Thanks to recent well-publicised data leaks suffered by many high-profile companies this year, customers have grown increasingly aware of and sensitive to data security issues. Although an increased awareness is by no means a negative thing, it has led to a significant loss of confidence in financial services, one of which being Open Banking.
Open Banking refers to the use of open APIs that enable third party developers to build applications and services around the financial institution. By relying on networks instead of centralisation, it helps financial services customers to share their financial data with other financial institutions more securely.
A report by law firm TLT, based on research from 130 senior decision-makers across UK financial services, has found that although consumer trust in Open Banking is increasing, more needs to be done to ensure that this continues.
Why breaches risk trust in Open Banking
Open Banking relies on data sharing, and as consumers become increasingly aware of how easy it is for data to be leaked or misused, as highlighted in recent data breaches, their willingness to engage with such service was low at the beginning of the year. Just 36% of British consumers trust banks to work in their customers’ best interest, meaning confidence in financial services has dipped in recent years.
Three quarters (77%) of TLT’s respondents agree that trust and understanding of Open Banking was low when it first launched in January 2018 and only 30% say this has improved in the six months since launch.
Almost half of those surveyed felt that high-profile data breaches have damaged consumer trust, even though no known breaches have occurred in Open Banking as of yet. 66% believed that a loss of consumer trust was the biggest risk to data sharing under the practice.
As a result, many financial services companies are now taking measures to protect themselves from similar breaches, such as risk sharing arrangements with counter-parties.
In an attempt to restore consumer confidence, companies also plan to take action to improve customer communications about Open Banking, increase data security, update customer-facing websites and digital banking channels, and undertake advertising campaigns to promote their Open Banking offerings.
Brian Craig, data protection legal director at TLT, comments:
“The challenge for Open Banking players is to both respond to emerging threats and anticipate the future by investing in technological infrastructure and procedures to keep customer data secure. Successful companies will communicate effectively with customers about how new security protocols and services work and implement the measures to deliver them.”