The consumer always decides: the potential of Open Banking will only be realized if it is understood and used by the consumer. But if the consumer doesn’t even know how they can benefit from recent changes in regulations, is Open Banking and the expansion of the banking ecosystem dead on arrival?
There is an urgent need for new services enabled by Open Banking to be communicated and explained to the public. To encourage and reassure, while always of course protecting the end consumer to ensure the safety of their data. Much of the initial mainstream media coverage in the UK during the PSD2 go-live was focused on potential scams and fraudulent activity. RBS even published a fraud report to coincide with the launch.
Security or scare-mongering?
It’s about security, various surveys say. In a post-Equifax data breech world, the thought of a third party accessing financial data simply won’t fly. Therefore, we need strong authentication to combat these concerns. All true – this will play valuable a role and help reassure the public that serious thought has gone into how new services will be delivered.
While scaremongering makes for great headlines, stringent measures exist to protect personal data, with every new and potential provider held to the same standards as the banks. Any third party wanting to deliver services via open banking will need to be authorized to do so by the Financial Conduct Authority (FCA).
Thus far, however, when it comes to customer communication, it’s been left to the incumbent banks’ legal teams and, as recently occurred in the UK, presented only as a change to the customers’ current account Terms and Conditions. Those that actually read them were alarmed – which attracted the BBC Radio 4 MoneyBox program’s attention.
In Reality, It’s a Value Exchange
How then will people react when presented with the opportunity to share highly confidential banking data in return for access to new or better services – data that might reveal much about their personal lives and habits? And how effectively will providers meet the challenge of creating data-driven services that build consumers’ trust in their organization rather than eroding it?
The answers will depend in large part on how effectively companies communicate the exchange of value that is taking place – both the value of the data consumers are sharing, and of the value of the benefits they will receive in return.
Consumers will be asking ‘are you a company that I can confidently share my data with? Exposing my personal hopes and dreams – who I am, what I aspire to?’ Financial services providers (a label no longer just shorthand for banks), must ask themselves whether they have the level of trust and permission from customers, both consumers and SMEs, that will allow them to feel comfortable sharing.
The fintech world has already provided some fascinating insights. Early research indicated that a significant group of users of the peer-to-peer lending site for businesses, Funding Circle, were uncomfortable with the need to disclose their company’s financial information on the site to allow due diligence by investors. But the quick and flexible access that Funding Circle provides to unsecured loans for small and micro-enterprises has proved so valuable that borrowers quickly overcame their concerns about privacy. There was clear value in the exchange for all parties.
Third Party Provider (TPP)-based payments could, for example, allow retailers to move away from card-based payments, which carry interchange fees and other security-related costs for merchants. They are likely to be attractive to merchants. If customers were offered rewards, vouchers for using a new payment type that is more likely to see usage compared to being presented with a new, unknown payment option which offers no benefit and which they do not know or trust.
Communication of Benefits Needed
This reinforces that any new service created will need to provide a benefit not already received and will need to clearly communicate those benefits. Users will need to be incentivized and inspired to use these services.
The best experiences are the seamless ones. Uber is often cited, with good reason, for using APIs to create a new type of experience for a service, in this case private hire cabs, and fundamentally changing expectations. It left the incumbents playing catch up through a series of poorly thought out, bungled apps.
They miss the point that the digital transformation of the sector is not about having an app. It’s the provision of a highly tailored, personalized service. You can choose to share your ride. You can choose the type of vehicle. You can choose multiple end destinations within a trip. You can share your arrival time. It has been a success precisely because it took a poor experience and used existing technology to make it far better.
Does the average Uber user know about the APIs it uses, or how the app’s back-end works? No. And they definitely don’t care.
Not Just in the UK: Open Banking Globally
Open Banking is no different. As consumers, we’re already trained by the tech titans to use new services and these largely flourish because one, they work, and two, we trust the brands delivering those services. This is true in every country in the world.
While Open Banking is a UK phenomenon now, it is a concept that will spread globally. As in the UK, regulators will be playing catch-up, but have an important role of setting guardrails around data-sharing and helping with communication.
The data released (always with the customers consent) will enable providers to offer a wide range of diagnostic/advisory services that can anticipate customer needs, including comparison shopping for financial and non-financial products, for both consumers and small businesses. Aggregation of the customer’s financial relationships, with multiple providers into a single view, will allow advice and recommendations to follow, will provide the ability to highlight products that customers with similar income and savings have bought, will show real-time “readiness to borrow” financial health checks and advice based on live account information, and will provide early warning when signs of financial distress start to appear in a customer’s data.
When those services are available, how will incumbent banks communicate them? Another change to terms and conditions? Consumers and small businesses deserve better if there are new services that could prevent unnecessary fees, or support financial inclusion.
This is another reason why many people believe the tech titans have an opportunity to make even further inroads into consumer and small business finance. Their brand, how they talk, and crucially how they listen to their consumers, as well as the highly personalized – and thus valuable – services that they deliver.