Deep Dive: How Understanding Open Banking Rules Can Help Merchants Gain Consumers’ Trust

Lingering economic uncertainty and growing fraud rates in multiple markets are prompting consumers to sharpen their focus on privacy and security. Eighty-one percent of consumers in one recent study said that trusting brands was a major factor in determining whether they would interact with them, for example. Other reports highlight consumers’ changing perceptions regarding the privacy of their personal information, finding that 56 percent of Americans would like more control over their own digital data.

This puts merchants today in an intriguing position when it comes to fostering trust with consumers to keep them engaged, especially given the continued global development of open banking regulations. Many of these rules concern companies’ storage and handling of digital data, and the regulators who crafted them are keeping an eye on their use during the global health crisis as well as how they mesh with consumers’ changing opinions.

The following Deep Dive analyzes the pandemic’s effects on open banking advancements and consumers’ perceptions of online privacy and security, as well as how these changes will affect customers’ merchant relationships. It also details how open banking’s expansion can help businesses build trust with new or existing customers seeking more secure ways to shop.

The Pandemic And The Privacy Question

More consumers than ever are transacting online and leveraging digital banking services that pull data from multiple financial providers for more robust pictures of their spending or financial status. For example, a September report found that the number of open banking users in the U.K. doubled to more than 2 million during the six months preceding the study. This figure includes new users of online banking platforms or money management FinTechs, services that are covered under U.K. open banking rules and that provide holistic views of users’ finances by sharing data among multiple financial entities.

U.K. consumers are also upping their eCommerce mobile app use. Another study found a 35 percent increase in downloads for such apps during Q2. U.S. consumers have made the leap to digital banking and commerce services at similar rates, with eCommerce sales rising 42 percent in August to reach $63 billion for the month, and they have remained steady since.

These digital payments and banking surges are prompting consumers to more closely examine how online platforms are using the information they share — and to consider who is responsible for the security of such details. Research suggests that more consumers are expecting merchants to tackle this task, with 90 percent of American consumers stating that companies and government entities should be safeguarding their digital data.

Consumers’ changing opinions regarding data privacy offer opportunities for merchants, but convincing customers that their personal data is being protected can prove challenging in reality. A February report revealed that 18 percent of customers abandoned online purchases because they felt brands were untrustworthy, and the growing prevalence of digital fraud during the pandemic is unlikely to help matters. Sixty percent of consumers worldwide now assert that they are turning to their most trusted brands as the health crisis continues. This indicates that merchants may need to more closely monitor digital privacy and open banking standards to make certain their data storage and protection practices are up to speed.

Open Banking, Privacy And Consumer Trust

Outlining which banks, FinTechs and third-party firms can collect, store and share key personal information is a core foundation of the open banking rules that affect the U.K. and the EU. GDPR’s “right to be forgotten” and data sharing standards have since inspired lawmakers in other regions, including those in the state of California, to pass similar laws safeguarding consumers’ information from being disseminated without their consent. Such rules typically endure multiple rounds of industry feedback before they are ratified, and the debate over how they work and whether they are rigorous enough has ramped up since the pandemic began.

Regulators are more seriously examining consumers’ privacy concerns, which could have a significant impact on open banking rules in the future. It is thus imperative for merchants to thoroughly monitor and analyze open banking developments. Utilizing the data transparency and the third-party collaboration that open banking has made possible can help merchants craft personalized offerings and services that can, in turn, allow them to build more trust among their targeted customers, but consumers must first trust merchants enough to provide this information.