Open Banking: What’s in it for the customers?
The introduction of PSD2 in the European Union in January 2018 and its equivalent in the United Kingdom has brought turmoil to the banking industry. Open Banking has been called the tectonic shift that will revolutionize financial services in ways yet to be imagined. Third parties’ direct access to customers’ banking information, upon consent, could unlock the power of data-driven tools and solutions to the benefit of customers. Artificial intelligence, budgeting tools to name a few are emerging in different markets, putting fintech companies at the heart of banking innovation.
From technology-centric to customer-centric
Fintech companies and banks’ focus so far has been on getting the technology right, designing a broad range of API products accessible in real-time to third parties in a developer-friendly sandbox environment. Notable examples of such initiatives include the UK Open Banking project (www.openbanking.org.uk) and Nordea’s Open Banking Developer Portal (nordeaopenbanking.com). But getting the technology right does not guarantee customer demand. Recent research by Accenture found that 69% of respondents said they would not share financial data with businesses that were not banks. So, what’s in Open Banking for customers? What will entice customers grant third-parties access to their data?
I have been working on changes in finance and how they affect people’s lives for half a decade. I have learned that too often, despite claims of being revolutionary or customer-centric, products are designed for customers without consulting them or really understanding how they will enhance their financial decisions. The key is to understand what people’s needs are, not only what the technology can do. Customer-centric approach must be more than a statement, in that the process of product design must embrace people’s aspirations, fears, attitudes with money instead of solely focusing on technological capabilities.
Some say that Open Banking is doing just that by putting customers in the driver seat. Customers will be in full control of the products they want (services) and the channel they use (providers). In the era of customer-centricity 2.0, end-users are expected to make rational decisions on the tools most beneficial to them. However, the assumption that customers can behave rationally with money and will make the right decisions may be farfetched. Behavioural economics research, for example “Predictably Irrational: The Hidden Forces That Shape Our Decisions” by Dan Ariely and “Thinking fast and slow” by Daniel Kahneman, has demonstrated that people consistently make irrational financial decisions that do not follow the predictions of economic models.
PSD2 heralds the introduction of hundreds of new services to choose from. Will customers bother looking for options? In short, most unlikely. Presented with too many options, a phenomenon dubbed “choice overload”, people tend to defer their decision or go with the default option. In other words, consumers will likely adopt a wait and see attitude, leaving space for the tech-savvy niche segment go first, or simply stick with their bank familiar services. In fact, banking customer attrition rates are low despite concerns of weakening bonds since the 2008 financial crisis. People are reluctant to change, they prefer status quo over hassle, even if they may see potential benefits to switching.
Taking customer centric to next level
If Open Banking is to truly revolutionize and put customers more in control, banks and third-parties must interrogate how to develop and push solutions based on people’s actual behaviour instead of idealistic expectations.
Banks start from a position of strength, with long-lasting customer relationships founded on confidence in safeguarding money and data security. In the complicated unbundled banking landscape, banks could serve as a point of reference, a trusted partner that advises and guides customers in making their choices. As a trusted party in the marketplace, banks could vet third-parties, protect customers against fraudulent providers, and educate them about the implications and potential risks associated with enabling access to sensitive personal data. They could use customers’ financial data to better understand their customers, what they want and eventually simplify their choices, suggesting tailored products and services among the myriad of tools available to them.
For fintech businesses, access to bank account and transaction data will surely provide important insights on people’s financial lives. While algorithms offer opportunities to translate data into insights, understanding customers’ aspirations, fears and attitudes with money will certainly require more than advanced technology and data analysis. Customer experience design will need to go beyond product features design and start from the beginning: how do customers think about money? How do they manage it? What are their frustrations, conceptions and fears? Which social networks are involved in money management? This requires spending face-to-face time with real customers, in their environment, and using behavioural tools to make sense of data and uncover insights. Only after understanding customers’ motivations and existing practices can technology respond to their needs and unlock the power of data.
I am delighted to see the renewed emphasis on putting the client at the center of banking with the promise of customer-centricity 2.0. People will have more control, and even if it takes time, they will get it and embrace innovation. Yet, Open Banking will become a tectonic shift only if banks and third-party providers include customers along their journey to re-imagine financial services.
About the author:
I am a Consultant with half a decade of work experience in changes in finance and how they affect people’s lives. I use design thinking methodologies and behavioral economics to develop innovations for a variety of clients in the digital finance ecosystem, while always keeping the customer at the center of the process.
