Can we trust Open Banking?

The crash of 2008/09 made both consumers and governments think again about how financial services were provided.  In the UK, the Competition and Markets Authority required banks to become more open and transparent in their dealings with other financial institutions.  A new commitment to partnership started to develop as a response to the UK government’s initiatives – alongside the realisation that collaboration could be more profitable than competition.

Trust and convenience in a multi-provider world

Today, consumers therefore live in a very convenient, but infinitely more complex world of multiple providers of financial services. But this connected ecosystem of banks and other financial services providers, faces two consumer challenges.

Firstly, one of public awareness: fewer than one in four people (Splendid Unlimited Survey 2018) have heard of Open Banking, the interoperability standard that enables a new tranche of business and banking services through the integration of financial technology and services.   These APIs— with customers’ and businesses’ permission  —connect disparate companies’ systems and thus create new and satisfying services.  

Second, how to build a new social contract between financial services providers and their customers in a world where consumers are increasingly aware of the threats of hacked accounts, cloned bank cards and stolen passwords; but recognise few of the benefits: transparency of financial transactions, greater flexibility and reduced costs.

Open Banking means Xero and Intuit QuickBooks can make accounting easier for small businesses. It means Moneyinfo and Zeux can give investors a unified wealth management platform. But without consumer buy-in, the Open Banking system ought not to reach the scale of use that will justify the expense of developing new markets - at least, not for traditional banks with legacy technologies to consider.

What would an Open Banking charter look like?

Perhaps the answer is for a concerted effort from the industry. Open Banking requires consumers and businesses to grant access to their data to share financial information – and that’s a big ask.  For fintech companies to see the mass adoption of Open Banking, then these six questions need to be answered:

1. Is there a compelling reason for the consumer to adopt an Open Banking app? A consumer should be able to balance the risks and benefits of sharing information. The Government and the finance industry have a responsibility to inform and educate consumers about their security.
2. How easy is it to grant and revoke access to their Open Banking information? Consumers are not yet aware of their responsibilities in Open Banking, a clear set of standards and practices will help consumers to recognise best security practices.
3. How can consumers prevent businesses from misusing shared data? In the UK, the General Data Protection Regulation (GDPR) goes some way to define consumer protection in this area.   However, there is no substitute for transparency; fintech companies should be explicit on how they use personal information.
4. Is it possible for existing protections provided by financial institutions to be rendered void if information is shared with a fintech Open Banking App? Consumers are increasingly wary of the scams used to separate them from their passwords and PINs - if Open Banking apps invalidate existing protections, then the whole game will be fruitless.
5. How are the diverse market players to be reviewed, audited, and held accountable?   National regulators tend to be industry-specific. Without adequate government policy, there is a danger that consumers may find themselves falling between two or more regulators as information moves between finance, utility and other industries.  The Government must create clear and unambiguous policies to strengthen the role of regulators as financial information and access become more integrated.
6. What relevant consumer protection applies to Open Banking customers in the UK? Protection comes from the industry regulators supported by the Data Protection Act 2018, the Consumer Rights Act 2015 and the Financial Services and Markets Act 2000 (FSMA). However, the Government must update these Acts to reflect the changes in the use of personal data by third-party brokers.  It is as yet unknown if brokers are retaining Open Banking data on individuals.

Open Banking is a reality today. https://www.openbanking.org.uk/ provides a list of current Open Banking apps in the UK. However, rapid adoption may not even be the best outcome in the long term. 

Who cares anyway…?

There’s one more issue for fintechs to consider. Perhaps consumers don’t care about Open Banking anyway. It is not in the interests of the most innovative fintechs to shout about it. Take Emma, a rapidly-growing financial assistant app powered partly by Open Banking which pulls together all of a user’s bank accounts and makes useful recommendations for cost cutting (like finding wasteful subscriptions). Emma and similar services (e.g. ING’s Yolt) want to be the new gateway to consumers’ financial lives. They rightly want to hide the technology, the complexity, and ultimately even the other banking brands which customers use.

Open Banking is powering a race to be the customer’s one-stop-finance-shop; and as well as eclipsing traditional bricks-and-mortar banking relationships, the brands which succeed in doing this will do so by keeping the Open Banking plumbing as invisible as possible. That’s especially true given that many consumers have privacy concerns and many others are not well informed enough to make effective use of the new services available to them.   

In the near term, fintech companies should major on the consumer benefits of their application or service in the language of the consumer; and at all costs avoid technical or financial services jargon.  

They should constantly demonstrate how security and personal information cannot be compromised and most importantly put consumer-facing controls to revoke access front and centre.  

Finally, the brands that consumers currently believe to be legal, decent, honest and truthful have an opportunity to partner with some of the innovative fintech companies which have not yet established a track record, to develop new services. These partnerships are likely to be the most successful.