Open Banking – A Revolution That Nobody Wants?

Open Banking is never out of the headlines at the moment, heralded as “transformative”, a banking “revolution” and “the next logical evolution”. And you can see why. 

Open Banking could make it quicker and easier to switch current accounts or make mortgage applications and, more excitingly, could lead to a host of new FinTech products that could aggregate your accounts, manage your spending and offer personalised investment opportunities. Sounds good right? 

While Open Banking offers a step change, with thousands of possibilities yet to be realised, there’s one, large challenge brands need to overcome. Namely that consumers are currently unwilling or uncomfortable sharing financial information with banks, let alone third party providers. 

RAPP research has shown that 73% of consumers feel they have never received value from banks in exchange for their personal data. Hardly an encouraging starting point if financial institutions want customers to share their data further, especially in a post-GDPR world where gaining consent is even harder for brands. 

But why is this? And what can brands do to drive demand and persuade consumers to grasp the Open Banking opportunity?  

Understanding consumer reluctance 

There appears to be two interlinked obstacles to greater data sharing and the use of Open Banking: 1) fear of loss, undermined by a lack of institutional trust and 2) a lack of appetite for banking innovation.  

1) Fear of loss 

Humans are naturally risk averse, especially when it comes to resources. This prehistoric hard wiring is not easily overcome. It’s why just 3% of consumers change current account each year  and why 48% worry a challenger bank might go bankrupt , despite their money being protected by the FSCS. 

“Open” and “banking” are two words that don’t sit comfortably together for consumers. Just 8% of customers strongly agree that banks can be trusted to keep data safe . This lack of trust is indicative of the crisis in confidence triggered by the 2007 financial crisis, the effects of which are particularly strong in young people. RAPP research has shown that 45% of 18-34 year-olds expect banks to be dishonest with them while just 35% say they expect banks to use their data responsibly. 

The risks of scammers and fraudsters exploiting Open Banking is there for all to see. Banks need to be vigilant in protecting their customers from these threats and have to make this their main priority. A Tesco Bank-esque data breach  would dramatically undermine confidence in Open Banking and could permanently turn off some consumers. 

2) A lack of appetite for innovation 

Customers have a limited comfort zone when it comes to financial services. RAPP research has shown that customers want a “supportive” relationship from banks, expecting them to be “efficient” and to offer advice. They do not expect banks to innovate; just 9% want a “creative” relationship where they’re given “something new”. 

Last year, a Mintel report found that at most only 35% of UK consumers were open to any specified form of banking innovation, with just 21% open to sharing their information with insurers in order to get a personalised quote . It’s little wonder then that Accenture found that 53% of consumers said they would never change their existing banking habits and use Open Banking . 

Underpinning this wariness of innovation is not just a lack of trust in banks, but also a lack of financial literacy. In the absence of understanding, humans gravitate to the familiar. For most Brits, financial services are confusing and complicated worlds that have never been properly explained to them. Many lack a fundamental understanding of the positives innovation can provide them. If consumers do not understand the value, then they cannot understand the value exchange needed for them to supply the information needed for Open Banking to flourish. 

Driving demand

Whilst there is a clear challenge to Open Banking, two quotes keep coming to mind:

“A lot of times, people don’t know what they want until you show it to them” – Steve Jobs 

“Consumers don't think how they feel. They don’t say what they think and they don’t do what they say” - David Ogilvy 

Open Banking is far from a dead duck but for it to succeed, banks need to take the initiative and drive demand. They must demonstrate their databases are as safe as their vaults, while educating customers on the benefit of data sharing in easy to understand language. 

Take one potential benefit of Open Banking: AI driven financial advice. According to RAPP research just 30% of 18-34 year olds were willing to “share information relating to spending and savings habits”. But this number jumps to 53% when the value exchange is re-framed to: “receiving information about my future likely financial situation based on current spending and saving habits”. Just by adding greater clarity and choice we are able to nearly double the likelihood of consumers sharing their data. 

These new value exchanges not only need form the basis of all Open Banking customer value propositions, they need to be baked into the development of all Open Banking products from day one. As with GDPR, this new world requires transparency and privacy by design. 

In this regard, challenger banks like Starling and Monzo have already stolen a march on the their more established rivals through not only their forward thinking and user friendly apps but also by putting technology and transparency at their core. It’s easy to see how third party applications could be drip fed or assimilated into their propositions; the transparency and analytics offered by these banks are the perfect starting points to introduce more complex value exchanges. 

However whilst challengers may have a standing start, established banks have opportunities of their own. High street banks may not be widely trusted, but they are still seen as credible financial institutions and can bring this credibility to bear to de-risk third party services. Just one way they could do this would be to create a list of authorised or verified third parties, much in the same way Twitter verifies celebrity accounts, helping to reduce fear of loss and encouraging data sharing. 

So whilst Open Banking is not without its challenges, it’s a huge opportunity for banks and brands alike – but if its true potential is to be realized, the value exchange cannot be ignore. Open Banking will force banks to deliver previously unseen value for data, just as GDPR is doing with marketing consent.