Many consumers don’t really understand what open banking is, according to a recent report conducted by financial services and banking platform Mambu. Although this finding isn’t necessarily shocking, what is important to note is the fact that open banking is often misunderstood is hindering its adoption.
The study, which surveyed 2,000 global consumers, also found that 48% of respondents were “scared” to use open banking while 53% believe that it’s a “dangerous use of data sharing.”
Robin Smith, Mambu North American Commercial Director, told FinLedger that perspective certainly matters when talking to folks about this.
“A normal person doesn’t know or care about open banking,” he said. “But if you say to them, ‘I will fill in your tax return based on your banking data.’ They’ll love it. That’s the point, right? We get all hung up as technology providers on the ‘how’ and the ‘what’ of what we do. But, we do not do a good job of explaining to customers why we do it and why it’s beneficial to them.”
There seems to be a disconnect between consumers being hesitant about using open banking and wanting to reap the benefits it provides. What is also imperative to point out is that more than half of respondents hadn’t heard of the term while 61% have never used it, despite the fact that 80% had used one or more financial apps on their phone.
A prominent issue that arises when talking about open banking is explaining it in an easy to understand manner. The report found that 24% stated that while open banking was explained it could have been explained in a better way.
So what is open banking? Open banking allows data to be digitally transferred related to the bank account of a customer and gives third parties like banks and fintechs access to account information. Check out our open banking explainer here.
The study also shows that 57% of respondents would have been more likely to use it with their bank if their bank had implemented and promoted it effectively.
Going forward, Smith said that this concept is going to become more essential. He pointed out that many companies have multiple relationships with different financial institutions, and from a consumer’s perspective the ability to “integrate all that activity in a seamless fashion becomes absolutely critical.”
“Part of the open banking initiative says, if you’re an advisor today in a traditional advisory firm, where’s your business 10 years from now?” he said. “It’s probably not at the local branch providing financial advice. It’s going to be through some vehicle that has been enabled by an open banking set of standards.”
In early March, I wrote an article with FinLedger columnist Suman Bhattacharyya examining why screen scraping still rules the roost on data connectivity. We did a deep dive into data aggregation with a focus on regulatory challenges, common standards for data sharing and the transition to APIs.