As new banking reforms inject fresh competition into Britain’s financial sector, Jamie Matthews, founder and CEO of integrated agency INITIALS, explains what open banking means for business owners and considers how it could change consumer behaviour.
Open banking is here, and the implications are far reaching. New legislation, allowing consumers more user-friendly access to their transactional data, has just been passed. Put simply, banks are being forced – or allowed – to open their data to third parties for the first time.
While nothing has properly kicked in yet, now is the time to focus on what the implications are likely to be. The big consultancies are all looking at it, as well as the banks themselves; alongside GDPR, open banking is posing a number of strategic corporate questions that need to be understood and answered urgently.
So, if we wind the clock forward, what do we see?
Shopper knowledge is power
The benefits for consumers are obvious, and an impact on shopping behaviours seems inevitable. These changes mean you will be able to have a completely holistic view of all your financial behaviour for the first time, making it immediately easier to manage your finances. There is nothing like this available currently.
Moneywise comes close, but it requires users to download all their financial data. It does the analysis for you, but you have to classify all the information yourself first. That’s prohibitive for most people.
These new apps will change all that; they’ll do it for you, collating everything automatically. So, at a glance you’ll be able to see how much you spent on Amazon last month, or how much your Netflix and Apple subscriptions cost you last year. Collated info like this will encourage people to cut back on certain types of spending.
It’s so easy to pay for things now, with everything from one-click-to-buy to contactless meaning people are no longer keeping track of things like they used to. This will give them a clear picture of it all, for the first time in a long time.
Reality check for retail
Open banking will hit discretionary spending particularly hard, as this type of expenditure is the easiest to control. Things like takeaways and casual dining add up quickly when you’re not paying attention, but open banking will make such collated spends impossible to ignore. Some of the new purchasing habits that we have seen in recent years are likely to stall, or even start to roll back.
Allowing people to see what their top-up shops are adding up to might well make them look again at how they handle their grocery shopping, for example.
Battle of the big banks
Clearly there are plenty of big benefits for consumers, and banks will have a crucial role, each trying to adopt a leadership position quickly. How consumers choose their bank will also be affected. We’ll all start looking beyond obvious things like bank charges. Other criteria will come into play; things we’ve never factored in before. For example, how good is your bank at displaying information to you?
Banks are all going to be playing tech games as a result. Currently some banking apps are great, but others are awful. This is about to start to matter in a way it hasn’t before. All banks will need to up their game as a result, at the same time as managing all the regulations imposed by the FSA.
A battle of the banks is coming, a big tech race that will disrupt the market. Initially this will only suit a certain type of tech-savvy consumer, but the easier it all ends up being, the wider the audience pool will become.
Marketers must be ready
Of course, the future is hard to predict. Nothing is certain, but it seems inevitable that a wide variety of sectors will be affected by the changes. Brands need to be monitoring the situation closely, identifying ahead of time changes in consumer behaviour and ways to influence them in response.
Behavioural changes lead to culture changes, and brands have a chance to lead the way. For example, you could see another step change in grocery spend whereby planned weekly purchases start to swing back from impulse shopping.
Soft retail spend is likely to see the biggest and most immediate impact. This will come at a bad time as discretionary spend has already been squeezed in the first quarter. That said, beyond cutting back on coffees it’s the less obvious results that will be the most interesting in the long run, so it’ll be interesting to see which categories benefit and which suffer. What’s clear is that one change in the law is going to have a far-reaching impact.
These apps haven’t kicked in yet. The law only changed recently, so it’s all still to come. We don’t yet know what adoption levels will be, or how quickly they will rise, but suddenly seeing you’ve been spending £300 in Prêt a month is undoubtedly impactful.
Perhaps we’ll see a positive impact on health, and a spike for the on-the-go food market, as people seek alternatives to those particularly pricy sandwiches. Office culture changes might well be seen. That’s just one example of how far reaching the implications of open banking might be.
Final thoughts on what open banking means
Open banking will undoubtedly present challenges, but there will be opportunities also. The battle of the banks, and the retail landscape changes that come after, will affect both consumers and marketers alike.
While we can’t yet be certain what’s going to happen, taking an active interest is an important first step towards being ready for what’s to come.
Jamie Matthews is CEO and founder of leading integrated agency INITIALS
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