Open banking will finally end consumers’ blind loyalty
At Mumbrella’s Finance Marketing Summit, Fred Schebesta, co-founder of comparison site Finder.com, explained how the unassumingly titled Consumer Data Right act will allow customers to switch accounts with ease – and force traditional players to raise their game. But the challenges will also, he argues, bring opportunities to everyone in the market.
It’s been described as a quiet revolution and the most significant shake-up in Australian finance since the introduction of the ATM.
On August 1, the government passed the Consumer Data Right bill, clearing the way for a major shift in the relationship between banks and their inordinately loyal patrons. From February 2020, customers will have control of their finances in a way they have never had before.
Under an initiative called open banking, Australians will be able to share financial information with companies other than their banks who, historically, have been the custodians of that data. It’s expected to create renewed competition sector by enabling a more straightforward comparison of products, and the ability to switch providers accordingly.
In short, loyalty will be tested by convenience and choice.
Transferring our bank accounts, and other financial products, is a rarity. According to Jane Hume, the assistant minister for superannuation, financial services and financial technology, fewer than one in five Australians with credit cards or home loans switch providers in a five-year period. In addition, Finder research shows 40% of us still have bank accounts set up by our parents and only 11% have switched savings accounts in the last six months. Writing in The Australian, Hume said the current system is “clearly not as competitive as it should be”.
But all that will change under open banking, and with change comes opportunity. Fred Schebesta, the co-founder of comparison site Finder.com, suggests while the legislation has been geared towards empowering consumers, finance marketers also stand to benefit. “Open banking is going to put customers in control and give what used to be the bank’s information to third parties,” he says. “So statements, loans, credit scores – all those details which the bank held – are going to be opened up.”
Hinting at the potential launch of a Finder app in a world of open banking, Schebesta says Finder “would love” to work with marketers to personalise messages to consumers who are shopping around for better terms, deals or products. He paints the scenario of customers signing up to an app, supplying their financial information, and banks drawing up exclusive deals or offers for those customers.
“We might be able to personalise offers and select individuals who you want to speak to,” Schebesta says. “Every institution has profitable customers, and lots of marketers have targets around cost per acquisition. But what happens is institutions start looking at the cohort of individuals marketing brings in. Banks will look to target certain types of customers. This is new stuff. Triggering messages that are personalised and making that decision for consumers is where we think the world is going.”
Additionally, Schebesta raises the prospect of “prequalification”, with customers given initial indications of their chances of approval before formally applying for products. Such fear of rejection often stops people from fully exploring their options. “That’s why conversion rates on landing pages are down because, at that moment in time, they’re worried about being rejected. You particularly feel that when you’re hoping to obtain credit.”
Another opportunity presented by the Finder boss concerned risk-based pricing, with marketers able to tailor rates based on the customers’ credit history. This, in turn, will trigger a scrum to win, and retain, the business of different types of customers. “Risk-based pricing is not the norm here in Australia, but with open banking, it will come. It’s a great opportunity for innovators. They will be the ones who will take market share.”
Banking could follow the trend of the car insurance sector, where companies have been actively targeting each other’s profitable customers. “Financial institutions are going to offer lower rates to more profitable customers, so it’s going to be much harder to keep those customers. That’s where the battleground is going to be.”
New products will also follow, with Schebesta predicting a time – not so far away – when third-party apps will message a customer as they’re making a purchase and offer to split the transaction into four payments. Such a product would be particularly pertinent if the customer is about to go overdrawn.
Such a scenario – real-time lending was another – will be made possible through personalisation and consumer data made more available via open banking. “It sounds like a wild world, it sounds like science fiction, but this will start to happen, and it’s much closer than you think.”
Where Finder can particularly benefit marketers is identifying the moment when consumers are making financial decisions. No one visits Finder to compare credit cards to pass the time. People using the comparison site are highly motivated to switch, with Finder claiming high conversion rates as a result. “They’re on Finder for a reason and identifying those moments is very interesting for marketers.”
Schebesta also believes consumers will not concern themselves with the intricacies of open banking. “And nor should they,” he adds. “What they care about is convenience. How many apps do people have on their phone for all their different banks and insurance companies? Why don’t we have just one? Consumers want to be able to switch products. There has been inertia and apathy, and that’s because it has been all too hard.”
But for that to happen smoothly, banks will need to be ready. As it stands today, they’re anything but. Schebesta thinks marketers and product managers are keen but estimates the banks themselves, with seven months before open banking kicks off, are not completely ready.
Yet when the time comes, he predicts, they will be.
“There is still time, and banks are smart with technology. For us, open banking is important because when consumers are given their data, when they are empowered, they make better, more informed decisions.
“And when they do that, the world is a better place.”
Fred’s talk was very interesting. It’s clear that one of the main beneficiaries of open banking could be … Finder. Let’s hope he plays his cards right.
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At present almost all aggregators of personal bank transactions data are used Facebook style to build large aggregated data sets for other purposes – credit scoring, risk modeling, socioeconomic models. It remains to be seen whether handing over access to your transaction data will be any different to handing over your contact list to Facebook.
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