There have been scores of articles reflecting on the exciting opportunities Open Banking offers for consumers and providers, the dramatic impact on the competitive environment, the potential security risks of sharing data and a myriad of other perspectives. The big unknown is still how consumers will actually react when faced with the reality of new services, new providers and new ways of doing things.
In principle, they should recognise and embrace the opportunities. Most of us are time-poor and keen to have greater control; for instance, our recent Global Trends Survey shows that 55% of UK adults wish their lives were more simple. Allowing third-party providers access to our data could provide clear benefits, making it easier to manage our personal finances and giving us access to faster, more efficient processes. However, the reality is that not everyone who could benefit will act. There is a good deal of friction that will need to be overcome.
Friction is not a new concept in financial services. It is something the industry has been wrestling with for many years. Why do relatively few people still change current account provider, even though the Current Account Switching Service (CASS) is well established? Put simply, it requires effort. Not as much as it used to, but some. It is accompanied by risk. Not a great deal, but enough to give one pause for thought. Add those two things together and, for many people, the potential benefits of switching fail to outweigh the perceived effort required to make the change, despite the reassurance that CASS offers. There is too much friction.
The role of friction is seen in many other areas of financial services. Why are so many people still on post-fix standard variable-rate mortgages? Why do so many have savings accounts which don’t pay the highest interest rates? In part because, in our low-interest context, the benefits of switching aren’t sufficiently attractive to overcome the friction associated with doing so.
If we look a bit further back, we can find examples of the negative effect of friction in the initial adoption of online and latterly, mobile banking. Slow uptake of these technologies when they first became available could be clearly linked to poorly designed interfaces, complicated login processes and limited functionality. Many customers found that it wasn’t worth the effort. As services improved, processes became more streamlined and greater functionality was added, the friction involved in successfully registering for and using digital banking tools was significantly reduced. Which is not to say that every banking app is yet as customer-friendly as it might be but, as biometrics tools are being rolled out for identification and verification, friction is being further eroded.
We can also identify instances where friction can be overcome relatively quickly. In the UK, contactless payments and, increasingly, mobile payments are now widespread. At first, uptake was slow, and was naturally hindered by the lack of smartphone technology and the fact that contactless payments were accepted by so few retailers. However, once contactless functionality in payment cards and mobiles became more widespread, and low-ticket purchases like newspapers and sandwiches became possible, adoption exploded. The sources of friction were radically diminished and it seems as though these methods are now almost the default.
Turning to Open Banking, there is another aspect of friction to consider. When consumers are able to share their banking data with third parties, it is important that they make good decisions. That they share their data in ways that are beneficial and with third parties who will make appropriate use of that data. In short, consumers should think about what they are doing.
In this situation, a little friction is desirable. Checks such as having to confirm an action with an additional click or being presented with a summary of what you are about to agree to should help people to make decisions that are in their best interests. Data from our study into attitudes to Open Banking, conducted earlier this year, indicates that there are other sources of friction which need to be taken into account.
When it comes to their financial data, UK consumers are cautious about what might happen if they share it. We found that 66% of people would be concerned about how their data would be used and 59% about the level of protection they would receive if they shared their data in this way. Such concerns indicate that there may be a lot of potential friction already built in to the underlying concept of Open Banking.
Hence the paradox. In order to succeed in providing the right people with the right solutions at the right time, Open Banking needs to overcome the friction that could prevent adoption. At the same time, there needs to be enough friction in the process to avoid people signing up for inappropriate or unnecessary services, proving their concerns well-founded.
Success for both providers and the Open Banking concept will be the development of propositions which clearly articulate the ‘what’s in it for me?’ factor for consumers, while providing sufficient reassurance about the security of the whole process. Even the most successful exercise in managing friction will have little effect if consumers can’t see the benefit of adopting a proposition or are too worried about security to sign up. Conversely, if providers can develop products and services which people really want, consumers may well be willing to overcome a bit of friction along the way.