Millennials opening the door for open banking

According to consumer research we’ve just completed at Accenture, the vast majority of people trust only their own banks with their financial data and they’re not willing to share that information with third parties. 

"Younger consumers… say they would use social media or an online merchant to initiate payment transactions.”

Additionally, most are unaware of new government rules which would give consumers more control over their data in a bid to increase competition and stoke the economy.

That’s not unexpected, given the relationships Australian banks have developed with their customers over the years. And some habits die hard - underscoring the challenge fintech companies and other digital giants face in taking market share from established financial firms, even when offering new tools and services.

But there’s a flip side: despite the loyalty big banks still enjoy from consumers in general, young people are far more likely than older ones to try new services and give third parties access to their banking data, according to the same survey.

What’s the big deal?

The new Consumer Data Right (CDR) will give Australians access to their banking, energy, phone and internet transaction data.

The financial services sector will be the first to embrace these new rules with open banking which will allow consumers to grant third parties – such as technology providers, fintechs, telecommunications companies, retailers and other businesses – access to their financial data. The ambition is to enable consumers to compare products and services more easily.

The survey showed millennials and generation Z consumers (those younger than 35 years of age) are 4.5 times more likely than people 55 and older to be willing to share their data with third-party providers. And be aware of new government rules around open banking.

Because of their higher rate of awareness and desire to share their data, at a rate of 31 per cent to 7 per cent for baby boomers in the older generation, young consumers will be prime targets for these services and for companies looking to take market share away from traditional firms.

Younger consumers are also more than eight times as likely as baby boomers to say they would use social media or an online merchant to initiate payment transactions — at 58 per cent for millennials and generation Z, compared with just seven percent of baby boomers.

Fintech companies, tech giants and other corporates looking to win over new clients with open banking services pose a particular threat for established banks in Australia’s largest cities, where the majority of people willing to share their data are located.  

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Traditional financial firms could take comfort from the fact that 84 per cent of Australian consumers would only trust their own banks with financial data, much higher than the 59 per cent of British consumers. But resting on their laurels now could create future headaches.

Age of experimentation

Young consumers are much more open to experimenting with new ways of banking and making payments and are also more demanding about the convenience of services. These young clients of today will be the main clients of tomorrow, so banks need to be ready with their digital options now or they’ll risk losing these consumers for good.

That’s also true for nomads. Nomads is the moniker coined for a new type of banking consumer who has low levels of loyalty when it comes to financial institutions. Nomads represent one in three Australians and have a collective wealth of $A2 trillion. 

Nomads aren’t all young hipsters glued to their mobile phone apps either, as one might expect, with 49 per cent of them aged 35 or older.

These consumers demand convenience, insist on being able to access services wherever they are, whenever they need them and open banking will allow financial firms to easily enable the multi-provider relationship the nomads demand.

The biggest concern with open banking for consumers centers around the security and privacy of financial data, with nearly two-thirds of respondents citing that as the main obstacle to sharing their financial data with third parties.

More than half also said they don’t understand the potential benefits of open banking enough to grant third-party providers access to their data, indicating the need for wider consumer education on the potential advantages of the new system.

Consumers are justifiably concerned about data security and privacy, given all we’ve seen the past years around data breaches, Banks work around the clock to prevent and address those issues.

However the fact so many people don’t know how they could benefit from open banking with less than one year before it will be implemented in Australia shows a big opportunity for firms with those services ready to go, once people are more fully informed and familiar with them.

Alex Trott is Banking Lead for Accenture Australia and New Zealand