Open banking can be a revolution… if consumers see value in it

It’s been touted as the move that will take banking into the 21st century, open banking goes live this Saturday. The UK’s nine largest banks will gradually begin to share financial data – how much your bills amount to, what you earn and how you earn it and so on – with third parties, when consumers give them permission to.

For the financial service providers, the opportunity is there to use the data volunteered to improve the products they offer and to supply better, more appropriate services to their customers. They are ‘banking’ on being able to offer differentiated services that will impress and even attract new customers – which is great news for the public who will benefit from the competition.

In theory, everyone should all be able sit in the driving seat and direct themselves to better offers and better financial futures. Yet a key variable in this process is how people actually feel about sharing their financial data.

With that in mind, Experian commissioned some intensive research to understand the UK’s attitudes to data sharing. What it learned was that there is an issue explaining and understanding the ‘value exchange’. Consumers will share data if what they get back is sufficiently valuable to them in return. And what’s more, the public understands the need for this exchange.

>See also: Open banking: a financial revolution?

Take a taxi hailing app. Riders share real time location details and as a result, they receive a taxi to their doorstep. But would they share real time location data with a service that didn’t obviously require it?

Our research points to different levels of understanding about how consumer data is used by organisations. The study – conducted over 12,000 hours with 2,000 people – identified four distinct groups: ‘The Unaware’, ‘The Accepting’, ‘The Cautious’ and ‘The Incognito’ – revealing that there are varying levels of trust and engagement throughout the data exchange process.

The unaware make up 22% of the population and have little engagement or understanding of how their data is used. They are often excited to access the product or service they desire and they click ‘accept’ without truly understanding the implications of what they are doing. In terms of open banking, these customers are most likely to consent to using the service, but banks will need to explain its meaning concisely.

The Accepting (41%) will consent to their data being shared, but they are not enthusiastic about it. They simply see the exchange of information for products and services as an inevitable trade-off. Financial service providers will have the best chance of engaging them in open banking if they are guided on the benefits of doing so.

>See also: 2018: the year open banking shakes up Fintech

At 28%, the cautious are much more careful about how they approach the data exchange. Before they share any information, they want to make sure that the company asking for their data is legitimate and trustworthy, and ensure that they fully understand the agreement that they are entering in to. If confidence is built up gradually and in a transparent way, this group is likely to consider using open banking.

Finally, the incognito (9% of the population). A smaller and wary group which has adapted to their environment by figuring out how to navigate data sharing without revealing much information that they don’t want to. They have developed defence mechanisms to prevent them receiving the unwanted ‘hassle’ or intrusion that they perceive to be part of the process of sharing their data. Banks should only ask for their details when it’s entirely necessary to keep them engaged.

Open banking is here now, and many consumers from the first two types of person will likely race to adopt services including account aggregation, budgeting advice, and of course better deals. But it’s only the first of some major regulatory changes. The Payments Services Directive 2 also goes live on Saturday, and the EU’s General Data Protection Regulation (GDPR) will be enforced on 25th May.

>See also: HSBC takes first steps into open banking revolution

Taken together, this all means that financial businesses need to gain a very good understanding as to their customers’ attitudes towards sharing data to deliver exactly the right results to those individuals.

Open banking should be an opportunity for both financial service providers and consumers. If banks can persuade people of data sharing benefits then they can make higher quality decisions, while in return their customers can expect a better service.

 

Sourced by Jon Roughley, head of Strategy for Credit Services at Experian

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Nick Ismail

Nick Ismail is the editor for Information Age. He has a particular interest in smart technologies, AI and cyber security.

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