Rishi Chauhan, Strategy Director, Haydon & Company Limited provides his views on the changing consumer adoption landscape within the Open Banking space, the boxes still to be ticked along the current Open Banking roadmap and lastly Rishi provides an evidential review into how consumers make product choices.
In January 2020, the Open Banking Implementation Entity (OBIE) announced that customer use of Open Banking in the UK has surpassed the 1 million customer mark. This is no mean feat, given that Open Banking only launched in the UK in early 2018 and the monumental challenges the industry had to overcome to make it happen. Challenges included technological issues such as legacy bank systems, the creation of a common technical standard for the banks to implement that actually met end customer needs, security of end customer data and funds, a complex regulatory landscape to name, just a few.
It is estimated that the potential size of the addressable Open Banking market in the UK for financial technology companies (fintechs) is 42.6 million consumers and 5.6 million SMEs. Now that the Open Banking ecosystem is live and progress is been made in terms of customer adoption, which other challenges may need to be addressed for Open Banking to reach its full potential and deliver the intended end customer benefits?
Some of the major outstanding items may be as follows:
- Presence of live fintech uses cases in the market that meet customers’ needs
- Performance improvement of Open Banking APIs and the authentication experience
- Low customer awareness of Open Banking
Given the immense amount of fintech investment that is taking place and the rate of innovation within the fintech sector at the moment, soon there may be enough relevant uses cases in the market to address the first item above. We may even get to see the killer app that we all have been waiting for, that will really propel customer adoption of Open Banking. The industry is actively working to improve the performance of the Open Banking APIs and the authentication experience, so this item may also be addressed soon.
Depending on the source, the percentage of UK customers reported as not being aware of Open Banking varies from between 51% to 63%. Here, this percentage is taken to be 51%. It could be argued, is customer awareness of the concept of Open Banking really relevant to customer adoption of Open Banking enabled products and services? As after all, it is the fintech’s product or service that is the main value driver and as long as the right customer segments are aware of products or services and their needs are meets, that is all that matters?
The above questions need to be answered based on past precedents and assess as to whether customer facing communications are actually needed in order to increase customer awareness of Open Banking, build customer confidence and in turn aid customer adoption of Open Banking enabled products and services.
Open Banking operates in the background and as such customers do not directly interact with its infrastructure. However, in order to take advantage of Open Banking, customer do need to change their behaviour i.e. give permission to share their account information with fintechs or let fintech’s initiate payments directly from their accounts, so customers need to understand the process that they need to go through to be able to do this. Changing customer behaviour is difficult, a trusted party needs to make customer aware of the process, reassure them that it is okay to do so and guide them on where to go when something goes wrong. Here are two past precedents where something similar has been done:
Contactless cards were launched in the UK in 2007. In 2012, London buses and then in 2014, the mass transit system in London adopted contactless card payments. It took communication campaigns over a significant period by the card schemes and transport authorities in London to create awareness of the process of making contactless payments and things to avoid e.g. card clash. Since then, due to the convenience they offer, the use of contactless payments has become ubiquitous in the UK. But it required efforts by parties trusted by the customers, such as the card schemes brands and transport authorities to create awareness of the process and change customer behaviour.
Like contactless payments have enabled a more convenient and smoother payment experience, Open Banking is also a means to an end and offers a time saving, cost saving and convenience to customers based on the use case it enables. In the same way, customer awareness of the Open Banking process i.e. customer consent at the fintech and authentication at the bank needs to be created by trusted parties. Customer awareness of the industry terms such as ‘Open Banking’ may not be needed, but awareness of the underlying process is needed in order to build confidence and aid adoption of Open Banking enabled products and services.
Current account switching service (CASS)
CASS allows consumer and SME customers of participating banks to switch current accounts from one provider to another. The FCA in its report, published in March 2015 concluded that CASS has been effective in helping customers to switch their current account simply and reliably. However, the FCA commented that though CASS has made the switching process simpler and easier, demand to switch among consumers remains low. Moreover, though the vast majority of consumers who switched had a positive experience, customer awareness and confidence in CASS was relatively low. The FCA outlined recommendations to be taken forward by Bacs, as the organisation with management and operational responsibility for the service. These included:
- Measures to raise awareness of the service, such as a targeted marketing campaign
- Identify ways to raise confidence levels in the service via the marketing campaign and refining the targets around consumer confidence to better reflect customers’ concerns
In order to understand how the promotion of CASS can be most effective, Bacs undertook a research programme with the University of Bristol to investigate how consumers engage with and make choices in the market. The findings shed light on the existence of two key feedback loops which drive the market dynamics: Trust Loop and Inertia Loop, consumers can be in either loop.
Consumers in the ‘Trust Loop’ believe that their provider delivers the service that they expect and want, and their experiences reinforce this belief. These consumers are satisfied and, consequently, less likely to consider alternative providers.
Consumers whose needs are no longer met, experience a reduction in confidence or satisfaction with their current provider. This can cause them to exit the ‘Trust Loop’ and move towards decision points where they are more likely to actively consider switching. However, at this point consumers may due to the perceived risk of switching find that alternative providers are unattractive. The longer consumers stay in this state, the more disengaged they are likely to become with the market. If this is the case, they can enter an ‘Inertia Loop’; where they are dissatisfied with their current account but consider the alternative of switching unattractive.
Bacs research showed that the key to stopping consumers entering the ‘Inertia Loop’, or to facilitate them to exit the ‘Inertia Loop’, is to lower their perceived risk of switching. Bacs identified a few significant ways to do this, including more targeted promotion of CASS. This involved targeting communication to consumers who have the most to gain from switching, such as consumers with high credit balances and the financially disadvantaged, as well as addressing people’s concerns around the actual process.
Since then Bacs has launched a CASS website and completed a number of successful marketing campaigns. The CASS annual report for 2018 shows that the total number of CASS switches since launch in 2013 is over 5¼ million. The report also shows that CASS delivered strongly against its Key Performance Indicators (KPIs). Customer satisfaction with the service averages at 92.5% across the year; awareness of the service was over the 75% target for all of 2018, and averaging at 80% across the year.
Similarly, Open Banking can be thought of as a switching service, switching customers from incumbent banks to fintechs in order to reduce market concentration within the retail banking sector. Like CASS, targeted customer facing communications are needed to increase customer awareness and confidence in the Open Banking process. Where customer needs are no longer met by current providers, they need to be able to recognise when they are doing Open Banking in order to build trust in the process and in turn aid adoption of Open Banking enabled products and services.
It could be argued, that banks have already informed their customers of Open Banking in 2018 and that additional communications are not needed? Customer communications need to be done in a targeted way and in the context of the specific benefits to customers, to have the desired effect.
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