Open banking was set to herald a new dawn when it was introduced back in 2018. But, three years on, we’re still waiting for the innovation and growth it promised to materialise. It’s time we took a hard look at what went wrong and what our sector must do to enter a new era of consumer empowerment and banking change.
One of the chief reasons behind open banking’s slow growth is how it was introduced. Open banking was brought in by regulators to open up competition, deliver better value to consumers and drive innovation. But while such directives can galvanise an industry and ensure sector-wide change, this top-down approach meant many consumers 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.
Myths and misunderstanding
This initial reluctance as well as a 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 as yet unfulfilled. 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.
There are a number of steps banks can take to help consumers understand and embrace open banking. The first is examining their messaging around open banking. 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 must find ways to provide reassurance around data security and build in additional safeguards where needed. 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 must lead the charge
The open banking revolution hasn’t been extinguished but it does need support – specifically from the banking community. Banks are the gatekeepers to their 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.
With half of consumers feeling their banks dropped the ball when supporting them with open banking, and 49% believe their bank didn’t explain its benefits when first introduced – the so-called game-changer for the banking industry may have failed to deliver.
That doesn’t mean it can’t transform finance. Open banking can radically improve our industry if banks lead the charge in educating consumers and embracing its opportunities. The dawn of open banking may have been delayed, but the sun can still rise.