Open banking gives companies access to a treasure trove of valuable financial information. But before they can leverage their customers’ data, businesses need to earn their trust and explicit consent.
Cardlytics offers a valuable lesson here. The company partnered with TrueLayer and loyalty giant Nectar360 to launch Nectar Connect, which uses open banking data to give customers personalised offers and bonuses based on their spending habits. The programme has already earned significant trust from consumers, with more than half a million sign-ups so far.
So what can other businesses take away from the success of Nectar Connect? Cardlytics Managing Director Duncan Smith and TrueLayer UK Country Manager Roger De’Ath offered their thoughts at this year’s MoneyLIVE Summit.
In a wide-ranging discussion, they touched on the opportunities of open banking, the importance of providing value to customers in exchange for their data, and why adoption has been growing at such a rapid rate.
The following interview has been edited for length and clarity.
Duncan, let’s begin with Cardlytics’ journey with open banking. Have you seen it as both a threat and an opportunity?
Duncan Smith: Just to give you a bit of background, Cardlytics has worked deeply with retail banks in the US and the UK since 2013, when we launched a rewards programme with Lloyds Banking Group. In the US, we have about 178 million monthly active users accessing our services, and a big part of our USP is the ability to see the spending profiles of those customers.
There are very few businesses that actually have access to that level of oversight. With open banking, the threat for us was that it would essentially allow other agencies to have access to that type of spend, albeit not in the US just yet. But we imagined they would follow in due course.
"I’m really pleased to announce that the Nectar Connect programme now has more than 500,000 consumers signed up. So this has been a massive success."
Roger De'Ath, UK Country Manager
Thinking about it, the opportunity is greater than the threat. We felt our business was well-placed to take advantage of the new open banking APIs, to use our capability in sourcing merchant rewards and our ability to clean data at scale to actually create something that could be used for the benefit of our banks. We realised that open banking could effectively turn a retailer into a bank, and that’s what led us to our partnership with TrueLayer, who supported us in the project with Nectar Connect.
The first obstacle we had to overcome was: will customers actually trust Nectar Connect, effectively a retail loyalty programme, with their financial information? Once we got beyond the stage where you had to key in passwords, and once OAuth [an industry-standard authorisation protocol designed to allow the exchange of information without a password] came in September 2020, we found the answer was emphatically yes. Since then, adoption has been fantastic.
Roger, can you tell us more about the technology that supports Nectar Connect’s customer journey?
Roger De'Ath: What we’re actually doing under the covers, via the consent the consumer gives in the app, is allowing the transaction data to be downloaded from their bank accounts and then seamlessly linking that with offers and rewards in a really personalised way. You’re only getting the information that’s relevant to you and the offers and rewards that are useful to you.
Cardlytics are our partner, as are Nectar360, but TrueLayer remains the regulated party. It’s our responsibility to make sure that the consents are properly given, that we’ve displayed the right information. But really, what that boils down to is trying to make this as streamlined and easy to use as possible so that consumers are really clear about what they’re doing, but the transition feels like it works.
On the back of that, I’m really pleased to announce that the Nectar Connect programme now has more than 500,000 consumers signed up. So this has been a massive success.
Is there a definable difference in the value that a bank can get from this opportunity compared to a retailer?
DS: The customer value is very similar. The exchange is that you’re opening up your data in a trusted way in order to access high-value rewards.
The proposition for retailers, interestingly, has a lot to do with digital engagement. Banks perhaps don’t realise how lucky they are in terms of the level of digital engagement they typically have. Most of our banking clients are getting a quarter of their customers turning up every single day, and 80–90% of them will turn up at least once a month. That sort of digital engagement a lot of retailers would really kill for.
"Most of our banking clients are getting a quarter of their customers turning up every single day, and 80–90% of them will turn up at least once a month. That sort of digital engagement a lot of retailers would really kill for."
Duncan Smith, Managing Director
Obviously, this turbocharges the Nectar Connect’s points-earning capability, but we think this has a lot of potential for banks as well. Customers really expect their banks to know them 100%. What we’re seeing since we’ve run this open banking platform is that we’re actually knowing an awful lot more about customers than perhaps we used to with just a single bank connection.
The use case that we put forward to our bank clients before was that you can start to see spend across the whole of that customer’s portfolio, and use that to incentivise our banks’ cards to be top of wallet. We’ve been doing that for years with our traditional loyalty programmes, but this takes that a step further in saying, “Yes, you can earn across all of your cards, but you’ll earn more if you do it against the host of the loyalty programme.” So I think there’s enormous potential there.
Roger, are you able to share some of the lessons learned and the challenges you faced when you were implementing open banking?
RDA: Open banking came from a need to increase competition and regulation. The largest banks in the UK, known as the CMA9, had to implement this. What we’re really pleased to see is although the CMA9 only represents 80% of customers in the market, in the UK today, over 99% of the retail customers can use open banking because essentially every bank has adopted it.
A big focus for TrueLayer was going from just following the legislation to making open banking as easy to use as possible. It was about moving from coverage to conversion. How many people actually get through and complete the journey?
In the UK, a big part of that has been on allowing biometrics — thumb print, face ID, these kinds of things — to scan in. We’ve also enabled app-to-app journeys, which basically means that on a mobile device, it just feels like you’re using one app in a very slick and seamless way. That’s really driven a large scale of adoption.
“A big focus for TrueLayer was … making open banking as easy to use as possible. It was about moving from coverage to conversion.”
Roger De'Ath, UK Country Manager
We’re now around 6 million active users for open banking in the UK as a whole. But there is a big hurdle still out there that we need to acknowledge. For data use cases, there’s a 90-day reauthentication. For good consumer protection reasons, you need to go through the entire journey again to reauthenticate your data.
We worked with Cardlytics and Nectar360 to try and smooth out that journey, to make it clearer for customers so they weren’t surprised they were asked to reauthenticate. That substantially reduced the churn we saw at 90 days. It’s a challenge, though, because even if you’re really engaged and you like the programme, you’re being asked to do it all again.
The really good news is that the rules are now changing so that people don’t have to do that full reauthentication. They just need to give consent in the app, and essentially say, “Yes, I’m happy to continue using Nectar Connect.” So that’s one barrier that’s really going to be fixed in the next few months.
What part do you see open banking playing in the future digital landscape across all institutions?
DS: For Cardlytics, specifically, I think there’s a huge opportunity for banks. They already know an enormous amount about their customers and their spend at different merchants.
On the other hand, merchants know a lot about what happens when the customers come into their stores. I think connecting those two pieces of data so you have the breadth in terms of what’s happening in the market, and the depth in terms of what’s happening in the basket, is tremendously valuable.
Check out our Data API to see how open banking can help you earn trust and transform your customer experience.