A tipping point for banking?

In its most recent inquiry into the retail banking sector, the Competition and Markets Authority (CMA) clearly recognised the importance of technology as a driver for change in how we bank in the future. With Britain leading the world in fintech and new technologies reshaping the banking landscape, established banks and new entrants are vying to redefine the way we interact with money.

Data sharing, for one, has become more important as consumers seek greater flexibility in the way they access social media, banking and news. The technology of APIs (sets of instructions that dictate how one piece of software interacts with another) is key to this. Many organisations including Facebook and Uber stay ahead of the innovation curve by ‘opening’ their APIs, enabling third parties to access their data to develop new apps and services.

The creation of the Treasury-backed Open Banking Working Group in 2015, and now, the conclusions of the CMA, signal a move towards a similar democratising of data in the retail banking sector – by using data sharing to disrupt the exclusive relationship between the leading banks and their customers.

What could an Open Banking API do? A third-party service provider could, for example, gather a consumer’s personal information from a variety of sources (such as current accounts, savings accounts, credit cards, mortgages, insurance policies, utility bills or even social media and shopping behaviour) and put all of this information into a single user-friendly app. Such a development will ultimately provide consumers with the freedom to share their financial data with new entrants who can provide products better tailored to individual financial needs.

Consumers are ready

What do consumers think of this? When we presented consumers with the idea of the financial management app described above, 35% said they would be likely to use it (increasing to 52% for 16-24 year olds)¹. Given that mobile banking is already one of the fastest growing uses of smartphones², there is clearly a real appetite for a service that can leverage open access to financial data.

Despite this appetite, financial service providers will still need to address two main issues on data security. First, there is a disconnect between what consumers say and what they do – 34% of consumers said they were willing to pay extra for a service to keep their details safe but 74% of those hadn’t taken the simple step of increasing their web browser privacy settings³. With Open Banking giving consumers the freedom to share financial data, providers must do more to safeguard consumers when they make critical decisions involving data security.

A second issue is the inconsistency in consumer attitudes on blame and redress. We asked consumers who they would blame for money loss caused by a data security breach from a third party app 16% of consumers still held their bank responsible, and 56% of consumers said they would look to their bank first to resolve the issue¹.

But who do they trust?

It’s not all bad news for banks, however. As the chart above shows, established banks occupy a leading position in consumers’ minds when it comes to trusting them to provide an Open Banking app. Right now, banks are still able to leverage their strong brands and existing financial relationships in a way that challenger banks cannot fully match. And we have already seen that the high street banks are trying to address the Open Banking challenge through setting up innovation accelerators, developing partnerships or investing in fintech venture capital funds. But with a fifth of the consumers trusting well known digital brands such as Google and Facebook for such a financial app, the banks need to continue to innovate quickly.

What we’ve presented to consumers in terms of an Open Banking app may just be the first step. With artificial intelligence, apps designed for information aggregation and price comparison may progress into tools designed to make optimal financial decisions for consumers, such as switching current account or energy provider. As the use of blockchain technology evolves to facilitate Open Banking, retail banking may move away entirely from a model where financial data is created, controlled and shared by banks, towards one where the data itself is created, distributed and edited publicly.

The question is, will banks and regulators move quickly enough to protect consumers eager to take part in this brave new world? Your comments are welcome below.

Notes [1] Ipsos, “Open API Exploring the attitudes of consumers and small business”, Base:2027, UK adults 18+, online, 30th Sept – 7th Oct 2015, data are weighted. [2] Ipsos, “Tech Tracker Q1 2015”, Base: 984 adults aged 15+ in GB, face to face 30th January – 7th February 2016, data are weighted. [3] Ipsos Global Trends Survey, Base: 16, 167 across 20 countries (1,000 GB), online, 1-15 October 2013, data are weighted.