What You Need To Know About Open Banking

What Is Open Banking?

What can be expected of Open Banking

• An Improved Service From Banks
• Improved Tools And Features From Third Parties
• Simpler Borrowing And Credit Acquisition
• Bank Loans Can Be Easier To Ascertain
• Fight Fraudulent Transactions
• Save Money By Removing Unnecessary Subscriptions And Expenditure
  
  

What Is Open Banking?

Open banking was introduced in January 2018 by the Competition and Markets Authority. It was hailed as a revolutionary feature of modern banking that set to change the way things are done. But what exactly is open banking? 

Open banking are new rules requiring big banks and building societies to offer individuals a safe and secure method of sharing their financial data and transaction information with third-party organisations and companies. At the time of writing, the nine biggest banks and building societies are enrolled with plans to secure the participation of more companies/banks in the programme. This data can include such things as:

• Your spending habits
• Payments that you make regularly (standing orders, direct debits)
• The companies that you use for your banking needs, credit cards, or savings accounts

For a third-party organisation to be allowed to view your financial data using Open Banking, they will first need your permission. Once you have agreed to give the third party organisation Open Banking access, they will then be able to offer their services.

The ultimate goal is to save the consumer money whilst also helping them learn long-term money management skills via apps and new products. In addition, open banking was put into place to create more competition between banks and financial institutions, hoping to cause innovation and technological advancements in the sector.

Examples of Open Banking:

Budgeting apps designed to help you manage your money by actively monitoring your spending habits, direct debits and more. To do this, Open Banking access to your Bank Account will be required.

You apply for a personal loan, and the lender needs to make sure the loan is right for you. For the lender to check your spending, income, and current financial status, the lender may request your bank statements for past months or perform a credit check. Some lenders will request Open Banking access so they can assess your financials with updated data and ensure the loan is affordable.

You can withdraw your Open Banking permission at any time, and you do not have to agree to Open Bank. However, that may mean you will not be able to access certain providers or services.

What can be expected of Open Banking 

An Improved Service From Banks

Open banking will inevitably put a lot of pressure on legacy banks. This is because Open Banking (by way of users) could, in time, lead customers towards switching to challenger banks who have a more consumer-focused way of operating, or favourable terms and conditions, or both. This pressure could force the big banks to improve their services, adding new features whilst also modernising their Services to compete with the newer banks/apps/software available via Open Banking.

Improved Tools And Features From Third Parties

With the increased openness and transparency, app developers and those in control of the development of applicable third-party software will have greater scope to develop more valuable tools and features for consumers to use. This may also give rise to new apps that can offer consumers more money management methods, new ways of saving and budgeting.

Simpler, Faster Borrowing

The process for assessing a person loan application can be time-consuming and involve a lot of paperwork. For example, a lender may request additional information such as bank statements and then manually check these. Open Banking can help automate much of the process, while providing the data lenders need to make a responsible decision faster.

Bank Loans Can Be Easier To Get

The details of this point are similar to the above, with open banking, instead of submitting or having lenders analyse masses of data such as bank statements. The lender can pull all the information that they require from your bank or credit card supplier. This can be combined with additional data and checks where needed, such as credit checks. This way the lender can be confident they have up to date information and a complete picture of the applicant financials to ensure the loan is affordable.

Fight Fraudulent Transactions

The advancements in software may well be employed in the future to protect consumers against credit card theft and identity fraud.  Currently, Open Banking can help organisations verify applicants are “real" and who they say they are. Checking things like addresses, bank account ownership and more helps fight fraud and identity theft.

Save Money By Removing Unnecessary Subscriptions And Expenditure

A final (but by no means last in terms of the actual scope of open banking) point regarding the potential benefits is that it may give rise to software that can help to highlight unnecessary monthly subscriptions that you are perhaps not using or that you could be paying less for.

Conclusion

Open banking has got many people, companies, and affiliate FinTech businesses excited for the future of banking and personal finance management. It is entirely up to you as the consumer to use open banking as you will be sharing your financial data with third parties. With any decision-making regarding your financial products, ensure you have researched to feel comfortable with your decision. 

If you are cautious about sharing your data and protecting your finances from online scams, you may find our guide “How to identify an online scam” interesting.