There are far greater implications to open banking than many realise. The new legislation provides consumers with more user-friendly access to their transactional data – and brands should be prepared for the significant changes in shopper behaviour this could cause.
While it’s all just starting to kick in, major banks and business consultancies have already recognised the need to prepare, acknowledging that open banking poses strategic questions that need to be understood and answered urgently.
Here are just some of the ways open banking could shape the future:
1. Knowledge is power
Open banking provides clear benefits to consumers and will inevitably shape their shopping behaviour. For the first time, shoppers will be able to manage their finances based on a completely holistic view of their financial behaviour.
There are already apps that aim to offer this, but they require users to download and classify their own financial data, which is a significant barrier for many people.
With open banking, new apps will collate everything automatically, allowing shoppers to see everything at a glance, from how much their Spotify subscription cost last year to how much their daily coffee adds up to.
This could prove dangerous for retailers. Discretionary spending, such as takeaways and meals out, is not just the easiest to control, but also quickly adds up. The shock of seeing this clearly, as a collated spend, could prompt rapid behaviour change among consumers.
With the likes of ‘click-to-buy’ and contactless, new ways of paying mean people no longer keep track of their spending as closely as they once did. Because open banking changes this, we could expect a stalling or even a reversal of recent, more impulsive purchasing habits.
2. Battle of the banks
Banks will play an important role in enabling consumers to realise these benefits and each will be attempting to adopt a leadership position quickly. This means there will be a shift in how consumers choose their bank, or why they might switch away from their bank. People will look beyond the obvious rates and charges when making banking decisions and begin considering how well their bank provides them with transparent information.
This will lead to banks investing heavily in new tech. Some banking apps are excellent, but others are very poor, and this will matter to an extent that hasn’t previously.
The result will be a battle of the banks, in which a major tech race disrupts the market. The first beneficiaries will be a particular type of tech-savvy consumer, but the audience pool will widen as making new developments as accessible as possible becomes a priority.
3. Marketers must prepare
It’s not possible to predict the future with absolute certainty, but it seems inevitable that a wide range of sectors will be affected by these changes.
As a result, brands need to be monitoring the situation closely. They should not only be anticipating behavioural changes among consumers in advance, but also planning how to influence people successfully in response to these changes.
Behavioural change leads to culture change. With open banking, insight into collated spends might prompt shoppers to move back towards planned weekly grocery shops rather than impulse buys, for instance.
Because this is a recent law change, new apps haven’t kicked in and we don’t know what the adoption level will be or how quickly this will increase. One example of how behaviour might shift is suddenly being able to see you’ve spent £300 a month on unhealthy lunches during the working day, this could prompt people to buy ingredients at home or look for healthy on-the-go solutions. It could even cause a shift in office culture, which underlines just how influential open banking could be.
It remains to be seen which categories benefit and which suffer, but it’s clear that open banking is set to have a far-reaching influence. The need to adjust to this means open banking presents challenges, but it also provides opportunities.
Consumers and marketers are both set to be affected by the battle of the banks and the changed retail landscape. While it’s too early to be certain of exactly what open banking will mean, it’s not too early to get prepared.