Seven million users on, how far has Open Banking come in the UK?

After a slow start, the appetite for Open Banking has begun to climb, driven in part by the pandemic and, more recently, the cost-of-living crisis.

Earlier this year, the number of UK consumers and SMEs actively using Open Banking hit seven million. It marks a significant milestone for the regulation that permits it, which was introduced in 2018 in a bid to increase competition among financial providers and create new ways for firms to engage customers.

But while Open Banking has come a long way, there is still much more potential that can be unleashed. The opportunities for financial providers, fintechs and consumers are endless, and the industry should use this latest milestone as an opportunity to take stock, reflect and consider what’s next.

Growing popularity

Allowing customers to securely share their financial data has led to an explosion of fintech innovation, giving rise to new players, better customer experience and importantly, more affordable products. It has transformed the way millions of people manage their money, giving greater visibility and control than ever before.

According to the OBIE’s third Impact Report, more than three-quarters of people (77%) reported more immediate and accurate insights into their financial position as a result of Open Banking-enabled services.

This shift to greater awareness of financial wellbeing is especially critical in today’s market. By allowing lenders access to real-time financial data to help make more informed and timely decisions, thousands of companies and individuals have been able to secure financing through the pandemic and cost-of-living crisis. Of the seven million users announced in January 2023, 1.2 million were first-time users.

However, according to a survey by Tink, 46% of people are ‘only just managing’ financially, amid high inflation and soaring prices, and almost half of that group are only using basic online banking tools, highlighting the huge opportunity for banks and third-party providers to create products and services to better support these customers.

Through Open Banking, lenders can obtain a holistic view of a customer’s entire financial situation, from their assets and liabilities, to their cash flow on an ongoing basis, and they can use this data to create debt management plans and financial management tools.

Consumer Duty requirements

The insight, efficiencies and speed offered by Open Banking will also have a fundamental role to play in the changing regulatory climate. On 31 July 2023, the introduction of the Consumer Duty will see the industry set higher standards of consumer protection, with the aim of delivering better outcomes.

Firms will need to demonstrate that customer needs are at the heart of their offering; from products and services, to value for money, customer understanding and support.

Open Banking will not only help customers get fair and affordable access to financial services or avoid falling into arrears, but it will also help lenders meet their obligations to ensure good customer outcomes and avoid foreseeable harm. The use of consent-based data sharing will help firms demonstrate their compliance with the Duty, as well as elucidate customers’ needs and their financial context.

Under the Consumer Duty, firms will also need to continually prove their ability in delivering satisfactory outcomes. Open Banking can shine a light on individual financial circumstances to enable them to do just that.

Customer centricity is at the heart of Open Banking, encouraging lenders and third parties to act in good faith, minimise customer risk, and empower customers to meet their financial objectives – the bedrock of the Consumer Duty.

Further innovation

By design, Open Banking is forcing the financial services sector to become more modular, competitive and open to innovative, new propositions. However, the journey is far from over. Open Banking will likely become a stepping stone to Open Finance and, in the future, Open Data.

However, before the financial services sector can evolve, it must be careful to address the challenges of data protection.

For lenders, the benefits of Open Banking are clear, but there remains a reluctance among consumers to share this level of personal insight. Research by Experian showed that more than a fifth of consumers are unlikely to share their data, but a significant proportion of this same group admitted they would change their minds if it meant getting a better offer.

The issue is also more complex than tackling consent alone, as some Open Banking journeys fail to alert the customer that they are using it in the first place. For example, when sharing data with any personal finance management application, customers are often unaware of why they’re being asked to sign into their own bank accounts.

There is a huge, missed opportunity here for companies to signpost Open Banking and transform it from an enigma into a word that customers associate with safety and trust.

Equally important are robust data protection solutions. The financial services industry must have the tools to ensure customers have confidence in their ability to securely use and store their data.

Lenders should make clear to customers that they have total control over their data and ensure that customer consent is given at every stage. ID verification tools that provide an extra layer of security for account-to-account payments will also be crucial.

Open Banking has all the right ingredients to continue transforming the lending sector. But, to continue to grow and evolve, lenders need to ensure that they are helping customers to understand and unlock its full potential.

Doing so will help the financial services sector build stronger, more trusting customer relationships well into the future.

Featured on Open Banking Expo.