Although the IMF recently reported that the UK economy has once again avoided a recession, the rate of inflation isn’t expected to return to the Bank of England’s target rate of 2% until mid-2025 – later than expected.
By Stefano Vaccino, founder & CEO, Yapily
This means mortgage repayments, bills, credit rates, costs of household items and more will continue to pinch consumers’ finances. Indeed, research from the Nationwide Building Society found that 74% of people were worried about their finances and ability to cover essential costs in April – with the value of spending on essentials rising 9% since earlier this year.
Within this tough environment, however, consumers believe their financial providers are falling short, with our data revealing that 53% don’t feel that their financial needs are being met. The natural conclusion you’d think is to look for a new and, hopefully, better alternative. And yet, only a tiny 2% of consumers say they have started using new products and services – meaning that many of the population could very well be stuck in a financial rut. Not great given the current state of the economy when most people need to manage their finances effectively.
Consumers trust what they know
One of the main reasons consumers don’t feel their financial needs are being met that we identified in our State of Payments report was trust. Many consumers say they only trust products and services they have heard of or that are recommendations for family, friends, and colleagues. There’s a name for this: the familiarity principle (or the exposure effect) and while it generally happens subliminally, it also influences a lot of the decisions we make… from the restaurants we frequent to the financial products and services we use.
Interestingly, though, consumers said they would be open to securely sharing more of their data with financial services organisations, like their bank or with a personal finance app if it improved their financial well-being. This includes saving money more consistently, building their credit score, and reaching financial goals quicker like saving for a mortgage.
Such services are now being provided by many major financial services providers and FinTechs in the UK – and many are powered by Open Banking. But despite these encouraging findings, 76% of consumers said they either don’t care about whether a product uses open banking or would be less likely to use a product if it is enabled by Open Banking. Again, the trust issue creeps in as a quarter say this is down to them not knowing enough about it and being wary of the technology.
An awareness issue
The plot thickens further in the issue of trust. Though consumers say they are willing to share their data, many decision-makers in financial services organisations paint a very different picture. Almost one-third (30%) indicated that trust in data sharing is the biggest barrier they face as a company in driving the adoption of their Open Banking services and products.
So, there is a disconnect here in that fed-up consumers aren’t switching to new products and services to improve their financial well-being, even though the solutions do, exist thanks to Open Banking. This may be a result of a lack of understanding around Open Banking services or the true value they can deliver to their finances, but it undoubtedly presents a missed opportunity.
Conquering the disconnect
Financial organisations must conquer a broader awareness issue so consumers know that they could have access to better and fairer financial products that support their financial well-being. There’s an opportunity to bridge the trust gap and build confidence in Open Banking solutions to get consumers turning to new products that will power better financial experiences. These positive experiences will be key to raising broader awareness of the benefits of and, in turn, increasing demand for Open Banking.
This starts by highlighting the benefits of Open Banking vs traditional banking processes and how they impact financial well-being. For example, by highlighting 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.
Another area that needs more clarity is dispelling some of the myths that have crept in surrounding data privacy and security. Sharing financial information that was once only available to notoriously highly regulated banks, naturally raises questions about privacy. But 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 providers 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. Raising awareness of these issues will help ease worries and build trust around Open Banking.
Now more than ever, people need tailored financial products and services that are right for them, particularly as the UK continues on unsteady economic footing. Building trust and awareness amongst consumers will be vital to drive demand for Open Banking services and importantly, let them know there are products and solutions available that will make managing their finances easier. We hope to also see the right steps taken by industry and government to ensure Open Banking can build on its seven million active users and be a success story in the UK in years to come.