Open Banking: A Telling Snapshot in Time

Also known as “Papa Flash and “the man who stopped time”, Harold Edgerton was a talented engineer and researcher at the Massachusetts Institute of Technology (MIT) who transformed the stroboscope into a device to take ultrafast photographs of moving objects. Now, we’re not mentioning him today because we intend to stop time (although we might if we could), but because he’s also famous for saying, “the trick to education is to teach people in such a way that they don’t realise they’re learning until it’s too late”.

But why are we talking about education today? Well, it might turn out to be key for both the banking sector and customers. A recent survey by the research company Simple Usability has revealed the almost complete lack of understanding amongst the general public about what open banking actually is. The research, carried out in the United Kingdom but with implications for other countries, casts light on the long road ahead for financial organisations who want to take advantage of the benefits of Open Banking, especially given the risks if customers aren’t able to see the benefits for themselves.

Although its quite a recent concept, open banking has many potential benefits for customers. In fact, unprecedented crises like the COVID-19 pandemic can even enhance the benefits for customers, as we have looked at in previous posts, such as here, here or here. The data and information that open banking provides can be used to better understand a customer’s financial position for loan applications or credit assessments or even for identifying people in trouble who need support.

Given all this, the survey’s authors report that “staggeringly” only 20% of those surveyed said they understood the meaning of “open banking”; and not only that but, of that small percentage, almost one third were unable to provide a correct description. After having the concept explained to them, despite the fact that some respondents “identified the potential benefits of Open Banking including having easy access to their accounts in one place, and being able to keep a better eye on their financial situation”, they also showed great concern with regards to data sharing.

The concept of “sharing” inevitably goes hand in hand with two words that immediately set off the alarm bells in the minds of consumers: fraud and trust. In fact, it’s such an issue that one person surveyed said, “It’s too dangerous as data from all my banks is too easily retrievable by a hacker. Instead of hitting one bank, a hacker can hit the servers of an open banking app and steal everything about a customer in only one hit”.

This suggests that there still isn’t enough awareness about potential new technologies whilst there is perhaps excessive concern about the real threats we face in our day-to-day lives. Consumers are willing to trust essential background services, expecting them to be convenient and secure, but are unable to trust banking applications in the same way.

This is something that the researchers feel is partly of the sector’s own creation as a result of “the fear” that banks have instilled around the security and data sharing. They say, therefore, “it is now the responsibility of banks to firstly better integrate Open Banking into current online journeys, but also to educate us on why we should be using open banking and how it will be safe”.

“The lack of Open Banking understanding and our lack of trust of it are telling, with only 20% understanding it well. Does that mean banks haven’t put enough emphasis on the benefits to their customers? There’s certainly an opportunity here to spread the word and further support customers with their financial planning and management”, according to senior digital marketing consult Debbie Rhodes.

However, more than seeing this as an insurmountable obstacle, the sector should be able to see this snapshot of open banking as an opportunity for growth, through education and raising consumer awareness. The pandemic and the various confinement measures have created financial turbulence and uncertainty for the entire world and led to changes in behaviour (and in fact, these changes in behaviour are the central theme of Simple Usability’s report).

Whilst trust in online processes might be difficult to achieve, customer “engagement” is higher than ever. For the majority of people, online experiences don’t necessarily replace personal contact when managing their finances, but faced with the likelihood of continued restrictions in the near future, banks that are able to quickly deliver positive digital experiences or emulate that physical contact will have a clear advantage over their competitors.

Being able to generate this level of trust with customers and transmit a sense of security will be key for any business at a time of such instability. Banks don’t just need IT engineers. Now, more than ever, they need staff with expertise in soft skills so that customers are more receptive to the changes in banking without too much suspicion and distrust. The time is now, and a big education drive will be needed to make open banking a success.