The evolution of consumer behavior in the age of open banking: a new era of financial interaction
The advent of open banking has ushered in a new era of financial services, fundamentally altering how consumers interact with their finances. With the ability to access and share financial data across multiple platforms, consumers are becoming more empowered, informed, and proactive in managing their financial lives. This shift is not just about technology—it’s about the transformation of consumer behavior in response to greater transparency, convenience, and personalization offered by digital financial services. In this blog post, we will explore how consumer behavior is evolving in the age of open banking, highlighting both the obvious changes and the subtle shifts that are reshaping the financial landscape.
Understanding open banking and its impact on consumers
Open banking is a regulatory-driven initiative that allows third-party providers to access consumers’ financial data with their consent through secure apis. This framework enables the creation of innovative financial products and services, ranging from budgeting apps to payment platforms, all of which aim to provide a more personalized and seamless financial experience for consumers.
Traditional financial behavior vs. Open banking-driven behavior
Traditionally, consumers have relied on their primary bank for most of their financial services, from managing checking accounts to applying for loans. This relationship was often characterized by limited visibility into their financial health, siloed data across different accounts, and a lack of personalized financial advice. Consumers typically interacted with their finances on a reactive basis, responding to monthly statements, bill due dates, or financial crises.
Open banking, however, has introduced a more proactive and engaged approach to financial management. With real-time access to data, consumers are now more informed about their financial situation and can make decisions based on up-to-the-minute information. The ability to integrate multiple accounts and financial services into a single platform has also led to a more holistic view of personal finance, enabling consumers to manage their money more effectively and efficiently.
Key changes in consumer behavior driven by open banking
1. Increased financial empowerment and proactivity
One of the most significant changes in consumer behavior resulting from open banking is increased financial empowerment. Consumers now have the tools to take control of their finances, from setting budgets and tracking expenses to optimizing savings and investments. This empowerment is driven by access to real-time data and the ability to use that data to make informed decisions.
Consumers are no longer passive recipients of financial services; they are active participants in managing their financial well-being. This shift is particularly evident in the rise of personal finance management (pfm) apps, which aggregate data from various sources and provide users with insights into their spending, saving, and investing habits.
Example: a consumer using a pfm app like yolt or emma can track their spending in real-time, receive alerts when they are close to exceeding their budget in a particular category, and get personalized recommendations on how to save more effectively.
Stat insight: according to a survey by accenture, 67% of consumers who use pfm apps report feeling more in control of their finances, with 55% stating that they have made better financial decisions as a result.
2. Demand for personalization and customized financial services
Open banking has fueled a growing demand for personalized financial services. Consumers now expect financial products and services to be tailored to their specific needs, preferences, and financial goals. This demand for personalization extends beyond basic customization, such as choosing account features or card designs; it encompasses personalized financial advice, product recommendations, and even risk assessments.
For example, consumers are increasingly turning to robo-advisors that use open banking data to create customized investment portfolios based on their financial situation, risk tolerance, and long-term goals. This trend is also evident in the growing popularity of apps that offer personalized savings plans, debt repayment strategies, and credit score improvement tips.
Example: a consumer using a robo-advisor like nutmeg can receive investment recommendations tailored to their risk tolerance and financial goals, with the platform automatically adjusting their portfolio based on changes in the market and the user’s financial situation.
Stat insight: a report by deloitte found that 72% of consumers are more likely to engage with financial services that offer personalized experiences, and 60% are willing to share their financial data to receive more tailored advice and recommendations.
3. Shift towards digital-first financial services
The convenience and accessibility of digital financial services have led to a significant shift in consumer behavior towards a digital-first approach. Consumers increasingly prefer to manage their finances online or through mobile apps rather than visiting physical bank branches. This shift is driven by the convenience of accessing financial services anytime and anywhere, as well as the ability to compare and choose from a wide range of products and services.
Open banking has accelerated this trend by enabling consumers to access multiple financial services through a single platform, making it easier to manage accounts, make payments, and apply for loans without ever setting foot in a bank. This digital-first approach is particularly popular among younger consumers, who are more comfortable with technology and expect seamless, integrated experiences.
Example: a consumer might use a digital bank like monzo or starling, which leverages open banking to offer a fully digital banking experience, including instant notifications, budgeting tools, and fee-free international payments.
Stat insight: according to a study by ey, 63% of consumers prefer to manage their finances digitally, with 58% stating that they have reduced their visits to physical bank branches as a result of using open banking-enabled services.
4. Greater focus on financial health and well-being
The ability to access and analyze financial data in real-time has led to a greater focus on financial health and well-being among consumers. Open banking has made it easier for consumers to track their financial health, set and achieve financial goals, and avoid common pitfalls such as overspending, accumulating debt, or missing bill payments.
This shift is evident in the growing use of financial health tools that provide users with a holistic view of their finances, including spending patterns, debt levels, credit scores, and savings goals. These tools often include features such as financial health scores, personalized action plans, and educational resources to help consumers improve their financial well-being.
Example: a consumer using a financial health app like cleo might receive a monthly financial health score based on their spending, saving, and credit habits, along with personalized tips on how to improve their score and achieve their financial goals.
Stat insight: a survey by nerdwallet found that 70% of consumers who use financial health tools report a better understanding of their financial situation, with 50% stating that they have improved their financial habits as a result.
5. Growing trust in fintech and non-traditional financial services
Open banking has also contributed to a growing trust in fintech companies and non-traditional financial services. Consumers are increasingly comfortable sharing their financial data with third-party providers, particularly when they see the value and benefits of doing so. This shift in trust is driven by the transparency, innovation, and customer-centric approach that fintech companies often bring to the table.
Consumers are no longer solely reliant on traditional banks for their financial needs; they are open to exploring alternative providers that offer better products, lower fees, or more personalized experiences. This trend is particularly pronounced among younger consumers, who are more likely to experiment with new financial services and switch providers based on the quality of the experience.
Example: a consumer might use a fintech app like transferwise (now wise) for international money transfers, attracted by the lower fees, better exchange rates, and transparency compared to traditional banks.
Stat insight: a report by capgemini found that 59% of consumers trust fintech companies with their financial data, up from 45% just two years ago, reflecting the growing acceptance and adoption of non-traditional financial services.
Lesser-discussed changes in consumer behavior due to open banking
The rise of financial ecosystems and platform loyalty
One of the lesser-discussed shifts in consumer behavior is the rise of financial ecosystems and platform loyalty. As consumers increasingly use open banking to integrate multiple financial services into a single platform, they are becoming more loyal to the platforms that offer the most comprehensive and seamless experience. This loyalty is driven by the convenience of having all financial services in one place, the ability to access personalized insights and recommendations, and the trust in the platform’s ability to securely manage their financial data.
Consumers are now choosing financial platforms not just for individual services but for the overall ecosystem they provide, which includes everything from banking and payments to insurance, investments, and financial planning.
Example: a consumer might choose to use an all-in-one platform like revolut, which offers a wide range of services including banking, currency exchange, investments, and insurance, all integrated into a single app.
Stat insight: according to a study by forrester, 65% of consumers are more likely to stick with a financial platform that offers a comprehensive ecosystem of services, even if individual components are not the best in the market.
Increased expectation of transparency and control
Another important shift is the increased expectation of transparency and control over financial data. Open banking has given consumers greater visibility into how their financial data is used and shared, leading to a demand for more control over their personal information. Consumers now expect financial service providers to be transparent about data usage, provide clear consent options, and offer the ability to manage data sharing preferences easily.
This expectation is not limited to fintech companies; traditional banks and other financial institutions are also being held to higher standards of transparency and data control as consumers become more aware of their rights and the value of their data.
Example: a consumer might use an open banking dashboard provided by their bank to manage which third-party providers have access to their financial data, with the ability to grant or revoke access at any time.
Stat insight: a survey by gartner found that 72% of consumers consider data transparency and control to be critical factors in their choice of financial service providers, with 55% stating that they would switch providers if their current one did not meet these expectations.
The emergence of financial wellness as a lifestyle choice
Financial wellness is increasingly being seen as an integral part of overall wellness, akin to physical and mental health. This shift in consumer behavior reflects a broader cultural trend towards holistic well-being, where financial health is recognized as a key component of a balanced and fulfilling life.
Consumers are not just seeking financial services; they are looking for tools and resources that help them achieve financial peace of mind, reduce stress, and live a more secure and prosperous life. This has led to the emergence of financial wellness programs, which combine traditional financial services with education, coaching, and support to help consumers build healthy financial habits and achieve long-term goals.
Example: a consumer might enroll in a financial wellness program offered by their employer, which includes access to financial planning tools, one-on-one coaching, and educational resources on topics such as retirement planning and debt management.
Stat insight: a study by pwc found that 80% of employees who participate in financial wellness programs report reduced financial stress, with 60% stating that they have seen a positive impact on their overall well-being.
Conclusion
The age of open banking has brought about significant changes in consumer behavior, driven by the increased empowerment, personalization, and convenience offered by digital financial services. Consumers are now more proactive in managing their finances, demanding personalized experiences, and embracing a digital-first approach to financial services. They also place a higher value on transparency, control, and financial wellness, reflecting a broader cultural shift towards holistic well-being.
As open banking continues to evolve, these changes in consumer behavior will shape the future of the financial services industry. Financial institutions and fintech companies must adapt to these new consumer expectations, offering innovative, personalized, and transparent services that meet the needs of today’s empowered consumers. By doing so, they can build stronger relationships, drive customer loyalty, and thrive in an increasingly competitive and dynamic financial landscape.
