Open Banking: what it means for you
This week marks the next stage of the data revolution with the implementation of the Open Banking reforms. Part of the EU’s new payments regulations, these reforms mean that all banks and credit card providers across Europe must ‘open up’ their payment facilities and account information to other financial service providers – in other words, participate in ‘Open Banking’.
Essentially, it means consumers will be in control of their financial data and will be able to share it with FCA authorised third parties – only if they want to. This is a consumer-driven initiative allowing consumers to share their data – you won’t get pushed into doing this.
As anyone who has tried consolidating their financial assets such as investments, pensions, savings or credit cards can tell you, the process is cumbersome and disjointed. Open Banking has the potential to make this a much more reliable and smooth experience for customers.
The changes will mean that consumers will be able to see a single picture of their financial world, rather than having to piece together fragments. This will not only reduce paperwork, but also enable consumers to effortlessly track their expenditure, empower smarter money decisions, and clearly see how they can make their money work harder.
Instead of logging into numerous different websites or apps, it will be possible to have everything in one place. For example, you’ll be able to see at a glance if there’s a better rate available for your mortgage, credit card, investments or even energy provider. All of this information will be pulled together and analysed using smart algorithms and AI, powered by the Open Banking data. It will pave the way for digital assistance, filling the gap before face-to-face financial advice is required. Additionally, when seeking face-to-face financial advice, it will be much cheaper, faster, and less daunting.
Personal banking will also be revolutionised, with consumers having the opportunity to use websites and apps other than their bank’s own app to see and, more importantly, to manage their money. Once personal permission has been granted, these apps will have direct access to information from a consumer’s bank. While those granted ‘read-only access’ will be limited to viewing or using the data, those with ‘write access’ will also be able to help people move their money around.
Imagine being able to avoid a credit card charge by automatically sweeping excess money from a savings account. Going one step further, digital assistants will be able to spot when someone has not had to pay for their lunch one day and can then automatically invest the money that would have been spent. A free lunch and free money – this is the future.
The way we apply for credit cards, loans, overdrafts, mortgages, and any form of credit agreement will also be transformed. At present, the financial services sector relies on credit scores provided by credit reference agencies and the application process is often very black and white. While someone may think their savings account looks healthy as they spend sensibly and have not really borrowed money before, credit agencies can only create a credit score based on the information they can see.
This means that people may have been declined credit in the past for no apparent reason. Going forward, instead of relying on a credit score, lenders will be able to base their decisions on customers’ financial behaviour and lifestyle, using data that they’ve shared.
While sharing data might seem like an alarming prospect to some, it’s important to note that consumers wouldn’t be providing access to their bank accounts, and people can stop sharing at any time. Remember, data can only be shared with regulated companies. By sharing your data, you’ll have a much better chance of successfully receiving credit as lenders will have a more reflective picture of your financial lifestyle.
The reforms will also provide greater security for online payments. When shopping online, payments will now go from your account to the retailer’s account through a PISP (Payment Initiation Service Provider). This is a more secure, and faster way of making payments.
On Saturday, when Open Banking comes into effect, we will see a positive shift towards a more personal level of banking, with decisions based on consumers’ true financial lifestyle and no longer limited to non-personal data. This increased visibility should ultimately result in a higher level of financial wellbeing in the UK and a much better service for consumers.
Samantha Seaton is CEO of financial management technology platform, Moneyhub