By Jerry Mulle, Sales and Marketing Director, Intelligent Environments
It will be a surprise to no one to know that worries over money are one of the biggest causes of anxiety within the UK. However, it might shock people to know the extent to which these worries can impact us.
Earlier this year it was revealed that over a fifth of people felt their health had been negatively affected by concerns over their financial situation.
And it doesn’t stop there – with forty-per cent of UK adults believing their financial anxiety will increase over the next year, this issue is only set to worsen.
This anxiety also extends to younger adults, with our own study finding that 44 per cent of 18 to 24-year old sruggle to manage their money. What’s more, just shy of a quarter (24 per cent) of this demographic has already found themselves in debt.
And as finances continue to become more complicated, it’s now more important than ever to address this problem and prevent a growing number of Brits experiencing significant stress and anxiety.
The Open Banking Approach
However, help may be at hand: the impending introduction of the second Payment Services Directive (or PSD2 for short) is set to transform the way consumers manage their money.
By allowing third parties to gain the consent of consumers and access their financial data to provide new, innovative digital financial solutions, PSD2’s ‘Open Banking’ approach will remove the banking industry’s monopoly on customer financial data.
As a result, the consumer experience is set to be revolutionised, with data able to be shared across multiple digital financial platforms, allowing the development of a single digital platform through which everything – whether it be bank accounts, bills or debts – can be managed.
Enhanced Consumer Engagement
Offering more freedom than ever before, PSD2 has the capability to transform the way consumers engage with financial services. Yet, given the industry’s poor track record of properly communicating complex changes to customers, very few Brits even know this change is happening.
In fact, Intelligent Environment’s most recent study found that nearly 9 out of 10 consumers (89 per cent) are completely in the dark as to how the change will affect them.
However, upon hearing the details of PSD2 and what it meant, consumers were quickly drawn to its benefits and to see the legislation materialise. The same research found that over a fifth (21 per cent) of Brits are looking forward to being able to manage multiple bank accounts from a single app while over a tenth (11 per cent) expressed interest in receiving objective, third-party advice on better managing their finances.
A further 21 per cent believe it will be more convenient than ever to manage their money, and the same amount think it will provide a better overview of their money through digital finance.
A Cause for Concern?
Of course, as with any modern technology, there are fears. Our research also found that many consumers felt nervous about the impending changes, with 66 per cent of respondents worrying that sharing their data with a third-party would compromise their online safety. Similarly, 70 per cent admitted to concern over a lack of clarity on where their data is and who owns it.
In both instances, these fears – though entirely sensible – are a result of misunderstanding and a lack of information. In the first case, while there are certainly legitimate concerns over the security of data shared via open APIs, it would be wrong to think these haven’t been carefully considered.
Security is of utmost importance and while increased data sharing may set off some alarm bells, PSD2 has many in-built safety functions to ensure confidential information stays safe. Crucially, consumers must ‘opt-in’ to allow third parties access to their data, ensuring that no one sees financial details without their permission.
Similarly, the legislation will arrive almost simultaneously with another new EU directive: General Data Protection Regulation (GDPR). Also coming into effect in early 2018, GDPR will apply to all businesses processing the personal data of individuals and will allow regulators to impose severe sanctions on businesses who fail to properly protect consumer data.
And when it comes to preventing fraudsters from conning consumers into allowing them access, there are already plans to create an approved list of third parties that have appropriate security in place to protect against criminals.
Improving Financial Well-Being
In terms of potential, PSD2 has a lot to offer.By providing a single dashboard view, financial services providers can give Brits much more visibility and help them take back control over their finances. This is a fantastic opportunity for multiple providers to work more closely together and share information. In doing so, they can not only enhance the customer experience they provide, but improve customers’ financial well-being in the process.
In addition to making finances easier to manage, the increase in visibility PSD2 will offer consumers will also have a positive benefit for lenders and creditors. With greater clarity on loans and debts, repayment should be easier, with consumers able to access impartial and objective advice that is tailored to their specific situation and that considers all their financial commitments.
A Revolution Ahead?
Clearly, the arrival of PSD2 is set to be ground-breaking in the financial services industry. Yet, it’s worth bearing in mind that until many of the initial fears are relieved and consumers are exposed to its benefits, it’s unlikely that Open Banking will become part of the mainstream right away. Having said that, it should be of no doubt that the opportunities afforded by PSD2 – combined with the advances in technology and the ever-increasing demands of consumers for personalised and convenient service – are a perfect storm for change.
Understanding exactly what is on offer is the key to ensuring customers embrace and understand the benefits of open banking. Ultimately, part of this relies on the banking sector’s ability to successfully adopt and deliver on the promises of open banking. And what’s more, this needs to be done with clear and understandable communication that enables helping consumers to properly appreciate both the risks and rewards offered by PSD2.
Finally, and most importantly, consumers can rest-assured in knowing that a broader range of help will be available and, as a result, managing finances should become much easier. Further to this, being able to pick and choose the right provider will put consumers at ease, letting us all stay anxiety-free and financially better off.