Open banking is a test of trust for financial firms: What lenders face in their quest to win customers’ confidence
Open banking, the new initiative threatening to tear up the banking rule book, has the power to revolutionise how people manage their money.
For the first time, customers will be able to give companies other than their bank access to their financial data, opening retail and business banking to fresh competition and delivering more choice, value and confidence.
Recent coverage has focused on the implications for customers, but they are no less meaningful for the banking industry. For banks whose business models are built around closed systems where the value of customer data is held by them and them alone, open banking has the potential to wrestle away their control of the market.
That could be great news for fintechs and other technology firms. Data is the fuel that will power their technology engines and open banking could be the tipping point they have been promising their investors and potential customers.
The parallels with other industries that have been transformed by new customer data-driven technology may seem obvious. Examples like Uber, CrowdCube or DueDil offer a potential glimpse of the future for open banking, but there’s one big difference: consumers are happy to share information about their musical tastes, or to give their mobile number and payment details to Uber. But will they consent to provide access – albeit in a controlled environment – to their financial data?
Read more: Open Banking could provide a £1bn boost to the UK economy, says study
New research commissioned by CYBG suggests that consumers are going to need some persuading. Seventy-seven per cent of people say that currently they are unlikely to use open banking services, with more than half of them citing data security and privacy concerns. Consumers are also three times as likely to trust their bank with their financial data than non-bank providers, with almost half of consumers saying they would not trust third-party technology firms at all.
Data and privacy concerns are hardly surprising. But what this tells us is that if open banking is to be a success, banks will play the critical role in addressing those concerns. In fact, this is probably the biggest test of trust in their industry since the financial crisis.
Confidence in banks may have taken a battering through the crisis years, but, according to EY’s global consumer banking survey, around 95 per cent of consumers continue to trust their primary bank provider. Part of this is the benefit of incumbency: banks’ primary duty is to provide a safe and secure home for customers’ money and – for all the negative headlines of recent years – there is enduring confidence in their ability to do so.
With that backdrop in mind, customers’ concerns about how the new open banking regime would work, who they can – and cannot – trust with their data, and who will put things right if something goes wrong, all lead to one clear answer: their banks.
To keep up with the rapidly shifting technological demands of personal and business banking, such as mobile-to-mobile payments, contactless transactions and digital invoice approval, banks are already investing unprecedented resources in security and monitoring, in an already highly regulated market. As customers grapple with the dilemma of open banking – its huge potential advantages set against their natural concern about security – who is better qualified than established banking organisations to provide reassurance and coax this fragile new market into life?
Read more: As Open Banking kicks off, NatWest warns of risks to customers
This is not an attack on the fintech businesses readying themselves for open banking, and we recognise that the larger fintech businesses have built up consumer trust of their own, which is why people are happy to have cards on file with businesses like Amazon. We believe that many of the most brilliant innovations it will bring are still untapped possibilities in fintech’s brightest minds and we are also clear that banks have a lot to learn from fintech: our industry must adapt to survive in this new world and institutions that fail to do so may not survive.
Our role, and that of our colleagues elsewhere in financial services, is to take open banking over its first and biggest obstacle: customer confidence. As sceptics become believers and excitement about the possibilities begins to outweigh security concerns, there will be room for all of us in the latest banking revolution.