Open Banking – Trust in the Transformation

The concept of money has been in circulation for almost 3,000 years, from its origins of bartering beans for cattle to modern day transactions via bitcoin. From the outset, money has worked on one simple principle. Trust. The trust that the value of the ‘money’ you receive and exchange retains and holds equal value elsewhere. This has evolved from trusting the number of cocoa beans required to exchange for a piece of beef to trusting the £5 note given to you by the supermarket holds the same value in the pizza takeaway around the corner.

As money moves away from its physical forms with more and more banking services processed online and a ‘cashless’ revolution taking place globally, that reliance on trust is more relevant than ever before. However, has its importance been lost in the waves of new regulation – or do we just need to look slightly harder?

Opening the bank door

Ever since the outset of banking, the big banks have guarded their customers’ data and ensured its safety, but in doing so, have also ensured that they are the only ones able to access and make use of it. All that has now changed. Open banking regulations give the consumer and SMEs more visibility and access to all this data and authority on who can use it. However, the entire concept remains largely misunderstood to the very audience it’s set to benefit most, you – the consumer. Towards the end of last year, research showed that consumers were highly sceptical of it, clearly citing trust as a barrier.

The opening up of financial data, creates new data flows between Account Servicing Payment Service Providers (ASPSPs) and Third-Party Providers (TPPs) via an Application Programming Interface (API). Or in layman’s terms, you can authorise different companies looking to provide new banking services access to transaction data held by your bank to help you manage your money.

So, with the widespread adoption mobile payment apps, multiple accounts across multiple banks, and the attractive propositions offered by fintechs, why is there still a lack of trust and consumer confidence in the security of Open Banking?

But why aren’t we there yet?

There are currently quite a few significant obstacles and challenges that are in the way of creating a successful open banking ecosystem – including lack of consumer education, confidence and adoption.

Even though people are accustomed to using financial apps to keep control of their money for easy access and convenience, they seem to still fail to make any connection with open banking and its vast offering. As an illustrative example in the challenges to driving awareness and adoption of new banking capabilities for the UK. In mid-2016 there was a 75% public awareness for the ability to switch current accounts easily from bank to bank. As of April 2018, following a big advertising push at the start of the year to drive adoption and recognition, that figure remained stable at 76%.

On the flipside, it’s now very common to have different bank accounts across many different institutions (and as the research above shows, account switching has become generally accepted) – usually the result of being attracted by challenger banks with their user-friendly approaches. This further emphasises the fact that there is indeed an underlying trust in the system.

Window of opportunity

For true success, it’s vital that we, as financial participants and industry leaders, build further on this trust and allow the Open Banking system to flourish by enhancing customers’ knowledge about the services and benefits that are available to them.

For a moment, imagine instilling the kind of trust you have in a £20 note into a platform for launching a payment or a financial product – confidence in the Open Banking eco-system would be less opaque and more transparent.

This trust can be generated through pursuing meaningful partnerships within and without the industry, intelligent segmenting of customers to ensure an effectual introduction, and working with other trusted brands and interfaces to lay a base of trust for these services that will serve the ecosystem as a whole.

The simplification and streamlining of interactions between different parties, the offering of peace of mind and improvement to end user experiences in this environment. This is a system that benefits all in the ecosystem from end users to ASPSPs.

However, for it all to work, it rests on one simple principle. Trust.

The concept of money has been in circulation for almost 3,000 years, from its origins of bartering beans for cattle to modern day transactions via bitcoin. From the outset, money has worked on one simple principle. Trust. The trust that the value of the ‘money’ you receive and exchange retains and holds equal value elsewhere. This has evolved from trusting the number of cocoa beans required to exchange for a piece of beef to trusting the £5 note given to you by the supermarket holds the same value in the pizza takeaway around the corner.

As money moves away from its physical forms with more and more banking services processed online and a ‘cashless’ revolution taking place globally, that reliance on trust is more relevant than ever before. However, has its importance been lost in the waves of new regulation – or do we just need to look slightly harder?

Opening the bank door

Ever since the outset of banking, the big banks have guarded their customers’ data and ensured its safety, but in doing so, have also ensured that they are the only ones able to access and make use of it. All that has now changed. Open banking regulations give the consumer and SMEs more visibility and access to all this data and authority on who can use it. However, the entire concept remains largely misunderstood to the very audience it’s set to benefit most, you – the consumer. Towards the end of last year, research showed that consumers were highly sceptical of it, clearly citing trust as a barrier.

The opening up of financial data, creates new data flows between Account Servicing Payment Service Providers (ASPSPs) and Third-Party Providers (TPPs) via an Application Programming Interface (API). Or in layman’s terms, you can authorise different companies looking to provide new banking services access to transaction data held by your bank to help you manage your money.

So, with the widespread adoption mobile payment apps, multiple accounts across multiple banks, and the attractive propositions offered by fintechs, why is there still a lack of trust and consumer confidence in the security of Open Banking?

But why aren’t we there yet?

There are currently quite a few significant obstacles and challenges that are in the way of creating a successful open banking ecosystem – including lack of consumer education, confidence and adoption.

Even though people are accustomed to using financial apps to keep control of their money for easy access and convenience, they seem to still fail to make any connection with open banking and its vast offering. As an illustrative example in the challenges to driving awareness and adoption of new banking capabilities for the UK. In mid-2016 there was a 75% public awareness for the ability to switch current accounts easily from bank to bank. As of April 2018, following a big advertising push at the start of the year to drive adoption and recognition, that figure remained stable at 76%.

On the flipside, it’s now very common to have different bank accounts across many different institutions (and as the research above shows, account switching has become generally accepted) – usually the result of being attracted by challenger banks with their user-friendly approaches. This further emphasises the fact that there is indeed an underlying trust in the system.

Window of opportunity

For true success, it’s vital that we, as financial participants and industry leaders, build further on this trust and allow the Open Banking system to flourish by enhancing customers’ knowledge about the services and benefits that are available to them.

For a moment, imagine instilling the kind of trust you have in a £20 note into a platform for launching a payment or a financial product – confidence in the Open Banking eco-system would be less opaque and more transparent.

This trust can be generated through pursuing meaningful partnerships within and without the industry, intelligent segmenting of customers to ensure an effectual introduction, and working with other trusted brands and interfaces to lay a base of trust for these services that will serve the ecosystem as a whole.

The simplification and streamlining of interactions between different parties, the offering of peace of mind and improvement to end user experiences in this environment. This is a system that benefits all in the ecosystem from end users to ASPSPs.

However, for it all to work, it rests on one simple principle. Trust.