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Making Open Banking work for consumers

Cherry Reynard
Written By:
Cherry Reynard

The latest Open Banking regulations should have ushered in a new era in retail banking for consumers. Should have. Instead, we have seen a much more subtle change in the banking sector, without much fanfare. New competitors are being allowed to compete in a marketplace long dominated by a select few financial giants.

A host of challenger banks and fintech providers now have greater capability to provide financial services direct to consumers outside of the traditional banking framework. This not only allows established challenger banks to build on their already impressive successes, but also removes some of the barriers to entry that innovative fintech providers previously faced, allowing them to become more convincing competitors to the traditional banks in an increasingly noisy marketplace.

The regulatory framework

An integral enabler of the Open Banking revolution is the fact that traditional banks are now required to let their customers safely share their data with third parties without fear of security breaches. Until recently, this would have occurred through ‘screen-scraping’ which entailed giving third-parties like Yolt or Chip your personal online login details. However, recent action by the Competition and Markets Authority means that high street banks must now allow customers to grant ‘read-only’ access to third parties.

This means customers can now hand over their bank statements to third parties without security worries, yet a lack of information is leaving consumers in the dark, and adoption of alternatives to traditional banking floundering. Research by CREALOGIX Group revealed that 69% of consumers believed Open Banking was a bad idea, with security being their primary concern.

This has been reinforced by the EU-wide PSD2 directive, which has similarly enforced that current account providers must facilitate this sharing of data. The intended consequence of this move was to bolster levels of competition within the banking market as well as to promote a common European legal framework for payments.

Educating consumers is critical

As with any great change in finance, Open Banking has been received with cautiousness among the few who have heard about it. On the face of it sharing your personal banking data with third parties goes against what everyone has been taught from a young age. These regulations have forced banks to underwrite the safety of customers’ bank accounts that have been shared with third party providers, many of which are competitors with those very banks. This provides a crucial layer of reassurance for customers who may still have been sceptical of the intentions of the challenger banks.

However, Open Banking is hampered by one perennial problem – few people have even heard of it. Over 85% of consumers have either never heard of, or are unsure what the Open Banking initiative is and how it will affect them. Recently in a HSBC twitter poll of 85,000 respondents which asked what customers would like to know more about regarding Open Banking, 64% responded with “What is Open Banking?”. Of the one-in-six (14%) consumers who are aware of Open Banking, less than a quarter of them heard about it directly from their own bank or building society.

Banks obviously have an interest in ensuring their customers stay put, especially as they are rapidly trying to ramp up their own in-house versions of services offered by challenger banks. While these offerings may be of comparable quality, the fact is that they are playing catch-up to the more fintech savvy, customer-centric start-ups that have speed and agility on their side. For example, earlier this month 94% (over 362,000 customers) of active Monzo users have upgraded to a full current account.

Lingering security concerns

Open Banking has the potential to completely transform consumer banking as we know it. Once people know that the process is safe, they will be far more open to experimenting with the variety of banking solutions that are on offer outside of traditional banks. The innovation this could bring is massive – all that is required is for people to be informed of how safe a system it is and how their data will be used.

It is ultimately consumers who will benefit from this shift – whether this be them having a better understanding of where their spending is going, or that they will have new and useful methods of saving. Not only will this yield control for consumers, but it could ultimately save them money.

Jo Howes is the commercial director of CREALOGIX Group