Financial service providers must learn to embrace open banking

Adoption has been underwhelming, now the industry must try harder, writes ClearScore COO Andy Sleigh.

Andy Sleigh is the Chief Operating Officer of ClearScore.

When the Competition and Markets Authority introduced open banking over 18 months ago, it was hailed to be a revolutionary development for the consumer, breaking the data advantage enjoyed by the big banks and catalysing innovation.

However, the reality is adoption has been underwhelming. This is largely down to the lack of awareness and understanding around what open banking is. In fact, research has shown that 75% of consumers are unaware of open banking and are highly sceptical about sharing their data; unsurprising in an environment where data breaches and shaky technological infrastructure regularly hit the headlines.

Slow implementation of the technology by high street banks owing to outdated infrastructure is certainly part of the explanation too. Open banking allows the sharing of data with a range of financial service providers. But in many cases, for this to work, it requires banks to update their data platforms and interfaces. And this, of course, means the investment of both time and money – something that banks don’t want to do if the uptake from consumers is poor.

It’s a catch twenty-two. Consumers don’t understand enough about the technology to adopt it, so banks don’t want to waste their time making their systems work for it. So the biggest household names are not widely associated with open banking initiatives.

Another crucial factor is open banking offers few advantages to traditional banks and so consumers who embrace open banking might look elsewhere for services that large retail banks have historically provided.

This has opened up a great deal of opportunity to innovate within the FinTech space. But though FinTechs are way ahead of the curve in embracing open banking technology compared to traditional banks, I think there is a need to combine this innovation with benefit-led messaging to drive adoption and increase the financial well-being of its users.

To drive adoption, those leveraging open banking need to talk less about the underlying technology and more about the tangible benefits to consumers. Naturally, the more data consumers are required to share, the greater the perceived benefits will need to be. The industry needs to start simple; ‘light’ or ‘one-time’ access to data may be an effective way to encourage consumers into their first experience of open banking.

Research shows that consumers are more likely to exchange their data in return for concrete propositions. For example, underserved consumers may be more likely to share their data if they could get a more accurate credit score. Innovators would be able to better support these consumers by painting a more detailed picture of their financial situation, including a view of their current accounts, credit accounts, savings and debt. This, in turn, can feed into a more accurate and transparent credit score - a scoring system that has traditionally been shrouded in misunderstanding around the contributing factors.

We are still at the beginning of what will likely be a long road to mass adoption of open banking in the UK. To fully realise the potential of open banking, first, the industry needs to work to gain people’s trust and build understanding.

Nonetheless, this is a hugely exciting journey for both consumers and providers, and we are already seeing pockets of innovation emerging. Financial service providers have a responsibility to help consumers understand the benefits of open banking, by presenting them with the tangible benefits of products and services.

Andy Sleigh is the Chief Operating Officer of ClearScore.