IMPROVING CONSUMERS’ FINANCIAL HEALTH THROUGH BUILDING AWARENESS AND TRUST IN OPEN BANKING

Ongoing economic turbulence continues to put a squeeze on the public’s personal finances – from lower-rate mortgage deals being pulled to the sharp rise in everyday items and bills. Indeed, figures from ONS found that around two-thirds (67%) of adults believed that their cost of living had increased in May, with 97% of respondents seeing an increase in the price of their food shopping compared to April.

With personal finance at the top of people’s minds, financial service providers are understandably in the spotlight. But, unfortunately for them, they’re not in the good books of half of the population.

In our latest State of Payments report, data revealed that over half (53%) of consumers do not believe that their finance needs are being met. And yet, only 2% of people say they have started looking for new products – suggesting that many may be stuck in a financial rut.

But why is this the case? Well, we discovered that the problem is two-fold. There’s a lack of awareness from consumers about how financial products and services can improve their financial wellbeing. And there’s also an issue with trusting the unfamiliar. Let’s delve into these a bit further…

Sticking to what they know

Consumer trust continues to be a thorn in the side for financial services providers. In our report we identified trust as a key factor for consumer decision-making. In fact, most consumers say that they only trust products and services they have heard of or are recommended by family, friends and colleagues. From concerns around whether these providers have their best interest at heart, to overselling products and services that aren’t well suited to a customer’s needs, a low level of trust between consumers and financial services remains in place.

However, consumers would be open to securely sharing more of their personal data with financial services organisations, like their bank or with a personal finance app, if it improved their financial wellbeing. This includes services that encourage saving and budgeting for long term financial goals such as a mortgage and building credit scores.

And yet, this is in contrast banks and fintechs, as almost one-third (30%) of decision makers in financial services organisations indicated that trust in data sharing is the biggest barrier they face as a company in driving the adoption of their services and products powered by open banking, despite consumers saying that they are willing to share their personal data.

Awareness is at the heart of the trust issue

So, there is clearly a disconnect here: consumers are fed-up with their financial situations but aren’t putting trust in financial service providers to help them improve their financial wellbeing with new services and products powered by open banking.

And why? Well, our report found that consumer awareness of open banking remains low, with a quarter of respondents stating that they do not know enough about it and are wary of the technology. This lack of understanding around open banking and the ways it can benefit personal finances, presents as a missed opportunity for both consumers and financial services providers.

Bridging the gap

It’s important that financial service providers overcome the issues around awareness and mistrust, and build consumer confidence in open banking powered products that will support their financial wellbeing. By having access to better and fairer financial products, these positive experiences will be crucial in raising broader awareness of the benefits of open banking, and eventually increase its demand. But how can this happen?

There are many misconceptions surrounding data privacy and security, which have contributed to consumers distrust towards financial service providers, and in turn open banking. Sharing financial information that was once only available to notoriously highly regulated banks, naturally raises questions about privacy. But this thought process can and should be dispelled. Pay by Bank is one of the most secure payment methods and there's a reason why: it was a top priority when PSD2 was drafted, so banks and fintechs are required to use highly secure and encrypted APIs. To access data in the first place, a service provider needs consumer consent and cannot access without it. By dispelling some of these myths on data privacy, this will help ease worries and build trust around open banking.

Final thoughts

People are used to what they know, right? But by raising awareness of the benefits of open banking and its impact financial wellbeing, we can start to change consumer perceptions. For example, explaining that it's easier to track spending and budgets more effectively when bringing all bank account and credit card information into one personal finance app, would make consumers consider using open banking products as part of their financial management.

But it will take the combined effort of the financial services sector, regulators and the Government to ensure that open banking can become as mainstream as traditional forms of banking. As consumers across the UK continue to grapple with the current economic uncertainties, it is vital that they have the right products and services to best manage their personal finances and improve their financial wellbeing –so let’s all work together to make it happen.