Open banking is a relatively new concept which has been driven by the UK regulatory system in order to make banking fairer and easier for consumers to use. While it’s not fully implemented just yet, the majority of banks in the UK are now registered. This means you, as a consumer, have full access to all your financial information and most importantly, you can access that information in one place and at the same time. This helps reduce confusion, complication and the obstacles that arise from opening multiple banking apps, trying to manually collate the data and then applying the information you’ve gathered to your actual, real-life circumstances.
Currently, a lot of financial institutions use open banking to assess your financial situation and make decisions as to whether they should lend to you, what type of product would suit you best and if there are any adjustments that should be made to the current service that they provide you with. Financial services organisations can only access your open banking information with your direct consent, but it’s often in your best interests because by seeing your full financial picture, they can make accurate decisions. For example, not accepting you for a loan that you can’t actually afford to repay. We know having a loan application declined can be disappointing, but if you would be unable to repay the loan, it’s in your best interests.
Open banking was designed to benefit the consumer, but it’s not yet being used to its fullest potential. There are products starting to emerge in other markets which allow consumers to use open banking to not only manage their cashflow, but switch energy providers and even mortgage lenders if there is a better rate elsewhere.
This is all done via a mobile app and the comparisons to other providers are automatic, so you don’t have to manually enter any information or research different providers yourself. Because the service shows you how much you could be saving based on your specific and individual financial habits, it forces banks, loan providers and even energy companies to enhance their products and encourage you to stay with them. This may be through cheaper fees, better services or other incentives.
It may be a while before we see a similar service being rolled out across the UK, but it demonstrates the capabilities of open banking, and most importantly, as it’s free to the consumer, every demographic can access the service. As a result, regardless of income or economic status, the amount you pay for your financial services is as cheap as it can be based on how you use those services. This helps promote financial inclusivity and hopefully increases people’s ability to feel in control of their finances – something everyone deserves.
At the moment, there are a few neo banks that categorise your spending to help you budget from month to month, but these only show the payments made through that one bank account. So, for example, if you only use your neo bank to pay for train tickets, then the categorisation will imply that you spend 100% of your money on transport. This isn’t accurate or particularly helpful in determining how you could be budgeting better. Similarly, there are apps and websites you can use to compare energy providers and credit card rates, but these are usually generic comparisons and often involve you as a customer proactively conducting the research. With open banking, instead of generic comparisons, you would be able to compare services in line with your exact circumstances and a good platform would compare these services for you – and may even automatically switch your provider.
Although the current banking system may seem inclusive at the moment, there are many people out there who can’t access even a basic bank account, let alone mainstream credit. Plus, if you’re on a low income then paying for services to budget for you and find cheaper service providers might seem out of the question, even if it helps in the long run. Open banking aims to bring a fairer level to the playing field. Banks will need to compete for customer loyalty again, instead of assuming their customers won’t switch because it’s too much hassle. While it might take a few years, ultimately, open banking could reform the way everyone views their finances, and it could allow people to manage their financial life in a way that’s most suitable for them.
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