The UK is widely recognised as a leader in Open Banking. This is largely due to the banking industry taking a regulatory-driven approach and having early deadlines in place for banks to develop the required infrastructure. To aid this, the UK’s nine largest banks also funded a central programme and platform, the Open Banking Implementation Entity (OBIE), which cost somewhere in the region of £60m.
This movement is leading to industry wide change and is providing a stage for lenders to innovate and utilise technology to enhance ways in which their customers are controlling their finances. This need for greater control has been further exacerbated by the influence of Covid-19 from a consumer and banking perspective. With the past 12 months really highlighting the need for easier access to relevant information, greater transparency over financial situations and increased flexibility to facilitate better decisions when it comes to a range of financial products.
Open Banking requires banks to share data through application programme interfaces (APIs), subject to the customers’ approval. These APIs send data from the customer’s bank to approved third parties, who in turn can offer a range of products and services. However, a collective approach is key to future success, as are strong levels of consumer confidence.
Two recent pieces of research help outline current attitudes. In 2020, Tink surveyed financial executives from institutions across Europe to gain insight into their attitudes towards Open Banking and how they are investing in it. The results showed that financial institutions are primed to embrace the shift towards Open Banking and Open Finance, with 61% of respondents saying they are more positive about Open Banking now than in previous years.
But how can they unlock the full potential of the Open Banking opportunity?
Whilst the majority of financial institutions are demonstrating positively towards Open Banking, 42% of respondents said that they lack a clear strategy to drive value creation. More often than not, this is due to financial institutions not yet fully grasping the benefits of Open Banking and thus not being best prepared to make the most of it. And this understanding is not limited to such institutions.
A global survey from Mambu suggested that just over half of people have never heard of Open Banking and many who have still worry about sharing their data. Of the 2,000 people surveyed, 52% said they had never heard of Open Banking and 61% had never used it. This was in spite of 80% of respondents using one or more mobile finance apps.
With the Covid-19 pandemic accelerating the shift to digital financial services, 52% of respondents suggested that they now want more control over their finances and 24% are now less worried about sharing data. Yet 48% of consumers claim they are ‘scared’ to use open banking and 53% still believing that it is a dangerous use of data sharing.
Almost half of respondents outlined that their banks did provide reassurance on the safety of Open Banking or provide information on what the benefits are but 24% said that, while it was explained, it could have been done in a better way. This data represents something of a mixed bag but the Open Banking movement is expected to continue building momentum in 2021.
So how might Open Banking affect intermediaries?
Speed of access to a client’s credit file is becoming ever more paramount in such a complex and fast-paced mortgage market. Integrating technology to build a better pre-sale understanding of a client’s full and frank financial picture is swiftly becoming an invaluable tool in any intermediary’s locker. And Open Banking could well prove to be the glue which allows intermediaries to collate more accurate credit and financial information on their clients now, and in the future.
David Jones is director of Click2Check