Trust deficit could block new entrants to financial services sector ahead of open banking
Entrepreneurs hoping to use open banking reforms to enter the financial services sector with new products have been dealt a setback, after new research exposed consumer suspicions in handing bank details to third-party providers such as online retailers and social media companies.
In January 2018, the EU’s Payment Services Directive (PSD2) will allow third party providers, such as online retailers and social media companies, access to consumer bank details providing consent is given. PSD2 legislation agreed among EU members represents a further development towards the open banking reforms led by the Competition and Markets Authority (CMA).
PSD2 has the potential to change the financial services landscape, opening the door for third party providers to offer new services to consumers in exchange for their bank details. For instance, the directive willallow a merchant like Amazon to retrieve personal data from banks, if the user gives consent.
it’s a development that will enable consumers to transfer funds more easily, compare products and manage their accounts without direct involvement from their bank.
However, new research has suggested this will be a significant challenge for such companies. After surveying over 2, 000 UK consumers, digital consultancy Accentuate found that over half would never change their existing habits and adopt open banking.
Read more: The best challenger banks for startups
A fear of fraudulent activity was the biggest driver of the trust deficit. Some 85 per cent said the increased risk of fraud was the main barrier to them sharing bank account information with a third party. Data protection breaches and the potential for cyber attacks were also raised as major concerns by consumers.
Commenting on the possible challenges faced by third party companies in taking advantage of open banking reforms, Jeremy Light, a director at Accentuate, said consumer trust was of utmost importance.
open banking has the potential to transform consumers? relationship with financial products, but it hinges on consumers? willingness to embrace it, Light explained.
until new entrants to the financial services sector can earn consumers? trust, banks can draw on their extensive heritage to secure an important early advantage.
Meanwhile, the findings suggested banks were well-placed to see out the challenge of new entrants to the financial services sector. Almost six in ten consumers said they would only trust their bank when seeking services such as mortgages or savings accounts. In contrast, only nine per cent would trust an online retailer when seeking the same services.
Praseeda Nair is the editorial director of Business Advice, and its sister publication for growing businesses, Real Business. She's an impassioned advocate for women in leadership, and likes to profile business owners, advisors and experts in the field of entrepreneurship and management.
Fintech has seen a flurry of activity of late, with many budding entrepreneurs looking to make use of their previous careers at banks. Now, a new startup in the sector is hoping to transform access to credit for those locked out of the formal credit system nine million people in the UK. more»