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Open Banking: What’s In It For You?

Open Banking: What’s In It For You?

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Open banking has heralded something of a revolution in the retail banking industry in the UK. It offers protection if you decide to share personal banking information with authorised third parties, and as a bank customer could offer you access to financial tools and resources that make money management easier.

The second Payment Services Directive (PSD2), introduced in January 2018, is a key part of open banking. It forces UK-regulated banks to allow authorised third parties, also known as regulated providers, to access your bank account information with your permission.

So why has open banking been introduced, and how might it affect you in day-to-day life?

Why introduce open banking?

An investigation into the retail banking market by the Competition and Markets Authority (CMA) revealed insufficient competition between the larger, more established banks and newer entrants.

It found that ‘traditional’ banks were not trying sufficiently hard to retain or win customers, whilst new banks were finding growth particularly challenging. The CMA wants the industry as a whole to be more competitive, and also to make better use of advancing technology for the benefit of customers.

What does open banking mean for you?

One of the drivers to introduce open banking was advancing technology, and its potential to help you manage your money more effectively using new products and financial tools built by app and product developers.

After they gain permission to access information such as your spending habits and the regular payments you make, authorised third parties can provide valuable budgeting tools to help you make the best financial decisions for your circumstances.

This naturally encourages innovation and introduces more competition to ultimately benefit customers. It could also signal the end of ‘traditional’ banks’ hold on the market. So what information might you share with an authorised third party?

Information sharing and open banking

If you use online banking, you can share information from your ‘payment accounts’. These are typically current accounts from where you make your household payments but could also include credit cards and other types of bank account.

You may decide to share information such as:

  • Bank transactions.
  • Account balances.
  • Regular payments such as standing orders and direct debits.

We already give permission for third party websites to access our personal information, a good example being a Facebook or Twitter profile. It is a similar scenario with open banking in that you have total control over who you authorise.

Crucially, you can also remove permissions via your online bank account or mobile banking app.  If you change your mind at a later date, or no longer need the service the third-party provider is offering.

How does open banking work in practice?

When you sign up to a third-party provider’s service, they request permission to access your bank account. If this is provided, your bank is contacted and the instruction processed. Each provider wishing to take part in open banking must register with the Financial Conduct Authority (FCA), or the equivalent financial body in Europe.

The FCA publishes a list of registered providers, with two different types of service being on offer:

Account information services

This could include budgeting assistance and being able to view all the information from different bank accounts in one place. It also includes receiving recommendations for financial products based on an assessment of your spending habits and history. They may recommend a particular type of credit card, for example, or a new account to maximise your savings.

Payment initiation services

Payment initiation services allow you to make payments directly from your bank account without having to use MasterCard or Visa as a middle man.

What are the potential benefits of open banking?

Open banking can help you find the best deals and most suitable products based on your financial habits and regular payments. It also provides a framework to help you budget and manage your money better.

From a security perspective, you won’t be asked to share any login details other than with your bank. You also remain in control of the process from start to finish. You can limit the access for third parties to a defined period of time and revoke it whenever you wish.

Are there any downsides?

One potential downside of open banking is the threat that fraudsters could gain access to your bank account information. Security of your data as it’s transferred and used by other firms is a legitimate concern. You would need to contact your bank to find out their policy in this event.

The new legislation is designed to offer protection if you are targeted, but it is crucial to ensure that the FCA have regulated any third party providers. You can search the Financial Services Register online or the Open Banking Directory to find out.

The main point to remember about open banking is that you don’t have to allow any third-party access to your bank account. It’s a system that only works on express permissions and could, in theory, help you make the most of your money.

www.gov.uk/government/publications/retail-banking-market-investigation-overview

blog.yoyowallet.com/open-banking-benefits

www.moneysavingexpert.com/banking/open-banking

register.fca.org.uk

www.openbanking.org.uk/customers/regulated-providers

By Ann Haldon

 

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