Consumer expectations are shaping the rise of open banking

Consumer demand for financial empowerment, control and transparency has accelerated the growth of the emerging open-banking market – and market adoption shows no signs of slowing down.

Given this growing trend, the open-banking movement provides ample opportunities for financial institutions to elevate their client relationships, according to Emmett Higdon, Director of Digital Banking at Javelin Strategy & Research.

“Consumers’ financial relationships have become very fragmented and are driving the need for open data,” Higdon explained in a recent PULSE® Live Webinar titled How Consumer Demand Is Shaping Open Banking. “There is also increasing demand from consumers in terms of bringing all of the different pieces of their financial puzzle together. … Consumers want to see all of their information from many different providers,” Higdon said. 

How fragmentation is accelerating the need for open data 

Until there is a mandated, central approach for sharing data, private market solutions will prevail, similar to the rise in real-time payments, Higdon said. This is in contrast to the rise of open banking in Europe, which has been largely government-driven. With consumer demand as the true driving force in how open banking has progressed in the U.S., incremental advances here have led to much of the industry’s fragmentation, Higdon said.

Consumers increasingly use multiple apps to manage their finances, with 52% of consumers using third-party apps from non-banking providers, according to a Javelin survey cited by Higdon. And younger generations of consumers drive much of that demand, with 69% of Gen Z and 65% of Gen Y consumers saying they use third-party apps for their finances.

“Consumers’ financial relationships have become very fragmented and are driving the need for open data. There is also increasing demand … to see all of their information from many different providers.”

Emmett Higdon, Director, Digital Banking, Javelin Strategy & Research

Use of multiple apps means that consumers must often toggle among several apps to get their full financial view. As a result, this fragmentation drives demand for a single financial interface that offers a holistic view. Moving away from fragmented accounts and toward data aggregation will generate more open-banking opportunities. 

Opportunities in the current payments landscape

Clearly, one of the most appealing aspects of open banking for consumers is greater control over how, when and where they make payments.

“Payments is indeed the largest driving force within financial services,” Higdon said, adding that consumers want to see payment status, view changes or make changes easily through the device of their choice. They do not want to use 10 different apps to make these changes, he said. 

One suggestion is that banks start enabling consumers to link their cards through their mobile banking apps to digital wallets. This also presents opportunities for banks to tie their brand to these connections and keep it top of mind when consumers store their cards. Focusing on use cases such as this, where there is considerable consumer demand, is a particularly strong approach. 

Closing the gap between consumer expectations and common perceptions 

While some services could shift away from traditional banks and credit unions, Higdon maintained that correcting consumer misperceptions would create an attractive opportunity for financial institutions to educate their customers and build customer loyalty.

“Consumers don’t really know where their financial information is in play,” Higdon noted. For example, he said, they are not sure where their credentials are stored or for how long. A Javelin survey revealed that 75% of consumers assume – mostly incorrectly – that their financial data is automatically deleted by a business once they have used it. 

Banks should focus on educating customers on how important it is to protect their privacy and data, and how to make decisions about sharing their information, he said. As part of this, it is also vital that banks provide clear and easy ways for their customers to make these decisions without complications and friction. 

Preparing for what’s next in open banking

As open banking continues to expand, the primary challenge for the industry is educating consumers about the implications. But it also represents a clear opportunity for institutions to preserve their brand.

Bringing consumers up to speed about the possibilities and value propositions is part of the evolution of open banking. Consumers trust their institutions more than they do fintech companies, and will ask their traditional provider when they need answers about their finances. 

As such, it is critically important for financial institutions to strengthen their customer relationships as open banking progresses, and to take steps to reinforce their brand with every interaction, Higdon advised. Financial institutions should look for new opportunities to use data to create new products and services that address specific financial needs, and then offer these products to all their customers.