David Durand, Advisor, Innovation and Advocacy
September 9th, 2020
David Durand, LL.L., B.Sc. chem., – Founder and Managing Partner of Durand Lawyers – Lawyer (Québec)[...]
Is Open Finance worth getting excited about, or is it just spin?
Sifted | Isabel Woodford | Jul 22, 2020
It's been a slow journey to get UK customers meaningful control of their bank data. Is the next phase of "open finance" the answer?
It’s a noble task to want to help users control, access and utilise their financial data better. The problem is, users aren’t convinced they want a third-party poking their nose into their data, or if it’s really of much use to them.
Here are their top four top takeaways about what it will take for open banking to take off, and why open finance is an important next step.
1) Success relies on building awareness
The panellists agreed that one key obstacle to open banking so far has been a trust-gap; fuelled by poor communication around user-benefits.
See: 3 examples of what open finance can do right now
Roisin Levine referenced research that still shows “very, very low percentages” of people say they’re willing to share their data in exchange for “more personalised services.” She said these vague concepts are unhelpful and apps need to “explain this stuff…don’t use these big, high-level generic terms.”
She recommended products leveraging open banking get more specific about the benefits to boost awareness.
“[We should ask]; do you want to ensure that the cash you have is in a high-interest account? Do you want to compare pricing on your insurance or… purchasing your energy? Then all of this stuff seems really common sense, and suddenly that applies to everyone.”
She added that trust in open banking is slowly “moving forward” and that seeing a value exchange is key in this respect.
“It’s kind of early days, but they will begin to get more and more used to it as time goes on.”
Another goal is to make open banking services so helpful that users don’t just want to use it; they want to pay for them. In particular, that might come from analytics tools currently being developed to give users intelligent insights into their future cash flow, for instance.
“Now I can see all [my accounts], but then you can show me what my actual cash flow is looking like in the next six months. What kind of decisions then can that drive?” Levine said.
2) The data is yours — but expect leaks
Another dilemma around open banking is uncertainty about what fintechs do with the data shared with them; again feeding into the trust question.
On the bright side, there are protections in place and limitations; overseen by the regulator. Users completely own their data and can revoke the access they give to third-parties at any time.
See: The Clearing House Releases Model Agreement For Sharing Financial Data
There are also restrictions on companies’ ability to sell the data directly to third-parties.
Instead, companies holding the data can monetise it by recommending new pension providers and taking a commission fee, for instance, or charging consumers for the service (like Monzo has done).
“What’s going to make or break the success longer term is ‘do you feel confident that you know where this data is going?'” Grose noted, highlighting the need to educate users on their data rights and companies’ use of their data.
Nonetheless, Levine warned that some companies might be tempted to charge a so-called ‘privacy premium’, whereby consumers get a worse deal or product based on their financial data.
“It only takes one kind of major loss of trust or issue that we find ourselves in a place where actually the whole industry is hurt, and we may be going backwards,” Levine said.
Meanwhile, Vans-Colina added there’s a big risk that open banking and finance data will get hacked and leaked.
See: New regime needed to take on tech giants
“I think that’s probably inevitable,” he warned. “But the regulatory framework in place is strong. And it means that only regulated companies are able to process and hold the data. And I think it’s a trade-off as a society we have to decide. Do we want to take this step?”
He also emphasised that open banking had big security perks overall, explaining that the amount of fraud and cybercrime will “go down massively because of open banking.”
3) A cross-generational project
Apps like Moneyhub — which aggregate users’ various bank accounts — have proven most popular with the over 55s.
Yet Grose is confident that open banking rules are already benefiting the younger audience too.
“I recently saw someone did a survey, and a lot of Gen Z would actually use a bank account inside of TikTok,” he said. “You’re going to see a lot of companies start to access and provide financial services using this type of [banking] data and they can meet different generations and different groups where they are already. I think that’s going to be incredibly valuable for people.”
Incidentally, Vans-Colina’s new startup, Fronted, will also use open banking tools to help young renters get cheaper deposit loans, by accessing their bank data and assessing their affordability.
See: Open Banking just got its own App Store
However, the inter-generational benefits may be less applicable to open finance. The fundamental benefit that open finance adds is being able to aggregate a wide array of different accounts and assets, which arguably millennials — the main audience of fintech apps — have less use for, given they generally have a smaller financial portfolio.
Still, Levine argues that pensions are important regardless of age, as well as is having a grasp on your investments and savings.
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