Simplifying switching
Using open banking data to assess affordability and switch tariffs
Smart data schemes build on open banking’s data sharing principles and trust framework to allow consumers and SMEs to share data to relevant third parties – in sectors ranging from energy, telecoms, home-buying and fuel – to benefit from cost savings.
The schemes have been proposed by the Government, and considered by the Smart Data Council, of which OBL is a core member. The council was established by the Department for Business and Trade (DBT) and one of its early objectives was to tackle the ‘loyalty penalty’, making it easier to switch providers and shop around for cheaper bills.
Tackling the loyalty penalty
The loyalty penalty is the difference between what loyal and new consumers pay for the same service. This is currently calculated at £1,114 a year for households across mobile tariffs, mortgages, and broadband services.
Open banking's data-sharing capabilities also enable utilities providers to better forecast demand and adjust supply, minimising wastage, and optimising resource allocation. These enhanced data insights can lead to improved customer segmentation, which is essential for developing competitive pricing strategies and innovative service packages that meet evolving consumer needs.
For example, budgeting apps such as Snoop and Emma use open banking APIs to access and analyse a user's financial data before offering personalised recommendations for more cost-effective utility options, including mobile and broadband services. By examining spending patterns and usage data, these apps can suggest the best times to switch providers or highlight deals that align with the user's consumption habits.
Open banking data can also enable fast and efficient affordability checks and facilitate the switch to cost-effective utility tariffs, particularly for financially vulnerable consumers.
Cost-effective tariffs for consumers
For consumers, open banking-driven affordability checks help to ensure that individuals and are on tariffs that match their financial capabilities. This proactive approach helps manage monthly expenditures and safeguard against the risk of arrears.
E.ON and United Utilities are two utilities providers which have pioneered the integration of open banking solutions to enhance billing systems and support vulnerable consumers.
In 2019, electricity company E.ON introduced a pilot scheme to test customer appetite for sharing open banking data for affordability assessments. The pilot aimed to reduce the length of time it takes to help customers in financial difficulty and to make it easier for those customers to engage with the company.
E.ON’s customer service agents sent out a link to customers to enable the assessment, and where appropriate, switch to the affordable tariff, often in the space of a single call.
The pilot was a success, and use of the process was also extended to other customers who could benefit from longer-than-standard debt repayment terms.
Water supply company United Utilities also used open banking to verify customers’ affordability in near real-time, as well as improve customer experience of this journey. By accessing customers' financial information (with their permission), the company can offer tailored payment plans and emergency support, helping to prevent service interruptions and supporting those who may be struggling financially. The firm’s 2023 Open Data Strategy revealed that 45% of customers who were offered the option to use open banking accepted.
The administrative benefits also paid off for the water firm, reducing a three-week paper-driven process to an online experience of about 7 minutes.
