Open Banking - the biggest technological development in banking for several years – went live on January 13th. As with all new developments, it is likely to face some challenges in its infancy period, but the opportunities it presents and its potential to radically change the world of banking cannot be ignored.
The challenges for the providers of Open Banking services are two-fold. The first is that people are not informed about what Open Banking is and what it will entail; of key opinion formers - often the most informed of audiences - only 7% of MPs and 4% of business journalists feel well informed about Open Banking (*Ipsos MORI MPs and Business Journalist research, Summer 2017.)
Consumers also are also worried about their personal data in Open Banking; 66% of people would be concerned about how their data would be used and 59% about the level of protection they would receive.
Therefore, the two major challenges service providers face are creating awareness of the value Open Banking can bring and cultivating trust about the security of new offerings in this space.
Ipsos MORI research shows that the established banks have a major advantage over other financial service providers and fintech companies because they are granted significantly more trust to provide Open Banking services.
Established banks can leverage this reputational advantage to promote Open Banking but their position also leaves them exposed. Any potential issues that arise from Open Banking, like a loss of customer data, will likely hit banks hardest because they are the most well-known service providers and consumers have a deeply embedded expectation that their data will be protected – after all, this a role banks have fulfilled for some time. In addition, there is potential that the increased awareness of alternative offerings created through Open Banking will also direct consumers towards competitors or that the message of sharing data may jar with previous messages of promoting security, alienating customers.
Our research suggests that the growth of Open Banking will largely be driven by a small segment of the population that Ipsos MORI has dubbed ’Active Adopters’. This group could acts as Malcom Gladwell’s archetype of ‘the Maven’ and help the idea of Open Banking to spread. As such, they are also the group to whom new providers in this space must prove their value, especially with Open Banking being as yet an unproven commodity.
As service providers seek to capitalise on the opportunities offered by Open Banking, corporate reputation will likely play a key role in the strategies they adopt and the level of risk they are willing to absorb.
For smaller fintech companies the reputational advantage is that they do not have to assuage the fears of other segments of the population or worry about the reputational risk Open Banking presents to the rest of their businesses. The big questions are understanding who ‘Active Adopters’ are and how to build a value proposition that will lead to advocacy for their product and service.
For the established banks the big questions are around understanding how to communicate about Open Banking to a sceptical public, how to leverage their current reputational advantage into market share and how to manage the potential backlash they would face should consumers’ data end up in the wrong hands.
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