Nothing ruins a night’s sleep quicker than money worries. Always a source of stress, concerns over finances are consistently found to be among the biggest causes of anxiety among UK adults, both young and old.
Earlier this year a study by price comparison website MoneySuperMarket found that a fifth of UK adults admit that their money worries have impacted on their health. And this is only set to worsen as forty-one per cent of UK adults believe their financial anxiety will increase over the next year. Our own research has also borne this out, with a study we conducted just last year finding that 44 per cent of 18 to 24-year olds are struggling to manage their money. Most disturbingly, nearly a quarter (24 per cent) of this demographic has already found themselves in debt.
And as finances become ever more complicated, something must be done or growing numbers of Brits will begin to face sleepless nights.
Enter Open Banking
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.
Start spreading the news
This is a step that has the capability of entirely transforming the way consumers engage with financial services, offering more freedom than ever before. Given the industry’s poor track record of clearly communicating complex changes to customers, it should come as no– surprise that few Brits even know this 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.
When given the facts about PSD2, it quickly became apparent that consumers were excited to see the legislation’s proposed benefits come to fruition. 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.
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.
Preventing unmanageable debt
In terms of potential, PSD2 is a gamechanger. 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.
The start of something big
While the arrival of PSD2 will signal a new era in the financial services industry, it’s unlikely that Open Banking will hit the mainstream until sometime later – when many of the initial fears are assuaged and consumers are exposed to its multiple benefits. And while the UK has been traditionally very resistant to change within its banking practices, 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.
Ultimately, for customers to truly embrace the benefits of open banking, they must understand what is on offer. Successful adoption is therefore down to the banking sector’s ability to deliver on the promises of open banking, and to do so with clear and understandable communication that enables helping consumers to properly appreciate both the risks and rewards offered by PSD2.
More importantly, for consumers, with a broader range of help available, managing finances should become easier. Being able to pick and choose the right provider will offer far more peace of mind, and let us all get a better night’s sleep.
Jerry Mule, Sales and Marketing Director, Intelligent Environments
Image source: Shutterstock/MaximP