Engaging the Consumer in the Open Banking Era
Faith Reynolds, Consumer Representative, Open Banking Implementation Entity
What does Open Banking have to offer consumers?
From the consumer perspective, Open Banking goes far beyond the implementation of APIs. Big data, machine learning, AI and newly designed customer interfaces are all part of the phenomenon of ‘open banking.’ What makes it exciting is the opportunity these technology present to realign consumer and commercial interests. In the past, shareholders have been able to make money without the consumer necessarily experiencing the best outcome. But open banking brings about the potential for consumers to get a better deal from financial services.
How does Open Banking disrupt the market?
The legislation at first glance appears to be a threat to the existing market, but in actual fact incumbents are investing in open banking and partnering with FinTechs too. Open banking raises the bar for everyone. It seems most likely that consumers will adopt open banking in familiar situations where it simply improves the experience. For instance, in mortgage applications: instead of printing hard copy bank statements and sending them in the post to the bank, consumers are likely to want to share their account information digitally because it’s easier and more convenient. Other legislative changes in the credit market could see firms looking to use open banking as a route into delivering ongoing affordability checks, as with access to a consumers’ account, firms can monitor their customers’ income and expenditure. This could push firms to more responsible lending practices, but also gives them the power to foreclose more quickly without explanation to the consumers. Using open banking could reduce the costs for firms wanting to show how they comply with credit legislation, but is likely to require resources to establish.
Could Open Banking improve financial inclusion?
The additional financial data available about a person could provide a more rounded view on consumers who have struggled to access credit in the past. People with so-called ‘thin credit files’ may now be able to access credit. Apps using open banking that help people budget could support financial capability initiatives too. New products are evolving to build savings plans, set goals, and even put up barriers between consumers and their finances to help them achieve those goals. Historically we’ve seen companies helping people part with their money as quickly as possible, but open banking provides an opportunity to actually help them manage it instead.
What are the key challenges?
Customer education and monetisation are creating some major challenges. Explicit, informed consent is a fundamental component of the legislation. Consumers aren’t familiar with sharing their data and may not understand what they’re signing up for. How are firms going to make sure people give consent, and when they give it, it’s properly informed? Another key question is: how are companies able to make money from these new services? FinTechs face a distribution challenge, as consumers prefer names they recognise and may default to the familiar. FinTechs need to build their brand or sell out to larger incumbents to get their products to market. Consumer engagement might be more of an evolution rather than a revolution, as they test out data-sharing with brands they recognise (e.g. their bank) with processes they’re familiar with (e.g. mortgage applications) and which offer a clear benefit (e.g. convenience).
How will consumers engage in Open Banking?
The experience of making purchases is shifting dramatically, so consumer engagement in open banking could end up being led by retailers and tech giants rather than banks. Data-sharing will become relevant when it’s convenient, the proposition is attractive and the outcome genuinely better for the consumer. Open Banking itself is still a long way off from engaging the average customer. Despite the massive movement of APIs overhauling the banking industry right now, the main driver of change will come down to products in the market that consumers engage with, not the technology itself. The question is whether those products – wherever they come from — drive genuinely better outcomes for all consumers and help them live the lives they want to.
Open Banking Summit
25 April 2018 London
Faith Reynolds will be joining us for the Open Banking Summit. This high-level, interactive forum will bring together senior-level professionals from all corners of the open banking space.
CONTACT US to secure your place