Open banking is an increasingly used term, and it can be a daunting concept if you’re not clued up on the newest technology hitting the financial services market. Open banking launched in the UK in January 2018 after the legislation was implemented to enable open banking practices. It is a powerful new technology that is constantly advancing, to aid not only businesses but individuals as well, by making it easier and clearer to view financial information.
Whether you’re looking for a cash credit line or a new bank account, open banking could help to ensure you are only offered products that are suitable for you. It’s only natural that you might have questions, however, given that technological services can be an overwhelming subject to research.
Open banking is a service that can combine all of your bank account’s transactional data into one platform, so trusted third parties, like banks and lenders, can view all of your transaction history, securely, in one place. It works by asking you to log into your bank accounts and consenting to sharing the financial information. Instead of checking several different accounts, your information is compiled into one easy-to-read source.
Bank security is a top priority for most people, especially as more and more banking services move to digital platforms. We all know the importance of keeping passwords and login information private, so it can be disconcerting when a website asks you to log into your bank account. However, the website never has access to your login details; the open banking service provider directs you to your bank’s login page, so you only ever use your login details with your bank. The open banking service provider needs your explicit consent to run the report, and it collects only the transactional data associated with your bank account. For things like credit applications, the consent expires as soon as the report is complete, which means neither the website nor the open banking service provider can access your data again without requiring your consent again. There are some cases where continual access is required (and you would be asked to consent to this before the connection was established) but you can withdraw your consent at any time.
There are also strict regulations surrounding open banking and the services that provide connections between firms and the open banking platform, so it’s as safe as any other kind of online banking process. There are some checks you can do to make sure your information stays as secure as possible online, for example:
Open banking is a powerful tool for many reasons, but one major benefit to both businesses and customers is that open banking results in a more accurate portrayal of an individual’s or firm’s financial transactions. For example, if you received your salary into one account, and paid all of your expenses from a different account, the bank or lender would see both your income and expenditure. This saves you time in explaining that your salary is paid into a separate account and reduces the chance of applications being declined because financial institutions can’t verify certain information.
Open banking also helps financial services organisations and advisors to recommend certain products. For example, if they were looking at offering small personal loans for people with bad credit, they would be able to view the customer’s full financial transaction history, and make better informed decisions about the appropriateness of particular types of credit. This benefits the financial services organisation as they reduce the risk of advising a customer incorrectly, and it benefits the customer as they are more likely to find a product that is suitable for their financial and personal circumstances.
Open banking has many uses, from aiding a creditor’s lending decisions, to helping customers know when to switch energy bill providers. Although it’s recently passed its fourth birthday, open banking still feels new to people in the UK and so there are some (understandable) concerns regarding security and fraud prevention, and how it actually benefits individuals. It’s only natural to have questions when something new appears, especially if you see it being used in your everyday life. It’s worth noting, however, that open banking is designed to help people with their finances and their financial decisions, by evening the playing field and aiding financial institutions in their decisions about providing certain services.
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