Why has open banking failed to live up to its promise?

By Elliott Limb, Chief Customer Officer at Mambu

When open banking hit the market in 2018, a financial revolution was expected. The move to simply and securely promote information sharing between customers, banks and third parties promised vast opportunities to grow profits, build innovative new solutions and create deeper customer connections. But this promise has failed to become a reality. So, what went wrong, and how can the banking industry realise the technology’s full potential?

Reluctant acceptance

One of the key factors behind the slow growth of open banking appears to be how it was introduced: brought in by regulators to open up competition and boost innovation. 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, for instance, 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.

Consumer confusion

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.

Getting customers onside

There are a number of steps banks can take to help consumers understand and embrace open banking. The first is examining their open banking messaging. 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.

Banks dictate success

The open banking revolution hasn’t been lost 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.

In fact, Mambu’s research found that half of consumers feel their banks dropped the ball when supporting them with open banking, as 49% say their bank didn’t explain the benefits of banking, when introduced.

It’s clear open banking hasn’t delivered on its promise – yet. The opportunity to embrace open banking and all its benefits hasn’t disappeared, but if banks want to realise them, they need to step up. Debunking myths, dispelling consumer confusion and building products that put customers first are essential for fuelling growth, both individually and for the sector as a whole. The promise of open banking is one we can still keep.

By Elliott Limb, Chief Customer Officer at Mambu

When open banking hit the market in 2018, a financial revolution was expected. The move to simply and securely promote information sharing between customers, banks and third parties promised vast opportunities to grow profits, build innovative new solutions and create deeper customer connections. But this promise has failed to become a reality. So, what went wrong, and how can the banking industry realise the technology’s full potential?

Reluctant acceptance

One of the key factors behind the slow growth of open banking appears to be how it was introduced: brought in by regulators to open up competition and boost innovation. 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, for instance, 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.

Consumer confusion

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.

Getting customers onside

There are a number of steps banks can take to help consumers understand and embrace open banking. The first is examining their open banking messaging. 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.

Banks dictate success

The open banking revolution hasn’t been lost 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.

In fact, Mambu’s research found that half of consumers feel their banks dropped the ball when supporting them with open banking, as 49% say their bank didn’t explain the benefits of banking, when introduced.

It’s clear open banking hasn’t delivered on its promise – yet. The opportunity to embrace open banking and all its benefits hasn’t disappeared, but if banks want to realise them, they need to step up. Debunking myths, dispelling consumer confusion and building products that put customers first are essential for fuelling growth, both individually and for the sector as a whole. The promise of open banking is one we can still keep.