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Consumers in the UK stand to gain £12bn per year from Open Banking services, according to a report released for the UK’s Open Banking Implementation Entity.

Consumers will benefit in particular from products and services more tailored to their needs with each consumer gaining £230 on average. Small businesses in the UK will also benefit by £6bn per year through tools enabling increased productivity and insight into financial performance.   

However, it remains to be seen whether consumer worries about privacy and security will be a barrier to widespread adoption of Open Banking services.

A gradual revolution

On 13 January 2018 EU Member States implemented an innocuous-sounding new piece of law - the recast Directive on Payment Services in the Internal Market (also known as PSD2). This ushered in one of the most significant changes in banking in recent memory.

PSD2 required banks to open up their payments infrastructure and customer data to third parties. It created the conditions for third parties to, with the permission of users, securely facilitate payments and obtain data from bank accounts held with other providers in order to provide financial insights. This is what we now refer to as Open Banking.

Since January 2018 consumers have seen some Open Banking innovations but it has been a trickle rather than a torrent of new products.

Barclays, for example,has released an account aggregation feature. NatWest is using Open Banking to streamline the process of paying for goods online. Newcastle Building Society has released an Open Banking-powered tool to help customers understand their income and outgoings.

However, the implementation period has been challenging for banks and we are yet to see Open Banking deliver the revolutionary benefits to customers predicted by the.

There are signs momentum is building. The UK’s Open Banking Implementation Entity listed 25 third party providers live with customers as of the end of May 2019, with a further 107 registered but yet to release products to consumers.

Use of Open Banking infrastructure is increasing: calls in May 2019 rose to 49 million, a rise from 1.9 million in May 2018 (a call is when a third party application requests data from a bank account provider via an Open Data Application Programming Interface).

Nevertheless, the concept of Open Banking is still largely unknown to the majority of bank customers: in May 2019, software provider CREALOGIX released research suggesting that two-thirds of UK consumers had still not heard of Open Banking.

With low consumer awareness comes scepticism

Low customer awareness is unsurprising given Open Banking efforts so far have been concentrated on infrastructure implementation.

However, with low awareness comes scepticism. For example, fewer than 8% of consumers in the CREALOGIX agreed that Open Banking is a good idea. Younger consumers were more positive than older consumers, but all age groups expressed concerns about the potential for fraud and privacy breaches with greater openness.

This finding echoes previous surveys and studies. A YouGov poll in August 2018 showed that, even when given a clear description of Open Banking, 77% of consumers surveyed would be concerned about sharing their financial data with companies other than their main bank. Just 12% stated that they would be prepared to share their financial data in order to access new and innovative products or services.

Similarly, in March 2018 Ipsos MORI and Barclays published the results of a consumer workshop they held on Open Banking. They found that consumer attitudes were driven by data security concerns but consumers would use new products and services which delivered tangible benefits. Customers felt that increased ease and speed were not sufficient benefits.  In return for sharing their data they sought greater knowledge, empowerment or a direct financial benefit, such as being able to get better deals.

How to convince consumers

Perhaps the most interesting finding of the CREALOGIX survey is that consumers were much more positive when asked whether they would find the functionality which Open Banking enables useful.

Consumers were positive about what Open Banking could enable in terms of their banking experience, such as account aggregation and streamlined processes, but concerned about the potential risks of how this would be achieved.  

Some commentators have argued that the survey results show that consumers are "not particularly interested in what it [i.e. Open Banking] is called or how it works". This would seem somewhat simplistic as I believe consumers are increasingly mindful about what is happening to their data behind the scenes. Nevertheless, to convince consumers to adopt Open Banking services, service providers must first and foremost communicate how their services will deliver benefits to consumers.

Open Banking service providers will need to work hard to identify use cases which resonate with customers and to mitigate customer concerns about the use of their data. As Open Banking products are released, it will be interesting to see what additional functionality is persuasive in convincing consumers to share their bank data with third parties. It will also be interesting to note the extent to which consumers will be willing to embrace Open Banking innovations released by service providers without established brand names.

Helene Panzarino is Managing Director of Rainmaking Colab, a fintech consultancy. She is also Director of Digital Finance portfolio at Imperial College Business School and teaches on the Digital Banking and  Fintech – Innovative Banking executive education open programmes.

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About Helene Panzarino

Programme Director – Director of the Digital Finance Portfolio
Helene Panzarino is a passionate and proactive entrepreneur, educator, mentor and commercial advisor with nearly twenty years’ experience helping thousands of small- and medium-businesses become investment ready and access millions of pounds of traditional and alternative funding at all stages in their business growth.

Helene Panzarino is the author of Business Funding for Dummies (Wiley, 2016) and a mentor for Start-up Bootcamp, Mass Challenge and the Ascension Fund. She is a regular judge, speaker and moderator for SWIFT Innotribe, The Alt Fi Finance Awards, Nextmoney BBVA Awards. Helene has successfully created and launched the Inaugural Programme of Education and Events for the UK FinTech trade body, Innovate Finance, as well as an Alternative Finance Investment Readiness Programme aimed at connecting SMEs to the right finance provider. She is a regular contributor to The Entrepreneurs’ Network Roundtable on Female Founders Raising Post-Seed Finance, Boost Roundtable on ‘Man vs Machine’ for SME finance, Centre for Entrepreneurship Roundtable on ‘Offenders to Entrepreneurship’, and a Parliamentary Task Force on Women and Finance.