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Trust troubles: How open is Open Banking?

Open Banking has revealed many opportunities for banks and fintechs. But is it really ‘open’ to all?

Critical Software
|Feb 1|magazine10 min read

Open Banking is rapidly changing the way people manage their finances. In the UK between January and September 2020, the number of customers using Open Banking-enabled products rose to over two million. With the pandemic heralding a significant increase in online banking, it’s not hard to see why more customers have embraced Open Banking and the opportunities it offers, including integrated accounts and features made available through the various third-party apps that Open Banking permits unprecedented access to.  

However, Open Banking faces a challenge in the form of trust. An ING survey carried out in October 2020 across Europe showed that only 30% of retail banking customers were comfortable with their bank accounts being shared with third-party providers (TPPs), even if they had given said provider prior permission to do so. 

So, how open is Open Banking? 

A question of trust

When it comes to financial activity, trust is crucial. Open Banking involves allowing TPPs access to bank accounts, so naturally customers will want to feel assured that both the TPPs are trustworthy and that their data can be communicated securely between their bank and the TPP. If trust in either of these contexts isn’t forthcoming, then customers will likely lose faith in Open Banking altogether. 

In the UK, there has been a considerable lack of trust in Open Banking services, especially in relation to Big Tech companies. A Duedil and Credit Data Research survey in 2017 found that only 3 in 10 consumers were willing to grant institutions such as Apple and Google access to their accounts for the purpose of integrating and consolidating their finances, while the ING survey of October 2020 showed a reduction in this number in the UK to 23% of respondents. 

There could be multiple reasons for this, including the way these companies are occasionally portrayed in the media, yet arguably much of this stems from a lack of awareness about what Open Banking entails. Research conducted by Which? in October 2017 showed that 92% of respondents were unaware of Open Banking. Even by May 2019, over two-thirds of retail banking customers told a Crealogix survey that they had no awareness of what Open Banking was and how it could benefit them.

Awareness is naturally a determinant of whether trust is afforded to something or someone. The onus is on banks and TPPs to better define Open Banking to their customers if they want to sustain the growth seen during 2020.

Healthy competition

One of the main drivers behind Open Banking is the fostering of a more competitive environment in financial services. Open Banking was introduced with lofty aims, chief of which was to democratise the industry and implement a level playing field between traditional banks and fintech start-ups. But how far have these aims been achieved in the three years since its introduction in the UK? 

On this score, there is still room for improvement. Some TPPs have been shut out of the Open Banking space due to resource deficiencies, with strict regulatory requirements needing to be followed to access Open Banking infrastructure. This includes receiving approval from the Financial Conduct Authority (FCA) after demonstrating policy, data storage, security and IT practices compliance, a clear business model, as well as possession of professional indemnity insurance. Many TPPs are small, nimble outfits and many were not built to deal with such regulatory hurdles. While regulation is clearly important and necessary in obtaining customer trust, it may reduce the agility that Open Banking promises to financial services – and, subsequently, the competition that exists in Open Banking.

What lies ahead for Open Banking?

While Open Banking faces many challenges, the current climate in financial services is likely to have a positive effect on its development in future. 73% of banking customers in the UK used online banking services weekly in 2020, so there’s clear scope for Open Banking to make their lives easier and enable better management of finances in these testing times. 

Growth in adoption rates will lead to more collaboration with traditional banks and payment providers to offer integrated products and services. In the US, J. P. Morgan has launched a partnership with fintech start-up Marqeta, using its technology to offer virtual credit card facilities to corporate customers. In Europe, Visa recently launched its Partner Connect programme, collaborating with fintechs specialising in digital payment solutions to offer more dynamic services to customers.

With digital transformation at the top of every financial institution’s agenda in the wake of the pandemic, the opportunities open to Open Banking have become even more vast.

Discover more about the challenges faced as finance becomes more open in Critical Software’s white paper on Open Banking and PSD2.

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