Jun 2018 | Credit Decisions
By Posted by Rob Haslingden

The most common questions that we are asked about Open Banking relate to three issues:

First: is it safe?

It is as safe as the online banking services we have used for years. Organisations are required to apply to the Financial Conduct Authority (FCA) for an Open Banking licence to be able to participate in data sharing. Only with this licence can you obtain the APIs which grant access to the data. Because of this level of approval there is a mark of certainty placed on any company that offers this feed in their proposition. This certainty, particularly when data is under a lot of exposure, is important and gives assurance of its security.

Finally, Open Banking comes under the governance of GDPR. Any loss of personal data would be subject to the fines administered by the Information Commissioner.

Our research shows how one of the most pertinent concerns amongst people about Open Banking is the security risk – or assumed security risk. As you would expect this perception changes across age groups with those 55+ being more concerned than those younger groups.

Second: is it compliant with data protection requirements?

People have to give overt consent to share their data under the GDPR. Likewise, a person would also need to consent to share their data through Open Banking. Therefore, both regulations are symmetrical in their advocacy of a customer centric, customer first approach.

Third: will society use it?

At least 40% of young people say that they will share their data (according to our research with Accenture). Over 60% of people say that they will happily share their data with a bank or an established brand. However, there are other factors that should be considered. The new regime should be open to everyone but it is only available now to customers who bank online because customers have to log into their online account to share data. Some people will not get immediate access to Open Banking because they don’t bank online and therefore you need to consider how you can still help those unbanked.

We did some research recently that delved specifically into Open Banking and how people across society understood it. The research highlighted how more than half see no benefit to them in sharing current account information. From those who did cite it as a potential benefit, their interests were in the speed at which payments could be made. You can see from this the layperson in general is still focusing on convenience – and this is probably due to the lack of knowledge about Open Banking (just three in ten had heard of Open Banking).

In addition, some vulnerable customers – financially challenged or with physical vulnerabilities – might be disadvantaged by the Open Banking regime. One of the topics we are in discussions about as a member of the Open Banking Working Group is how we help organisations to provide services in the market that can address the needs of vulnerable customers. Open Banking needs to be inclusive to be successful.

It is our belief however, with these considerations addressed, that people, and society at large will use Open Banking, it will take some time to get there – but this data sharing system is something we believe will be the norm – particularly where people and businesses are applying for loans. We can start to see a proportion of society open to the benefits and while just over half (57%) saw no benefit at all, some do. Open Banking will enhance lending by making it easier and more convenient for customers to share data which gives a better indication of whether they can afford the credit. The incentive for the customer is better access to credit and for the lender it is access to accurate information to minimise the risk associated with issuing credit.

In addition, for customers, it will transform how they consume products, but also give more visibility and transparency around the value they are getting – making banking customer-centric. And perhaps akin to contactless cards, or chip and pin, its value will only be realised once it is fully integrated into our everyday lives. Some critics suggested chip and pin wouldn’t take off through memory problems, but we’ve quickly moved from chip and pin to contactless, as society has responded to the convenience and ease of frictionless payments.

Let me end on two thoughts.

First, we can never know if something will offer us value if we don’t properly understand how it works. We can’t. So naturally we are hesitant and sceptical.

Second, a quote that’s supposedly Bill Gates once made resonates with me:

Banking will always be needed but banks as we know them could easily disappear. This doesn’t need to mean that Banks are going – being replaced by new competition and new models, but it could mean that how we bank today will change. And this is a good thing.

We will see the differentiation through new services. We will understand the differences through better conversations, better customer experiences. We will consume the difference through ease of transacting – through more secure and more convenient banking.

We’ve moved from shillings to decimals and from pound notes to pings. Next will be to abandon the sharing paper statements in preference bank statements digitally. We will move from complex uncompetitive services to fair, fast and convenient digital services. This is where we need to be heading. We just need to go on the journey together – as a company, with our customers – every step.