By Elliott Limb, Chief Customer Officer at Mambu

Open banking wasn’t just meant to change the game, it was meant to completely rewrite it. But three years on from the regulation that heralded its European arrival, the revolution it promised is yet to appear. So, what’s holding back open banking and what can the financial sector do to unlock its benefits?

A bumpy rollout

One of the main reasons behind open banking’s slow growth seems to be the way in which it was introduced. In 2018, open banking was brought in by regulators as a way to open up competition and increase innovation within finance. Although such directives are an effective way to galvanise any sector and ensure industry-wide change, this top-down approach meant many in the industry felt change was being forced upon them.

This translated into a reluctance to embrace open banking. In the UK, six of the nine biggest account providers missed the Competition & Markets Authority’s January 2018 deadline and had to be given extensions – and banks went ahead without properly considering what it could do for their customers or their businesses.

Information gap

This initial reluctance, lack of clarity, and planning led to confusion about what open banking is and has resulted in poor consumer understanding. According to Mambu’s 2021 global open banking consumer survey, 80% of respondents are using open banking tools, yet 61% claim they currently don’t use open banking, and 52% say they have not heard of the term. It’s clear there’s a great deal of misunderstanding about what open banking can provide and it’s holding the sector back.

What it can provide consumers is revolutionary, even if this potential is yet to be fully realised. Open banking gives users the ability to aggregate all their financial information in one place, have invoices paid more quickly and securely, receive instant loan decisions and manage their finances through budgeting apps, among many other uses.

Consumers may not understand the technicalities of the tools they’re using, but they’re increasingly embracing them. Juniper Research found that open banking users globally grew from 18 million in 2018 to 40 million in 2021, largely driven by the pandemic and restrictions around banking in person. If traditional banks want to remain competitive amongst rising challengers, they need to start actively pursuing open banking.

Unlocking the benefits of open banking

There are a number of steps banks can take to help consumers understand and embrace open banking. The first is examining their messaging around the practice. The term clearly lacks traction and it may be more productive to start framing its features in terms of ‘smart’, ‘shared’, or ‘collaborative’ banking. There’s also work to be done in communicating the value that open banking personally brings users, showing consumers that it’s about giving them more control – not taking it away.

Banks additionally need to find ways to provide reassurance around data security and build in additional safeguards where needed. Mambu’s survey found nearly three in five customers have concerns around open banking privacy and security. These fears will need to be addressed if open banking is to truly take off.

Moreover, banks must approach open banking with a customer-first approach. This means investing time and resources to predict what tools and support their customers need, so they can offer the right help, at the right time. It means placing the customer at the heart of development strategies so they feel empowered and in control. And it means working within an ecosystem of complementary partners to make sure they can always offer the best-in-class services to maximise reach and attractiveness.

The open banking revolution is just beginning

The open banking revolution hasn’t been quelled but it does need support – specifically from the banking community. Banks are the gatekeepers to its success.

They can harness their status as voices of authority to educate consumers, dispel myths and promote its advantages. They have the power to control how easy it is for their customers to understand and embrace the open banking options available to them, but the majority aren’t playing their part.

According to Mambu’s survey, half of consumers feel their banks dropped the ball when supporting them with open banking, and 49% believe their bank didn’t explain its benefits when first introduced.

Open banking may have struggled so far to deliver on its promise but that doesn’t mean it’s doomed. With the right support from banks, coupled with the tech-acceleration of the pandemic, its potential for radical change and growth within finance is still vast. Despite its slow start, the revolution is still coming.