Investing in Open Finance: Why Consumer Understanding is Important

Open Banking has redefined the way that financial institutions handle customer’s data and finances. In a recent research from Curity, nearly half (43%) of all large financial institutions say they have already adopted Open Banking.

Whilst there are clear advantages for both banks and consumers that are driving the adoption of Open Banking, the pandemic clearly accelerated adoption, as brick and mortar banks were forced to shut their doors and consumers moved online even more than before. Now, as there’s a greater emphasis placed on digital-first solutions, and online channels are becoming a first port of call for many, two-fifths (40%) of organisations are choosing to invest significantly more in the sector in 2022. 

According to the OBIE, 5 million people are now using Open Banking in the UK, which represents a relatively strong consumer adoption rate in a short period of time from the UK. However, there are still many more who are not utilising Open Banking for a number of reasons. 

Consumer education is the key to mass adoption

Consumers are still showing some hesitancy when it comes to their understanding of Open Banking and how it can help them. But no blame can be cast on a consumer that is not up to speed with the latest developments in financial technology. It is the responsibility of banks to educate consumers about the changes that they are making and how it can benefit them. 

Educating consumers should not be considered a chore or a burden, but more so an opportunity. This is a chance for Financial Institutions (FIs) to develop trust with consumers, and show their commitment to offer an improved customer experience.

The need for greater education for consumers is being echoed by nearly all industry professionals as well. 96% of organisations globally, and more specifically 100% in the US, believe consumer adoption is crucial to the future of Open Banking. It is largely recognised that without consumer understanding, Open Finance would be a business-only technology. Without consumer knowledge and buy-in, the purpose of Open Banking is null and void.

Open Banking gives customers greater choice with their finances, but in order to take advantage of this choice, consumers need to fully grasp how it is helping them. With the sector unanimously calling for greater education for consumers when it comes to Open Banking, it’s now time for FIs to act and deliver on such promises to ensure mass adoption. 

Sharing securely is crucial

Currently, consumers attribute their hesitancy towards Open Banking to the sharing of ‘sensitive’ and personal data with third party FIs, causing perceived insecurity and higher risk of data breaches. However such concerns, while understandable, do not accurately reflect the reality of the risks posed by Open Banking. The actual problem here is that consumers are not currently educated on the practicalities of Open Banking, and this needs to be communicated more effectively by FIs. A crucial part of the Open Banking experience are Application Programming Interfaces (APIs). While these make Open Banking possible, a key part of APIs is the lack of consumer involvement. 

APIs enable the secure and efficient exchange of data between applications, services, and customers. Acting as the backbone for Open Banking, API’s allow backend communication between banks and FIs  without the need to share any login details on the front-end. This data sharing ensures that codes or passwords are not revealed to anyone other than the consumer, keeping any sensitive information hidden. 

With new technological advances and robust authentication mechanisms, we can add further peace of mind to consumers. For over half of organisations (56%), deploying modern authentication methods is key to consumer adoption. For example, moving towards a passwordless future will encourage the  adoption of biometric and passwordless protection . In turn, we can hopefully see consumers more assured with the protection and safe keeping of their financial information.

Without improved consumer awareness and understanding of security systems currently in place, consumer hesitancy will continue to prevent the adoption of Open Baking. It’s vital that FIs begin to communicate this to their customers in an effective manner. Otherwise, both consumers and FIs will fail to experience the benefits of Open Banking available to them.  

Ensure consumer confidence

Whilst education is vital to ensuring consumer confidence, FIs should also look to invest in other areas to improve the customer experience to reassure and entice potential customers. 

The foundations of Open Banking are rooted in providing consumers with choice over their finances. To facilitate this, the universal integration of APIs is necessary. Providing a service that is interoperable between brokers, banks and third party FIs can be used to better the customer experience, so that all parties are equipped with the information that they need. This, in turn, will help to facilitate a high grade service that can deliver advanced insights and personalised advice to customers. 

Ensuring that Open Banking is fully functional and provides safe solutions to customers would ensure further peace of mind. Team improvements, new technologies, and ensuring that there is the support in place to implement them will help to achieve this. If executed, hesitant consumers will be able to develop trust in the Open Banking framework and be comfortable that their finances are being managed with absolute security.

The next step is with banks

Traditional banks are ready to take the next step with Open Finance. But consumer adoption is the key ingredient to its success, and this requires education. Consumers must understand why their data is being used, and how it can help them. But this is not their responsibility. It is now down to banks to educate consumers on the developments in Open Finance and the benefits they offer. In sensitive times where personal finances are so important, Open Banking could help millions of customers to find the right banking solution for them.