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Officially coming into effect in January 2018, Open Banking is beginning to gain a lot of attention, but most retailers are still unsure of the opportunities that it will present and what the reaction will be from consumers.
In short, Open Banking now allows consumers to share their personal financial data with third parties.
If consumers are prepared to give consent to third parties, they will be much better placed to gain more value from their financial products, be in more control of their money and see new value models emerge to reward them for the use of their data.
Take the customer data of the nine largest UK banks (CMA9), and this accounts for 70 million personal current accounts, more than 20 billion transactions and over £6 trillion worth of value a year.
“This is vast”, says Dominic Wilson, head of stakeholder engagement at the Open Banking Implementation Entity. Data that was previously locked away and not used very well or creatively will become a powerful tool for consumers and those who deliver services to consumers.”
But for all the the industry excitement (and worries), consumers won’t be particularly interested in the term “Open Banking” or what it means for them. “Even though the whole point of Open Banking is to help consumers take control of their financial data”, adds Dominic.
But why should they care about “Open Banking”, says Ed Maslaveckas, co-founder of banking app Bud. “Consumers will only be interested in the services that Open Banking will create. And these services will need to improve day-to-day lives, as well as make it easier for consumers to move to where they are best served.
Unsurprisingly, the initial consumer reaction to sharing financial data with third parties is unlikely to be positive.
“When I talk to consumers about what Open Banking could lead to, they find it all very interesting but we quickly get down to the issue of trust,” says Jonathan Wood, SVP, Consumer Applications at Vocalink.
Data sharing has come under a lot of fire recently and there is a lot of empirical evidence of consumer data being misused, sold on, lost or stolen.
The initial success of new services that emerge from Open Banking may well be measured on which brands consumers trust most to deliver better experiences.
“It’s fine to say our business is based on using your data to get you great deals, but you’ve got to be clear about how you make money from this”, says Dominic.
And while there are always going to be people who say they will never share their personal financial data, opinions change when consumers are presented with real added value to their lives.
Chaired by Yoyo CEO Michael Rolph, more than 40 retail and banking professionals attended Yoyo’s latest breakfast briefing, which took at place at The Ned in the City of London on Wednesday 28 March.
Here’s a few more highlights:
The compelling reason to share data will come when consumers clearly see the benefits and there’s transparency when it comes to what happens to their data – hidden terms and conditions will need to become a thing of the past.
Asked what customers will want to see in terms of new services, Jonathan has been told: “Don’t get too clever too quickly, please take me on a journey and show me how this is going to enrich my life – but don’t overwhelm me.”
Of the retailers Jonathan has spoken to, monetizing customer data isn’t the priority, rather it’s about substantially improving the customer experience. This value can then be incorporated into what the business wants to achieve.
Intelligent surprise and delight moments will be one of the first successful customer experiences to come out of Open Banking, predicts Jonathan.
“I’m loyal about certain things, like where I buy my shoes, but not so loyal about other things, like where I buy my coffee. But if a brand interrogates my spend history and presents me with a personalised surprise and delight moment every now and again, this will shift my spending behaviour.”
Both the Open Banking and GDPR regulations have one thing in common – giving more control to customers on how their data is used.
“When we’re talking to consumers and they say hold on a second – people will be able to do anything with our data, we can actually say no they can’t because GDPR covers absolutely everybody and sets clear and significant restrictions on how data is used.
“This is really important to the messaging of Open Banking – having that trust base from which we can say to customers that this is not the Wild West.”
Giving a trusted third party permission to access your financial data will be likely done in much the same way as you give apps and websites permission to access your Facebook profile.
Once you have given the trusted organisation access to this data, you should be able to see this permission from your banking app or website and remove it and the use of personal data, at any time.
Defining a trusted third party
Under Open Banking, trusted third parties have to be authorised by the Financial Conduct Authority (FCA) and have joined the Open Banking Directory. This is to ensure that consumers can see that these third parties have been thoroughly assessed by the FCA and found to be competent and trustworthy with the personal data they process.
Customer insight is nothing new, but there is a sense that Opening Banking is a tipping point for this area, says Dominic.
Consider the basic data points retailers currently gain through a transaction (where, when, amount, category type, etc). Through Open Banking, these data points could be combined through one transaction and retailers will be able to see their customers holistically – compared to just a snapshot that these single data points currently provide.
Retailers could have at their fingertips a frictionless tool that would broaden CRM activity to identify and segment customers and deliver more personalised experiences.
Last year, Yoyo put Open Banking into action by partnering with Starling Bank. Customers who don’t yet want to use their phones as a payment method can choose to link their debit card to the Yoyo app so that when they make a card transaction they have the same loyalty experience.
Open Banking highlights to consumers just how powerful their data is. “Where banking ends and your social life begins is going to change.” says Ed.
“Right now your finances are stored away in one place and you often don’t want to visit that place because it’s usually a bad thing you don’t want to look at. As soon as you open it, you know it’s going to tell you that you’ve spent too much – that’s mental accounting for you”.
Open Banking will allow consumers to make payments from an authorised organisation that may not be a bank. On its own this is just another payment method for consumers, but when you consider how payments are now made (eg mobile), the whole idea of point-of-sale and the checkout will begin to change.
“In the future, all of those real life experiences, like going out, meeting friends, etc – essentially all the things we do with our money – is where our financial experiences will go – they’ll just follow us around,” adds Ed.
“It’s also fair to say that the bank brands we see today, won’t be the ones we’ll use in the future. Whether it’s a challenger brand or another bank, the focus will be on the consumer’s life and not their finances.”
The customer sits at the centre of Open Banking, and the panel agreed that we’re at the very beginning and the “endpoint is still an unknown”.
Jonathan concluded by saying: “This is a once in a generational shift – it’s going to be an amazing journey with consumers’ lives enriched. But fundamentally, I’m starting by working out how I earn the trust of consumers.”
head of stakeholder engagement, Open Banking Implementation Entity
Dominic is head of stakeholder engagement for the Open Banking Implementation Entity – a body that was set up by the nine largest UK banks to deliver the infrastructure outlined by the CMA, The Treasury and the banks.
He deals with a range of stakeholders, from consumer groups to fintechs to banks to challengers to governments. The most common themes that run throughout his role are shared vision and purpose, customer at the centre, and the power of data.
co-founder of Bud
Ed is one of the founders of Bud, a platform which brings together APIs and data flows to create unique experience for customers. What the organisation cares about most is how customers find unique products and uses underlying transactional data to get customers there.
While Open Banking is in its infancy, Ed can confirm that it’s “definitely going to be a thing” after hearing that a CEO of a major bank had to call it out at a recent board meeting.
SVP, Consumer Applications at Vocalink
Jonathan is a SVP at Vocalink and CCO at Zapp, the scheme operator of digital payment solution Pay Bank Bank App. His role is to serve the ecosystem that’s interested in payments, whether it’s a bank, an acquirer, a gateway, a retailer or merchant.
Jonathan agrees that Open Banking “is going to happen” and there can be no spectator thinking when it comes to this new framework.