By Jake Ranson, Chief Customer Officer at Freedom Finance. Jake has over 15 years’ experience in personal finance and was part of the world’s first live open banking journey
Technological developments, particularly over the past decade, mean that tech – in some form or another – now permeates almost every aspect of our lives. We use it to communicate, consume information and even track our sleep. From shopping online to choosing a takeaway on a Friday night, more and more we also use it to make decisions.
Tech advancements have, and continue to, shape our expectations around the services we use and subscribe to, with customer demand a key driver of change for all industries.
The personal finance industry is, in many ways, leading the way on customer data-led products and services. New entrants drive competition in the market and many providers are capitalising on available new technologies to better meet the priorities of their consumers who value convenience and ‘hassle-free’ access to products. With every new entrant comes more choice, which is not in itself a bad thing. But, when it comes to making important financial decisions, choice without clarity and guidance can result in a modern finance market that can feel difficult to navigate.
One of the developments designed to help consumers is Open Banking – which makes it easier for customers to give trusted third parties access to their transaction data, compare accounts and evaluate new products. Used as a tool to complement existing practices, Open Banking allows a complete view of a borrower’s information and circumstances, that couldn’t have been achieved through credit data alone. It removes the need for physical documents to be made available, which makes the lending process more efficient for both lenders and borrowers – an improvement that can speed up the customer journey from days to a matter of minutes. Increased access to consumer data also enables lenders to glean the necessary insight into how affordable a loan is, which in turn helps them to deliver much more tailored options.
There has been progress over the past year from banks and fintech companies leveraging these new open API capabilities, improving account visibility by allowing customers to see multiple accounts from their mobile apps, regardless of if that account is held with a competitor. It’s entirely likely that customers have not even noticed the changes going on ‘under the hood’. According to recent research by ClearScore, three-quarters of UK adults had never heard of Open Banking, so the success of the regulation should be measured more by overall adoption of Open Banking-enabled services, and less on name recognition, alone. It’s a little bit like the internet. People don’t consume the technology, they consume the content on it. Open banking is a technology upon which companies like Freedom Finance can build products that are useful to customers.
The increased access to customer data in Open Banking is a positive step for the industry as a whole. However, it is undoubtedly consumers who stand to gain the most; in particular, people with thinner credit files or irregular incomes, such as the self-employed, people new to the UK or younger borrowers who are yet to build a comprehensive credit file.
We have entered an era of consumer empowerment. As new technology and regulations such as the PDS2 become much more consumer-centric, there are opportunities for consumers to extract the power of their data for their own benefit – something which has previously gone untapped. In today’s digital landscape, data belongs to the customer and they have the right to choose the services that best meet their needs. It is therefore the responsibility of financial service providers to ensure they are working to equip customers with the right knowledge to make the best financial decisions.
Incorporating the principles of Open Banking helps to demystify the process of borrowing, by allowing a better sense of an individual’s income and expenditure. At the same time, financial service providers can deliver a customer journey with consent at its core. The changes brought about by Open Banking encourage innovation and spur genuine competition in a financial sector where it has traditionally been scarce – ultimately benefiting consumers and improving their financial lives through greater transparency and clarity.