Trust matters – why banks are well-placed to benefit from open banking

The high level of trust consumers typically place in financial institutions could be a key differentiator in the age of open banking.

Open banking is appearing in many countries, with the biggest adoption happening in Europe as a result of the EU’s Payment Services Directive 2 (PSD2). But with it comes a range of concerns that the opening up of banking data to third-party providers will leave traditional banks vulnerable to faster-moving, innovative new competitors.

But this may not necessarily be the case. In fact, it could well be that the introduction of PSD2 will present a wide range of opportunities for banks to take advantage of their many years of experience and leverage the trust they have built up from customers over this time to get ahead of the new generation of competitors.

Banks hold clear trust advantage

While PSD2 will in principle allow a wide range of organizations to access consumers’ financial data, in practice many individuals may feel less than comfortable with handing over such information to firms that do not have a proven track record.

Indeed, a recent survey by Accenture found that in the UK, the likes of online retailers, tech firms and social media companies have a lot of work to do if they are to convince customers to share their details. Nearly seven out of ten respondents (69 percent) said they would not share bank account information with these providers, while 53 percent stated they would not change their existing habits in order to embrace open banking.

Social media companies in particular were viewed with skepticism, with 93 percent of consumers being reluctant to share financial information and 83 percent being unwilling to initiate a payment via a social media company.

Concerns over fraud were cited as the biggest reason for an unwillingness to share details, with 85 percent saying this is the biggest barrier to accepting open banking. Data protection risks (74 percent) and the potential for cyber attacks or viruses (69 percent) were also named as major concerns.

Institutions warned against complacency

On the face of it, this may appear to be good news for banks that may be worried about the impact that PSD2 may have on their business. Coming into the era of open banking with a clear advantage in consumer trust and confidence means these institutions are well-placed to take advantage of new opportunities, and will also be in a strong position when it comes to working with innovative new providers.

While legacy banks may well benefit from the technological innovations that new players in the market can provide, startups such as fintechs will also need the level of trust that banks have. This could present many possibilities for companies to work together in order to pair the innovations of up-and-coming players with the long-standing expertise and reputation of the traditional banking sector.

However, banks have also been warned not to get complacent about the potential threat posed by alternative providers. Accenture noted that there is a significant group of consumers who are willing to trust non-traditional providers, and these tend to be younger consumers.

For instance, while just 13 percent of Baby Boomers – those born between 1946 and 1964 – say they are likely to use open banking, this rises to 39 percent among those born after 1995. Therefore, as more members of Generation Z come of age in the near future and begin looking for financial services products, banks will have to be ready to meet their differing expectations.

Jeremy Light, a managing director at Accenture who leads the company‚Äôs Payment Services Practice in Europe, observed: “If banks move too slowly to adapt to this transformed, open banking landscape, they could miss out on the platform-based business models and the strategies they enable. In short, banks will need to up their digital game or risk failing to meet growing consumer demand for a seamless digital experience.”

Written by Andy Brown

Andy Brown

Andy is marketing director for payments at NCR. He has nearly 30 years' experience in e-payment systems from the delivery and support of systems in the Far East and Europe, from both the product management and marketing perspectives. Based in the UK, Andy is responsible for marketing NCR payment solutions.

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