Has Open Banking lived up to its potential?
A couple of years back, Open Banking forced the biggest UK banks to open up their precious data. We thought this could mean big changes in the way we use our money.
When open banking first emerged, it was with a view to encouraging people to manage their finances better. At the time of launch in early 2018, Head of Open Banking Limited, Imran Gulamhuseinwala gave the key reason for banks being made to open up their data: “People are paying too much for their overdrafts; money is sat in current accounts not earning interest; there’s not enough switching.”
This paved the way for Open Banking apps that allow you to easily move money between accounts, have multiple ‘pots’ of money such as one for bills, one for meals out, another for investing – just to help people to easily, visually separate and manage their money. Meanwhile, there are other apps that focus on finding old subscriptions that could be cancelled, that are wasting money, or suggesting different utilities suppliers where customers are currently overpaying. Whichever the focus, the key overarching theme for fintechs using Open Banking remains the same: to help people improve their money management, mainly by measuring and presenting the data to customers in an easy to understand way.
Although displayed well and easy to understand, aggregation of data and some machine learning on that data has so far been the main use case for apps using Open Banking. This in turn is used to make recommendations to consumers. However, although one problem in doing the hard work for customers is solved, the actual user journey is still full of friction, requiring customers to consume content and click out of apps to activate offers.
That’s not to say that the current trend of Open Banking innovation isn’t helping: in one survey Upside conducted, we found that almost 40% of people just want to have their savings out of their reach so that they don’t see the money available and are therefore not tempted to spend it. In this respect, the innovations we see today are relevant and useful for these customers. But when it comes to the bigger picture, we’re just scratching the surface regarding the potential of Open Banking technology.
In the dark, and uninspired
The use of Open Banking is on a positive growth curve, surpassing the one million customer mark in the UK in January 2020, but there’s still much to be done. While banks, fintechs and businesses are making decent strides with Open Banking, in reality, they’ve only touched the surface. Of 186 savvy money savers (Discountvouchers.co.uk customer-base) only 14% have used a fintech solution to manage their money.
For many consumers, it remains shrouded in mystery. Jenny Ross, Editor of Which? Money, said: ‘Open Banking could be revolutionary for giving consumers greater control over their finances and more choice over the products and services they use – but two years on, huge numbers of people are still in the dark over what Open Banking is, or are reluctant to use it.’
So why is this piece of infrastructure, that is yet to realise its full potential, still largely misunderstood and underestimated? Partly it’s because many people haven’t had the exposure to it. And of those who have, many don’t trust sharing their banking data.
Ultimately, we are creatures of habit: we’re still seeing statistics which show that people are more likely to change their spouse than their bank. It’s likely that in times of huge instability and uncertainty such as Covid-19 that people have bunkered down and found solace in what they know and understand.
It would also be accurate to say that not enough is known or understood about Open Banking and that’s down to marketing with the vast majority of information suggesting the full potential of Open Banking is to improve the way we manage our finances. However, Open Banking’s potential stretches far beyond simply displaying data and applying some logic to it.
Overall, it might be fair to say that the use of Open Banking technology has thus far been useful but somewhat uninspiring. That said, the current challenges we are facing globally could be the springboard we need to enable Open Banking to come into its own and make it more relevant than ever before.
Time for a data-for-cash exchange
In such uncertain times, it’s front of mind for consumers to keep their financials in order, and perhaps on a tighter-than-normal leash. So where can they get ‘spare cash’ from when the whole of the UK, in fact, the world, is in the middle of an economic crisis? The answer, their data.
Insert a new ‘data for cash exchange’ opportunity which will see customers automating their savings through the interface of a few macro trends: Open Banking, machine learning and AI, retailers’ change in approach and the wider economic impact of Covid-19.
The pandemic has had a hugely polarizing impact on savings, with the average savings for 11 million households dropping from £1500 to only £100. At the other end of the spectrum, record numbers of people have either paid off debt or increased their savings. Covid-19 has certainly encouraged many to keep a closer eye on their finances. Since lockdown, almost one in five (17%) have started using an online banking service to help with these money management goals, according to a recent survey by Open Up 2020. Which is great news. Although many people mistrust Open Banking, it’s important to remember that it was created with a view to helping the customer.
This is exactly where we see the potential of Open Banking. Given the data that we get to see, not just in silo from one store’s or one bank’s customers but rather as a whole landscape of data, it enables us to facilitate an amazing feedback loop. On one side, we can provide customers with frictionless cashback offers directly into their bank account within 24 hours of them making a purchase with one of our participating partner brands. On the other side, the brands get to understand their customers completely. By doing away with clunky, outdated, last-click attribution models and by going to the single source of truth, we help merchants achieve a whole-of-market view of their customers – with enough data, we will be able to provide a truly omnichannel experience for the customer.
First and foremost, the case for Open Banking needs to be put in front of consumers far more, and collectively we need to explain the benefits to the customer. When surveyed, many say they are happy with their current bank and don’t see the point in changing, which means that fundamentally they don’t understand what Open Banking is.
Paul Clark ex-CTO of Tandem, now advisor to Upside, when asked about the app said, “This is what Open Banking was designed for”. Helping to find customers money in their current spending, to release cashback into their savings, as well as spotting other opportunities in their outgoings to save money. There are many services, not just lending and money management which can be revolutionised via Open Banking, and for us, cashback is the start of that disruption.
Our prediction is that those fintechs and businesses who grasp the ‘data for cash exchange’ opportunity and offer a solution, are going to rise and get attention from both consumers and investors, as they help build a nation of savers post-Covid-19.