Insight: Three data-backed considerations for your Open Banking strategy

Open Banking has the potential to enable innovative financial services for personal banking and small to medium-sized business (SMB) customers alike. The key to seizing that potential lies in knowing your customers best in order to create increasingly meaningful and longstanding connections.

In its third consecutive year exploring Canadians’ data sharing preferences, EY partnered with Symcor and commissioned TrueChoice Solutions, a global leader in real-time preference analytics, to ask Canadians about their decision drivers, value perceptions and expectations with respect to data sharing.

Since 2020, the study has revealed evolving trends in personal and SMB customer preferences around data sharing. Last year, we saw that consumer interest was peaking across all segments. Customers were willing to deepen relationships with their existing financial service providers in exchange for services that could support their financial growth.

This year, Canadians continue to display a high degree of trust in their financial service providers. Additionally, personal banking customers show a greater willingness to share their data with new financial service providers that offer meaningful value propositions.

Here are the trending results seen across personal banking and SMB customers.

1. Security remains the most important factor when deciding to share data

It is imperative that organizations continue investing in security and educating their customers about this key priority.

Over the past three years, for every age group outside of the 18 to 24-year-old cohort, security has consistently been the most important variable in a personal banking customer’s decision to share data with their financial service provider. Even still, security is valued only 13% less for 18 to 24-year-olds than for the 55-plus age group, which has the highest preference for security. 

How can you capitalize on this insight?

• Build an Open Banking system with a security-by-design approach, and ensure Canadians are informed on how their data is being secured, to accelerate adoption rates.

2. Data sharing preferences have become more pronounced, with age-based nuances emerging

While trends show that personal banking customers are willing to deepen relationships with their existing financial service providers in exchange for meaningful value propositions, the ways in which organizations address these evolving preferences can build customer loyalty in a sea of evolving competition.

Personal banking customer preferences are solidifying year over year, creating new opportunities for financial service providers

Personal banking customers’ willingness to share data is increasing year over year among financial service providers where they already hold an account. In 2020, customers were approximately 2.5 times more willing to share data with their existing provider over a new one. By 2022, customers were nearly three times more willing to share data with a financial service provider they held an existing relationship with, compared to providers that were new to them.

What’s more, as age increases, customers express an increasing willingness to share data with a financial service provider where they already hold an account. Put simply, as customers age, they become more loyal.

What does this mean? Incumbent financial service providers have a large opportunity to sustain their customer relationships by successfully bringing new and innovative products to market based on the trust they hold with Canadians.

Customers are showing an increasing willingness to share data with other financial service providers

Across all age groups, Canadian banks remain the most trusted organizations. However, other financial service providers are gaining momentum. Since 2020, there has been a 20% increase in customers’ willingness to share data with big tech firms.

Willingness to share data with fintechs also increased steadily from 2020 to 2022 by approximately 16%. That growth was even more notable among 18 to 34-year-olds over the same three-year period, at 27%. For all other age demographics, willingness to share data with credit unions or other non-financial, traditional firms remained relatively the same over the period. 

How can you capitalize on this insight?

• As we move towards a system that promotes data portability, tailoring relevant value propositions and solutions must be top of mind to attract and secure customers in the 18 to 34-year-old demographic.

3. Divergent preferences among small and medium-sized businesses require distinct and targeted strategies

Small businesses are highly cost conscious, and this influences their choices

Overall, financial incentivization for sharing data has a far greater impact with small business (<100 employees) customers, who are highly cost-sensitive, when compared against medium-sized businesses (100 to 499 employees). In contrast, the data showed that cost savings would not be a key decision factor for medium-sized businesses unless they were materially significant (e.g., above 20%). This continues to reinforce the need for organizations to tailor offerings that require enhanced data sharing to these small businesses such that their value is expressed in relevant financial terms.

Medium-sized businesses value “beyond banking” services

When it comes to incentivizing medium-sized businesses, organizations must demonstrate how they will support their growth ambitions. In 2022, medium-sized businesses placed a higher degree of importance on integrating non-financial service offerings — or “beyond banking” services — in their banking experience than in prior years. In fact, these businesses valued integration of these services almost 20% more in 2022 than in 2021.

Products such as business metrics dashboards, benchmarking and app marketplaces were seen as comparable to a 15% reduction in cost. The data suggests that targeting this segment with these types of services is more likely to have a greater impact than financial incentivization.

Small businesses can benefit from education on “beyond banking” services

While current products offered by financial service providers in the Canadian market today are weighted towards medium and large businesses, we are starting to see an uptick in the number of organizations developing strategies that target small businesses and the emergence of a digital banking segment geared towards them.

However, the data suggests that small businesses value these services 30% less than their medium-sized counterparts. Data from 2021 and 2022 pointed towards a lack of understanding in the value these services could provide for a small business. For example, while 20% of small business customers said they spend more than 20 hours per month reconciling payments and an additional 20 hours or more on cashflow management, they equate “beyond banking” services with less than a 10% saving in cost.

As a result, coupling tailored products for the small business segment along with the right customer education strategy could be a strong recipe for success.

Small and medium-sized businesses’ willingness to change providers is evolving

Further, the impact of this market activity is perhaps a key contributor towards the changes we are witnessing in small and medium-sized businesses’ willingness to change providers.

While small businesses are showing a decreased willingness to change, medium-sized businesses have become more willing to change providers if it means better services or fees. From 2021 to 2022, medium-sized businesses showed an 11% increase in willingness to switch, as they are looking for the highest financial value and are willing to swap providers to get it.

How can you capitalize on these insights?

• Financial service providers should continue to tailor offerings requiring enhanced data sharing to express clear financial value for small businesses.
• To generate stickiness with medium-sized businesses, organizations should consider “beyond banking” services that foster data portability to eliminate friction points that exist today.

Summary

Understanding consumer data sharing preferences is key to developing the right strategies to deepen customer relationships and maximize the full potential of Open Banking in Canada.

By putting consumers at the core of Open Banking strategy and designing value propositions with key customer personas, expectations and values in mind, organizations can create a meaningful path towards growth in this new frontier in financial services.

Additional contributors: Jo Lim Fat, senior manager, Business Consulting at EY Canada; Aditi Kapoor, manager, Technology Consulting at EY Canada; and Geetanjali, senior consultant, Technology Consulting at EY Canada.