Open banking will only succeed if consumers are 'onboard'

Banking is open for business

Open banking is mutually beneficial for banks and consumers. It provides an opportunity for banking providers to retain and grow their customer base, by offering consumers access to better and more targeted financial advice, services and products. Open banking has the potential to generate an accessible and personalised, frictionless digital banking experience. 

The latest data from the UK’s Open Banking Implementation Entity (OBIE) - the body overseeing the roll out of the technology - is positive. It shows that the number of open banking payments made has grown from 320,000 in 2018, to over 3.4 million in 2020.

Despite the growth in open banking over the last three years, since the PSD2 regulation came into effect, it is still very much in its infancy. Open banking is readily available and demand is growing, but not as quickly as many forecast. For open banking to succeed it will require consumers to adopt it. For this to happen banks need to be aware of the frictions that are barriers to adoption. Once the barriers are removed, the benefits of open banking should be communicated clearly across consumer audiences and all banking customers.

Overcoming consumer frictions 

Open banking allows banking and finance providers to access individual customer accounts and transaction details at the touch of a button. For instance, when a customer consents to their data being shared for a loan. This information allows lenders to complete a solid analysis on a client’s financial data, to ensure they can provision for the loan.

Nonetheless, consumers in Europe are very hesitant about sharing their payment data through open banking. In the Netherlands, a survey conducted by De Nederlandsche Bank (DNB) revealed that only 25% of Dutch consumers shared their payment data in 2020 in exchange for the provision of new services. 

The majority of consumers shared data with their existing bank, as consumers had more confidence in the bank of their main payment account, compared to other parties. In addition, the survey found that in the future consumers will be more reticent in providing their data to new entrants to the payment market.

The reasons behind consumer hesitancy towards open banking can be attributed to privacy and security concerns around sharing their transactional data. It is perceived as one of the most privacy-sensitive forms of information, especially in comparison to other types of data, and as a result, frictions around the security and privacy of open banking is one of the most significant barriers.

The future of open banking

For open banking to reach its full potential, end-users need to embrace the opportunity and accessibility of open banking. But this starts with open banking providers earning their trust through prioritising their needs and demands first.

Removing these barriers to adoption around privacy, security and the safe handling of sensitive payment data should be at the top of the agenda for banking service providers, if they are to succeed.  

Safe handling of data and gaining the trust of consumers is imperative for the longevity of open banking. For open banking providers to win trust fully, they need to answer the age-old question of “What’s in it for me?”

Only then we will see adoption rates accelerate as customers get ‘onboard,’ and become acquainted with open banking.