RFi Group Opinion - Open banking – walking the privacy tightrope

The introduction of open banking in the UK has sparked a debate on data sharing, APIs and the scope to increase competition in banking. In a nutshell, open banking will require banks to share customer data with third parties (including FinTechs), which can then be used to provide better services and drive competition.

While in theory, this is appealing, success will be highly dependent on how open customers are to such a proposition. This gives rise to the fundamental trade-off – between customers concerns over data security and desire for improved products/services. The global perspective suggests some important differences across markets on this front, which will have implications for adoption and ultimately the success of open banking.

RFi recently conducted a global digital banking study across 10 markets, surveying 20,000 consumers. The research benchmarked these markets on digital banking adoption, including mobile banking, mobile wallets, robo-advice and data sharing. One of the key areas explored was the level of trust customers have for banks vs. other types of institutions.

The data suggests when it comes to maintaining the privacy and security of information banks are the most trusted category of institution. Close to 40% of consumers have a high level of trust for banks. But this is by no means a reason for complacency as other industries close the gap on this trust measure, especially amongst Millennials. For example, 31% of Millennials had a high level of trust for technology companies, 27% for telecommunication providers; even new or emerging technology companies are not far behind.

Trust is a critical barrier against new players in the market. Across Australia, Canada, Hong Kong, Singapore and the UK trust in the banking provider came out as one of the top reasons why customers consider an institution their MFI (main financial institution). The critical question is whether open banking could erode trust in banks, particularly if there are data breaches.

When RFi asked UK consumer if a third party provided an app to view all your banking accounts in one place, who would you hold responsible for the security of your personal data when using this service, a worrying 56% indicated they would hold their bank responsible.

While open banking has been introduced in the UK, there are similar initiatives underway around the globe – from PSD2 in the EU (also affecting the UK), to data sharing deals between individual banks and partners in the US.

Comparing global perspectives on data sharing shows significant differences between markets. While a global average of 26% of consumers is highly comfortable sharing personal data for improved products/services, these proportions are far higher in emerging markets – 45% in India and 43% in China. In contrast, the developed markets register far lower willingness to share data – ranging from 24% in Australia to just 8% in Hong Kong.

The numbers would suggest a significant degree of discomfort in sharing banking/personal data. However, experience indicates when a product or service provides a high degree of utility, concerns around personal data security tend to be overlooked by consumers – Facebook being the obvious example.

Similar experiences can be pointed to with the adoption of contactless card payments in developed markets, with initial concerns around security fading once the convenience benefits were experienced by customers.

So will open banking provide enough benefits for customers to forget about their security concerns? While it is early days there already plenty of fintechs exploring ideas with potential, including the use of customer data to:

1. Consolidate all your finances/banking relationships into one app
2. Pick out the optimal card to use at POS to maximise loyalty points earnt
3. Compare pricing, fees and find the best deal on banking products
4. Provide more advanced budgeting tools utilising richer data
5. Business banking/SME services – cash-flow management and loan approval 

Overall, open banking poses a number of threats to incumbent banks, particularly around data security and retaining customer trust. While there is no certainty around whether customers will use services utilising open banking, being proactive rather than a laggard appears the best course of action.

Now is the time for banks to capitalise on opportunities, consider the potential to partner with new entrants or creating their own services while treading the fine line of maintaining customer trust. 

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