Are UK consumers warming up to open banking?

MACCLESFIELD 22 October 2020

Recent figures from the Open Banking Implementation Entity (OBIE) have indicated that Open Banking is becoming increasingly popular in the UK, as more and more customers are getting on board and taking advantage of everything this opt-in service has to offer. 

The report, published by Credit Strategy, has indicated that the number of consumers who have started to use open banking has doubled since January, bringing the total number using the service to over 2 million.

This is hugely encouraging for those financial institutions who are beginning to champion Open Banking and prepare themselves for helping customers navigate their finances and borrow more effectively. However, the majority of consumers are still yet to adopt Open Banking and utilise benefits such as centralised bank accounts, personalised credit products and faster payments. 

To gain further insight, we’ve looked into how Open Banking works and the challenges that both consumers and lenders have in utilising this new system.

What is open banking?

  • Giving people more choice and more control over their money and their data

  • Sharing information between banks and building societies in one centralised place

  • A way to improve competition in retail banking and financial services

Open Banking is the sharing of data between banks and building societies, that allows customers to centralise their finances in one place. It also gives greater control over data, and the ability to share data to get more personalised quotes when borrowing money through credit cards or personal loans.

What are the benefits for the consumer?

  • Centralised view of all accounts in one place

  • More accurate personalisation for credit products based on analysis of spending

  • Faster payment methods and innovative banking products

  • Personal finance and debt management tools

Having a centralised hub of accounts means that the customer can view all their accounts in one step, rather than logging into several apps or online portals. This also makes transfers easier and gives the customer access to financial tools based on their overall spending across all accounts. In addition, the customer will then be offered credit products that match their spending in real-time, including credit cards and savings accounts.

What are the benefits for the industry?

  • Better understanding of customer spending habits and cashflow

  • Real-time views of accounts means more suitable credit products can be offered

  • Can offer benefits that relate to where the customer spends such as cashback in favourite retail shops

Will Hurst, Monevo’s Head of Commercial Development, recently described Open Banking as “a very real remedy to help understand a prospective borrower’s financial position”. With access to customer accounts, a bank is able to analyse spending in much closer detail, meaning that they can offer more accurate rates when a customer chooses to borrow, instead of relying only on a hard search on a credit file. 

It is the equivalent of getting a black box on your car that provides a clearer representation of the way you drive, meaning that if you drive better, your insurance is likely to become cheaper. For Open Banking, sharing your data allows companies to build a better picture of a consumer’s current situation and offer personalised products and rates. 

Are there any drawbacks to open banking?

One of the issues with Open Banking is that even though access to spending and cashflow allows lenders to provide more accurate credit products, this can often highlight issues with money that a regular credit check would not have highlighted. Using the same analogy used above, if you keep driving over the speed limit with your black box, your insurance is likely to go up.

This is just part of how Open Banking works, and in most instances will ensure responsible decisions are being made. 

What is the availability for consumers? 

Open Banking is now freely available for UK consumers from all major providers, along with other challengers who often use it as the basis of a finance app or service.

It has been positioned as an extension or an enhancement of existing accounts, but it is by no means a mandatory service. This means that whilst popularity is increasing around it, it is still not at the forefront of consumers’ minds and we are still some distance from access to personal banking data being the norm. 

Conclusion

With benefits for both the consumer and the lender, the challenge still remains around the messaging that comes with Open Banking and positioning it as a beneficial addition to your finances, rather than a violation of privacy.

The ability to position it as a service that is completely safe and will benefit everyone, will be a huge step forward for the future of Open Banking. Until this messaging is clear the adoption of the service will continue to be slow, at least for the time being.