not consent to this, with concerns including security and that third parties would be able to contact them.

Does this bode well though from an adoption perspective? After all, as consumers we always crave choice, competitive rates and a good deal. However, when it comes to financial services, it seems we’re not willing to take the risk with new FinTech’s or digital challengers – unless of course you happen to be a young millennial or gen-Z’er.

Obviously, with every negative there are positives to play upon here, esp. when you consider how companies are offering us better ways to manage our money, savings, investments and credit.

I liked this quote taken from the Open Banking: A Consumer Perspective Report. A report commissioned by Barclays and written by Faith Reynolds (a government advisor)

“For SMEs, managing cash flow and receiving payments should be cheaper and easier. Technologies like Application Programme Interfaces (APIs) have the potential to create new services delivered by existing players and new intermediaries, like Personal Finance Management platforms.

“They have the power to bring substantial benefits to consumers, aggregating their financial products in one place; providing new insight about spending patterns; making recommendations about saving money; automating parts of the decision-making process and even offering new ways to pay.”

“Open Banking could widen access to existing products, like credit, debt advice or financial advice. And bring new products to market from overseas or the UK, at the click of a button. Open Banking will make things simpler, quicker and more convenient. The innovation that new technologies make possible is endless and over time could create new forms of value we can’t envisage today.”

Roger Vincent – Equifax’s Head of Banking & Innovation made some good points in a recent publishing via CityA.M.

“Over half of the people we surveyed said they would find the capacity to compare current account offerings from different banks important, while 50 per cent of Brits said the same about being able to access lenders offering better terms for financial products.”

“A significant number felt that the potential to monitor their spending or debt more easily would be important. The most valued benefit, however, is the ability to better monitor their bank accounts to help protect against fraud.”

The Challenges

Inevitably, it was always going to come down to how consumer data and privacy are managed and protected.

The concerns that people have about their data being shared with more companies will only increase their anxiety when it comes to the growing number of fraudulent activities on a day-to-day basis.

It’s clearly a genuine problem and as a result people will be more wary about taking risks, consenting to data being shared regardless of the benefits. Could Open Banking help consumers become more aware of their data?

I always taken the stance that people become less worried when they’re better aware of what’s happening and better educated. Think of it as some kind of safety blanket that we usually associate with small children when they’re anxious.

Education and a different level of thinking is required in order to generate the much needed trust element with regards to consumer data and sharing. This is the only way this initiative will prove to be the success the industry wants. However, without this not much will happen and people will still be pondering as to why.

Concluding Thoughts

Do you think Open Banking/PSD2 will make consumers wake up in the morning and immediately think about their personal banking?

I would say that is unlikely happen. However, this is more about making the financial lives of the consumers better, by changing the dynamics of the bank/customer relationship, moving it beyond the transaction, creating more competition and transparency and ultimately putting control where it belongs, in their hands.

As a consumer of banking and financial services products, all I want is transparency, all I want is for my bank and other service providers to inform me how my data will managed and protected. If they can provide me with reassurances that I need, they have my attention and we can move forward.

Data sharing is bad if it’s not managed or protected well, however, if done in the right way, it can be rewarding, regardless of organisation (bank, new start-up, digital challenger etc).

I look at this as an opportunity for all organisations to put the consumer first by being better engaged, and as a consequence, offer me access to an array of targeted financial products.