Understanding the 3 customer mindsets of Open Banking

Reports as recent as yesterday have already announced that the introduction of Open Banking is already changing the UK financial market, introducing new players and unsettling established ones.

However, other interpretations are more cautious; Raconteur reported that UK consumers are yet to buy into the concept, worried about the misuse of their data (understandably, given the current climate) and that only four of the nine banks that the Competition and Markets Authority (CMA) mandated to participate in the ruling were ready for the 13 Jan deadline.

According to Raconteur, ‘among the biggest obstacles is lack of enthusiasm from the UK public… most consumers remain blissfully unaware of Open Banking, dubious of what’s in it for them and tend to regard the sharing of their personal transaction histories as anathema.’*

From my personal experience working with financial organisations, I’ve seen that this is only partly true.

There is certainly a group of consumers who fit the profile described by Raconteur; however, this is only one of three consumer mindsets around Open Banking. In order to maximise the impact and really capitalise on the benefits of this new landscape, banks need to understand all three of these mindsets and how consumers move between them.

1. No Openness

The ‘No Openness’ mindset is the attitude being referenced in Raconteur’s report. Customers with the ‘No Openness’ mindset lack trust and/or understanding of Open Banking and so are reluctant to engage with it. Or, in other words the status quo remains the same: no one shares their data and nothing changes.

If the ‘No Openness’ mindset rules supreme, it’s business as usual for traditional banks, with limited risk to their current business models and existing customer relationships. New entrants to the market will be restricted, with limited or no opportunity to demonstrate their capability unless they manufacture their own product, allowing them to collect customer data directly. Aggregator products are completely shut out.

On the other hand, the products created by fintech companies such as Monzo and Starling are having an impact on the way consumers view the banking experience, changing their expectations by providing a different level of personalisation and gratification. As customers learn to trust these new banks and reap the benefits, their mindset will begin to shift towards stage 2…

2. Limited Openness

The ‘Limited Openness’ mindset applies to customers who are dipping a toe into the world opened up by Open Banking; trialling new products and aggregators, and allowing partial access to their data in order to understand whether it will prove valuable to them.

Traditional banks face an increasing risk here, as customers with this mindset are likely to start building better and more appropriate relationships with new competitors. On the other hand, there is also a chance that an individual may wait and see whether their current bank takes action to embrace Open Banking, rather than moving to a competitor straight away, giving traditional players a window to fulfil their customers’ changing expectations.

Fintech organisations also face a risk with this mindset; if they get their interactions and data usage wrong, they are in danger of scaring customers away, propelling them back to the ‘No Openness’ mindset and tarring the brush for everyone else. In a worst case scenario, they could even close the door on Open Banking altogether. Get it right, however, and they can encourage customers towards ‘Full Openness’, leaving them with everything to gain.

3. Full Openness

The final mindset is ‘Full Openness; this mindset can only be achieved when the customer trusts that a particular provider understands their needs and has their best interests at heart (with ‘trust’ being the crucial element here).

With this mindset, traditional banks not only risk losing their customers completely, but also face the real possibility of ending up with a whole heap of customers who keep their current accounts open ‘just in case’, while sharing their historic banking data with new entrants to the financial market. In other words, these banks become nothing more than the dumb pipe through which money moves, while their customers embrace newer, more versatile competitors.

The risk will only increase as fintech companies partner to add new capabilities and diversify their services, becoming increasingly attractive to consumers. This process is already underway; earlier this year, for example, Starling Bank declared its aim to build ‘a banking experience fit for the 21st Century’, by partnering with a wave of fintech startups, including third party insurers, pension providers, investment platforms and mortgage brokers. Starling customers will be able to this diverse range of services from within the Starling app – quite a contrast to the lengthier and more complex traditional banking experience.

Lest we forget…

… There is a fourth – and crucially important – mindset regarding Open Banking: those consumers who not only lack awareness of its existence but who also avoid life online altogether. Lloyds recently released the results of their UK Consumer Digital Index 2018, which revealed that 4.3m people in the UK (or 8%) have no basic digital skills at all. What’s more, the report states that motivation is the main barrier to this group getting online – they simply have no interest in engaging digitally. This, alongside the increasing global focus on digital channels, means that a significant proportion of the population are likely to fall between the cracks and so are at risk of not being catered for.

Why does it matter?

As Open Banking steadily builds momentum over the upcoming months and years, banks need to consider the nuances of public opinion and attitudes when refining and future-proofing their strategy.

Traditional players in the financial market have an opportunity to protect their patch – but they have to act quickly. The more open their customers are to the world of Open Banking, the greater the challenge they face to retain their stronghold on the financial market.

For each of the mindsets detailed above, banks must concentrate on becoming customer centric rather than product centric, maintaining different customer groups by anticipating and catering to their needs. The presentation of relevant and helpful information will be central to this, but even more vital is to put bold words and ideas into action, at speed.

New entrants to the market know the importance of turning insight into action. As soon as they earn a customer’s trust and are granted access to personal data, they only have a short window to prove their value by saving that customer time and money, offering tailored advice and better deals, and maintaining an engaging and appropriate communications style.

Starcount works with established banks to help them adopt this same, agile approach. We work with them to unlock the nuances and stories within transactional data, using it to communicate with customers in a relevant and timely way, putting their best interests at heart. Smart tech, aggregated products and modern UX might capture attention, but the banks of the future will be those who understand customers’ different mindsets, behaviours and priorities.

Jonathan Burston is a Client Director at Starcount. Click here to download Starcount’s whitepaper: ‘Customer centricity and the future of banking’.

*https://www.raconteur.net/finance/open-banking-fails-get-consumer-buy

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