Open Banking in the UK: Finding the Tipping Point

This week marks a year since Open Banking was introduced in the UK. Designed to create greater competition in financial services by making customer data more portable and accessible, many had high hopes.

The UK’s Open Banking initiative provided two elements that were missing from the initial PSD2 legislation, the EU’s own similar payments directive: a technical specification and a supporting regulatory framework. This made the UK the most advanced market for Open Banking in the world. As a result, other markets were keeping a close eye on progress to inform their own initiatives.

A year on, where are we now?

While most people knew that there wouldn’t be a ‘big bang’ moment, it’s fair to say that, on the surface, little has changed.

Relatively few compelling propositions have been launched and consumer awareness remains low. The mainstream financial services landscape in the UK looks the same as it did before January last year.

Other consumer-facing sectors, such as retail, were also expected to be transformed through access to Open Banking data, together with low-cost payment opportunities. Here, too, very little has changed.

Amid this gloomy outlook, we sought to find chinks of light. Open Banking has the potential to transform financial services, and more broadly how consumers engage with a range of other businesses. But this won’t just happen overnight. How can we get there?

Cardlytics recently commissioned a study to look at prospects for Open Banking a year since its launch. We asked bank customers who they trust with their data and what kinds of value exchange would turn heads.

In short, we were looking for Open Banking’s tipping point.

What we found were four areas that are key to reaching it: trust, awareness, customer experience, and value exchange.

Trust is the most fundamental issue. Over the last few decades, consumers have been warned not to share their bank details with anyone. Even though Open Banking provides a framework for consumers to safely share their data, old habits will die hard. Anyone who has tried the Open Banking process will, without doubt, have that moment of hesitation as they enter their banking details to connect their account to a third-party proposition. Customer experience will be key to overcoming this, but we should also consider some kind of ‘trust mark’ for the Open Banking ecosystem to help reassure.

Awareness is less about knowledge of ‘Open Banking’ as a phrase, and more about the propositions that encourage usage. Given the challenge faced by banks to engage customers beyond just functional operations, profile-raising campaigns will have to do a lot of the heavy lifting.

As mentioned above, key to the Open Banking success will be making the account-linking process simple, secure, and fast. We’re a world away from this. Improving it, through measures such as a consistent customer experience and biometric authentication, is essential.

Finally, the customer value exchange underpins all of this. The value exchange must be so good that consumers will put aside their initial hesitations and start connecting their accounts in order to benefit from new propositions. Therefore, it’s imperative to understand what resonates. We found that young people love daily rewards, while older consumers prefer a reduction in their household bills.

So, while little has changed, as we head into year two big opportunities do remain – for both banks and other brands – if these four areas can be addressed and, importantly, they can tap into Open Banking’s ‘tipping point’.