Open Banking has just celebrated its first birthday. Anticipation was that it would increase competition within the financial services industry and unlock innovation that would transform and improve the customer experience. It sounded so promising only one year on, has it had any real impact?

YouGov research shows that 72 per cent of UK adults have never heard of Open Banking and based on PWC, only 18 per cent of consumers are currently aware of what Open Banking means for them. However, just because consumers don't exactly comprehend the vision, doesn't mean the changes aren't filtering through.

Progress so far

Since the managed rollout began at the start of 2021, the Open Banking Implementation Entity (OBIE) reports there are now 100 regulated providers, of which 17 Third Party Providers (TPPs) are actually using Open Banking in the united kingdom. Open Banking technology was used 17.5 million times in November 2021, up from 13.9 million in October and 6.5million in September, with Application Programming Interface (API) calls now having a success rate of 97.7 per cent.

One of the first Open Banking initiatives was Yolt, a venture from the Dutch ING Bank. Yolt synchronises a customer's accounts in one place so they can see their spending clearly and budget better. Similarly, Chip aims to help people save more intentionally. Customers give read-only access to their current account (details are protected using 256-bit bank-grade encryption) and then sophisticated algorithms calculate how much a customer can afford to save, and puts it away automatically into a merchant account with Barclays every few days. The eye rate on the account is 0 percent, but increases when a customer introduces friends to the app.

High Street banks have followed charge of the fintechs. HSBC was one of the first banks to release an Open Banking app this past year and on its app, HSBC customers can easily see their current account in addition to online savings, mortgages, loans and cards held with any other bank. The app has the capacity to group customers' total spending across 30 categories including grocery shopping and utilities, making it a really helpful budgeting tool. Santander, Barclays and Monzo have similar apps available.

Perhaps, most advanced of all, Starling Bank allows customers use of its “Marketplace” where they can choose from a range of products and services that can be integrated using their account. So far, the offering includes digital large financial company Habito, digital pension provider PensionBee, travel cover provider Kasko (AXA), Wealthify, a place to go for your Isas and investments, in addition to a number of external integrations such as Moneybox, Yoyo Wallet, Yolt, EMMA and MoneyHub.

Imran Gulamhuseinwala, trustee of OBIE, says yesteryear year has shown that “banks have very firmly moved from viewing Open Banking as a compliance exercise to an opportunity to compete and innovate.”

Obstacles to Open Banking

One from the big questions is whether Open Banking is self-serving for finance companies rather than beneficial for customers. There's a general cynicism regarding the real causes of encouraging Open Banking which is exacerbated when the majority of customers aren't seeing the benefits.

Also, there is the issue the philosophy of Open Banking seems in direct contradiction using the priorities of GDPR and this is leaving consumers confused. Within this day and age, do consumers really want more organisations to have access to their data? Can they trust banks? How does Open Banking marry with GDPR regulations along with a tightening of data sharing? According to PWC, 48 per cent of retail banking customers and 54 per cent of SMEs state that security is the biggest concern with Open Banking data sharing which is a significant barrier to overcome.

Customers are understandably nervous about the new capabilities – it is now feasible for a mortgage lender using Open Banking to look into a bank account and assess a possible customer's spending before deciding how much to lend. Some may not like the sound of this though it does speed up the process and take away the need to provide paper bank statements. Similarly, an insurer could find out what someone currently will pay for all their different insurance policies and offer a cheaper bundle. There's no doubt these initiatives help the customer but they also raise queries about privacy.

The way forward

It is hard to overcome cynicism and doubt. Perhaps, once customers begin to enjoy the positives, they will be less sceptical about Open Banking, resulting in more opportunities to build long term customer engagement. For example, if products help them avoid going into debt or nudge them when new mortgage rates are on offer, they will observe that banks are using the technology to aid wise financial management as opposed to just serve their own marketing purposes.Gulamhuseinwala of OBIE says there is a real opportunity to develop apps that “help address some of society's issues, in particular in the debt advice area.”

It is also hard to change entrenched consumer habits. To inspire consumers to get in the habit of comparing and switching, financial organisations must create truly compelling propositions. They have to focus on delivering intuitive, useful new e-books which make a real difference to customers' daily lives.

They also need to demonstrate they take their responsibilities seriously and are trustworthy with data. There is a job to be done in relation to educating the consumer about how Open Banking works and just how data is totally secure. Customers need to comprehend that they can choose which regulated apps and websites they want to use and decide what information they can access, and for how long. Being an industry, now is the time to underline that one of the key tenets of Open Banking is security. Open Banking uses rigorously tested software and security systems and is stringently regulated by the FCA.

Placing the customer at the centre of their finances and providing them with complete control is a brilliant vision. This capability to move deposits, accounts and investments between banking institutions without hassle or penalty increases competition and brings an array of everyday benefits to the customer. There is huge opportunity for traditional banks, fintechs and disruptors to use Open Banking to pioneer new products that truly transform and enhance the customer experience, building long term customer engagement. However, the priority with this year is communicating towards the masses the huge advantages and opportunities that Open Banking brings and reassuring them about the integrity of providers.

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