Open banking is widely recognised as being the biggest shake-up in the financial services industry for many years. Although many firms are still working on finalising their business models, there has undoubtedly been significant business interest and a high level of activity.

Open banking presents opportunities for innovative, exciting and highly valuable use of personal data to create brand new service offerings for the benefit of consumers, from money management tools to comparison websites.

However, news of data breaches appears in the headlines daily and the historic consumer message of "never share your data" still rings loud and clear in many people's minds. Coupled with a potential lack of understanding about how the technology behind open banking works, it is easy to anticipate a certain level of fear and uncertainty among consumers about the use of their data in digital banking products.

Consumer trust is key

This uncertainty is not just damaging for consumers, who risk missing out on the greater choice and innovation available through open banking, but also for the financial services industry as a whole. TLT's open banking report, Opportunity Knocks, found that almost half (49 per cent) of industry players are worried about the impact of high profile data breaches on consumer trust. Consumer participation in digital banking already requires a significant cultural shift towards seeing banking as something with exciting consumer benefits rather than just an everyday necessity. Add data privacy concerns into the mix and it becomes clear that consumer trust will be key to increasing the uptake of open banking services and winning customers in this new market.

A complex challenge

Building that trust is a complex challenge. Customers are being asked to open up access to their data at a time when large organisations are under more scrutiny than ever when it comes to their data practices and ethics.

Data ethics is by no means the "be-all and end-all" when it comes to building trust in new banking services. However, employing an ethical approach to the processing of personal data - and being able to communicate that approach to customers - is a crucial part of instilling enough confidence in consumers to enable them to engage.

The meaning of data ethics

UK Finance's excellent data ethics paper, produced in collaboration with KPMG, contains far more detail on the subject of data ethics than this blog allows; but briefly, data ethics means transparency. It means baking privacy into the design of digital banking products at the very start. It means thinking carefully about customers' interests and access to information. It means allowing consumers genuine choice over how their personal data is used and by whom. It means security. Above all, it means being open about your ethical practices and being able to reassure customers that their data is safe in your hands.

In the future, solutions such as 'data trusts' (digital platforms that allow consumers to store data in a secure hub and switch access to certain data on and off for different businesses) may help to facilitate ethical strategies by putting control firmly in the hands of the consumer and demonstrating openness and transparency. But this in itself begs the question: how do we trust the trusts? It seems clear that data ethics will remain intrinsically linked to trust in open banking products. Clear, robust and transparent data ethics frameworks are a vital step for businesses hoping to break into the digital banking market.

TLT are the sponsors of the SME Banking and Commercial Finance Conference on Wednesday 1 May in Belfast - Part of the UK Finance Festival.

As part of the conference, TLT will host an interactive session called Hot Topics for SME Lending discussing current trends within SME lending and practical considerations to ensure delivery of a smooth transaction. They will also appear on the Alternative Finance: Meeting the Needs of Millennial Business Leaders panel to consider how the lending industry is innovating in response to millennial's needs and expectations. Find out more here.