Open for business

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Banks and openness have not, historically, made good bedfellows. Whether it’s the notion of a bank vault securely containing a person’s life savings, or some of the opaque practices of banks – such as charging customers exorbitant unauthorised-overdraft fees that would cause a payday lender to blush – ‘closed’ is surely a better descriptor.

However, new EU legislation, PSD2, and a demand by the Competition and Markets Authority (CMA) that banks, with the permission of their customers, share customer data with other parties, has led to the birth of a new concept and an eponymous non-profit organisation — Open Banking.

The body’s remit is to encourage innovation and produce data-sharing technology (called APIs), transparency and competition. Or, in the words of its head of propositions, Miles Cheetham: “To create a much more level playing field between financial services companies and big brands, and break the stranglehold the nine largest banks have on the market.”

Launched on 13 January, ‘open banking’ is now open to business, with a few tentative moves by various players. HSBC is trialling an app, HSBC Beta, that aggregates cross-account data, while ING has launched its Yolt money platform, allowing consumers to view all their bank and credit card balances in one view.

But there’s a challenge ahead – a lot of people have not heard of open banking. According to Which? research published in November 2017, 92% of people had not heard of the concept. A more recent survey, published in February by Yolt, showed an improvement, with only 39% having no idea what it is.

Last November, Ipsos Mori delved deeper into consumer attitudes in its Open Banking Global Study, which examined the views of 14,852 adult account holders across 15 countries. It quizzed them about four use cases — a smart comparison tool; an all-in-one financial app; speeding up of the application process; and direct payments.

“A couple of things stood out in the study,” says Paul Stamper, Ipsos’s head of financial services. “First, the consumer finds it hard to imagine what they have not seen yet and, second, open banking, as a concept, is not really what it’s all about – it’s about the things people will develop.”

The study unearthed less encouraging signs, however, such as that only 21% of UK consumers would be motivated to sign up to the four hypothetical use cases. 

“I suppose it was a reinforcement of what we already knew,” Stamper says. “The fact is, the group we call ‘technical laggards’ just didn’t like the look of any of the things we were suggesting. However, I don’t think I necessarily anticipated that it would be quite such a significant proportion of the market that really would have no interest at all.”

While the laggards, unsurprisingly, expressed less of an appetite, early adopters were hungrier. Insights gleaned specifically on UK adults found that 11% of consumers were ‘active adopters’ and 17% ‘measured evaluators’. More than three-fifths ( 68%) of the former and 40% of the latter would be motivated to sign up.

“Niche adoption and adoption among the savvy is very open,” Stamper says. “At a mass-market level, it will probably be much slower than perhaps we were hoping for.”

Open Banking’s Cheetham welcomes the Ipsos research and, reassuringly, isn’t shocked by its insights. “There were no surprises in there for me – but I’ve been close to it for 18 months or so,” he says. “It follows a similar pattern for a degree of cautiousness across the population.”

It’s little wonder, then, that security was the number one worry among those that Ipsos interviewed – 68% of measured evaluators expressed concerns about how their data would be used and 89% of conservative traditionalists were worried that their personal information could be obtained by criminals.

“Of course, people are cautious,” Stamper says. “But if you think about the number of people signed up to Facebook, or Tesco Clubcard, with them holding all that personal data, the reality is that people weigh security concerns against the benefits of the product.”

The challenges faced by Open Banking itself are myriad, but Cheetham stresses that the onus for consumer education falls on the brands that launch services built on the infrastructure.

“We’re working with the banks, fintechs, consumer advocacy groups and so on, identifying the key messages that people need to understand,” he says. “We’re doing a lot of work around language and the way to present messages. It’s very much a rolling launch. We are a cutting-edge technology and it’s the first time it’s been introduced anywhere in the world. Expect to see it relatively quiet over the next year or so, picking up in a couple of years’ time – in five years, we’re expecting a huge amount of activity.”

He and Stamper draw an analogy between open banking and the slow take-up of contactless payments. “People were wary about contactless,” Cheetham recalls, citing reports at the time of people wrapping themselves in tinfoil to protect themselves from inadvertent transactions as they passed payment scanners.

“Once you start to introduce viable use cases – Transport for London and Oyster being the primary one – it was a huge spurt for contactless,” he adds.

In the meantime, Ipsos will continue to monitor consumer attitudes to open banking. “A lot of other industries – such as energy – are watching financial services and asking: ‘What do the APIs mean for us?’,” Stamper says.

Even when considering the level of consumer reticence unveiled in the Ipsos study, the market potential for open-banking players is huge; Ipsos’s active adopters and measured evaluators equate to around 12.5m UK consumers.

“A lot depends on what the industry does, but I would have thought that, by the end of the year, we’re going to find there are a dozen to 15 – [open banking brands], and that there’s beginning to be a buzz, not about open banking, but about some of the things that it allows you to do,” Stamper says.

“Assuming that the developers are on their game and that the apps, solutions and services are out there, there are clearly consumers who are ready to adopt them. It’s not a case of ‘if’, but ‘when’.”

Cheetham agrees: “One day, people will realise that the way they interact with banks has fundamentally changed, with better service, and insight into – and more control of – their personal finances.”