Your Guide to Open Banking

Posted by Jamie Mackenzie Smith in Personal Finance on 15 January 2018

On 13 January, the UK banks embarked upon arguably one of the biggest changes to personal finances since the introduction of computers. Open Banking aims to make it easier for banks, lenders and consumers to access and share information, with a view to creating new products and opportunities through innovation and increased competition.

The UK’s biggest banks had been given the mid-January deadline to facilitate access to certain types of data, following a year of collaboration and development.

Behind the scenes there’s been a lot more to it than that, involving the way your personal data is handled and distributed, making sure that your data is secure at all times.

How does Open Banking work?

Open Banking takes the tried and tested principles of data sharing to assess your information and put it before banks, lenders and prospective companies. In theory it should make the process of switching accounts and applying for products that bit faster, as all your information is available for the bank or lender to view.

Example:

Say you’re shopping around for a mortgage. Unless you're signed up to Open Banking, you’ll have to fill in all your personal information, provide proof of income and potentially have to pass further checks for each mortgage lender you approach. With Open Banking, this information could be available for lenders to see at the press of a button (as long as you have given permission), so you’re not having to provide the same details over and over. This not only saves you time, but will cut down on the processing time taken by the lender.

A particular aim of the initial launch is to make it easier to switch current accounts, with the average account switch rate at around 3%, according to the CMA.

According to the EU Commission, benefits for consumers include:

  • Eliminating surcharges like booking fees on most card payments
  • 8 weeks unconditional refunds on direct debits
  • Reduced costs to customers in the event of fraudulent transactions
  • Better protection from more secure payments

This also paves the way for new money apps to open up. The full potential of Open Banking isn’t likely to be realised for a couple of years, partially due to the fact that app makers still need to experiment with the platform, but also because it is launching with some limitations in place to keep it easy to maintain. Initially the service will only assess data from current accounts, but other products are likely to benefit from Open Banking’s functionality in the future as more people, companies and start-ups adopt the platform.

What if I don’t want my personal information shared?

That’s fine too - you have to opt in to Open Banking, rather than opt out. If you choose to use any money-managing apps, they may prompt you to grant permission for them to access your information via the initiative.

You can also opt out whenever you like, but you will probably lose any app functionality that involves your financial information in doing so. On top of that, you’ll need to re-confirm your authorisation every three months, preventing un-used apps from making payments or accessing your information without your consent.

Are there any drawbacks?

It’s difficult to say initially until Open Banking has been around for a bit longer, what issues will be faced in its early days; that’s not to say the finances of early adopters are in danger, but speculatively, things are rarely perfect on launch.

As with any new system, it’s likely that there will be issues to sort out, such as compatibility issues between specific apps and lenders, as well as security and verification teething issues. In fact, five out of nine banks signed up won’t be ready for the 13th of January launch due to issues getting it to work with their system, so you may not be able to use it right away.

Inevitably, this ease of accessing user information will be used by companies to make it easier for them to market new products to individuals and as some consumers might find the extra knowledge unnerving. Better product targeting isn't necessarily a bad thing, but it does present yet another way for your own data to be used. It just means as ever, it’s worth doing your homework before making any big commitments.

Really, it can be viewed as a two-way street: it’s easier for you to find deals and apply for credit, but it will mean giving consent to share more of your personal information.

How is it regulated?

All companies that want to take part in Open Banking need to be authorised by the FCA to ensure that consumers are treated fairly. Security will be at the forefront of developments too, as those involved seek to overcome natural consumer concerns. Given that a driving desire behind the initiative is to encourage innovation - particularly amongst start-ups, it's important that over-regulation doesn't itself become a barrier to participation.

Open Banking has come about to comply with a European-led legislation to enhance customer protection, while encouraging competition between companies called Second Payment Services Directive (PSD2).

Ultimately, data security is at the heart of Open Banking, which is why it has to be so heavily regulated. But as with anything 'new', consumer trust and engagement won't be universally forthcoming from day one.

In summary

Open Banking is still very much in its infancy and its full powers and usefulness are probably a couple of years away from being realised. As more and more people and companies start to adopt the system, it’s only natural it will grow and change to adapt to this.

There are undoubtedly going to be some exciting developments that change the way we think about finance, but we also shouldn’t expect to see them happen overnight.

How To Get The Best Car Finance Deals

New car sales may have slowed in recent years, with the economy, emissions scandals and Millennials all being cited as the root cause at one point or another. But the number of people choosing to use credit as a means of driving away in a new car continues to rise, according to figures from the Finance & Leasing Association which shows that the new car finance market grew by 15% in July 2018 when compared to the previous year.

Published on 8 Oct 2018 by Kiah Phillips

Full Article

We're Now More Likely To Be Borrowers Than Savers

UK Households are now more likely to be borrowers than savers, with savings at their lowest since 1963, according to a study by the Office for National Statistics. Households are increasingly borrowing more – by taking out loans, car finance, and mortgages – than they are collectively depositing into savings accounts.

Published on 5 Oct 2018 by Sam Griffin

Full Article

The Credit Crunch 10 Years On: What’s Changed?

For many people, especially the those lucky enough to not have been old enough to be directly affected, the economic downturn of 2007-2009 seems like a distant memory. The first iPhone had launched a mere two months before the recession hit, and since then they’ve rebooted the Spiderman film franchise not once, but twice. But more importantly, has enough time passed for the borrowing/lending market to revert to its old tricks?

Published on 26 Sep 2018 by Jamie Mackenzie Smith

Full Article

The Limitation Act 1980 and Debt Time limits

The majority of credit consumers believe that once a debt has been acquired, that debt will remain until the full balance has been cleared regardless of the length of time passed. This may not be the case though, thanks to a little-known piece of legislation known as the Limitation Act 1980.

Published on 19 Sep 2018 by Erika Bone

Full Article

UK Households More Likely to be Borrowers Than Savers

UK Households are now more likely to be borrowers than savers, with savings at their lowest since 1963, according to a study by the Office for National Statistics. Households are increasingly borrowing more – by taking out loans, mobile phones, car finance, and mortgages – than they are actively depositing into savings accounts.

Published on 3 Sep 2018 by Sam Griffin

Full Article

Wonga Administration: What it Means For You

On Thursday 30th August the payday lender Wonga filed for Administration, following a spike in compensation claims and increased pressure on the payday loans industry. This follows a steady decline in this form of lending since the FCA began introducing stricter regulations 2013 in the name of protecting consumers.

Published on 31 Aug 2018 by Jamie Mackenzie Smith

Full Article

How a Baby Name Can Affect Creditworthiness

A lot of preparation (and usually arguing) goes into choosing a baby name – books, ‘top 100’ lists, place names, family names – the list of possibilities is endless. The trouble is, most parents don’t give much thought to the long-term impact of the name they decide on, beyond checking to make sure it doesn’t sound ridiculous when paired with the last name or that when put into initials it doesn’t spell something unfortunate.

Published on 19 Aug 2018 by Jamie Mackenzie Smith

Full Article

The Advantages & Disadvantages of Store Cards

There are a number of reasons you might take out a store card: whether you’re just waiting in-line at the shop and find out you can save on today’s shopping or they offer the promise of making money in the future, these cards regularly find their way into wallets (or phones via an app). Most big retailers offer their own cards, which allow you to take your purchases home – often with a nice discount applied – without having to part with a penny at the till.

Published on 10 Jul 2018 by Tom Blandford

Full Article

What Happens To Your Credit Report When You Move Country?

Moving from one country to another results in a lot of changes and new things – a new place and culture, new job, new people and in some cases even a new language. However, one thing lots of people do not realise is that you will also be starting afresh when it comes to your Credit Report. Credit Reports and the information they contain are country-specific and do not follow you from one country to another.

Published on 27 Jun 2018 by Kirstie Day

Full Article

What To Do If You’re a Victim of Data Breach

Another day, another high-profile data breach, with the morning news bringing word of another leak of personal information that affects millions of consumers. This time it’s the turn of Dixons Carphone - the company behind PC World, Currys and Carphone Warehouse.

Published on 14 Jun 2018 by Jamie Mackenzie Smith

Full Article
keyboard_arrow_left

keyboard_arrow_right

We are rated number 1 for customer service on