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Open banking is here. The roll out of what is billed as “a better way to move, manage and make more of your money” – through allowing banks access to your financial data, ended on April 17 this year.
If you are still not sure what to expect from this new era of openness about your banking – and whether you are likely to benefit, read on.
The phrase refers to a requirement, set by the Competitions and Markets Authority (CMA), that if a customer of one of the nine biggest UK banks gives their consent, their bank must open up access to their account information to a third party. This could be a budgeting app, or another bank.
The nine banks that fall under the remit are Barclays, Lloyds, Santander, Danske, HSBC, RBS, Bank of Ireland, Nationwide and AIBG.
Under a separate piece of EU legislation – PSD II, which stands for Payment Services Directive II, other financial services providers such as credit card providers, business accounts and savings accounts are also required to open up data when customers give their consent. The two bits of legislation happened around the same time.
Why would you want to give another firm access to your banking data?
The third parties that are granted access can use a customer’s data to provide things like tailored price comparison information, or personalised budgeting tools. The idea is that better access to information can improve the way we buy financial services and make the products more appropriate. Some of the services it enables are laid out below.
But you don’t have to allow your data to be shared – it’s only if you give permission.
How does it work?
Open Banking is enabled by something called the “Open Application Programming Interface” standard, which you will hear referred to as “API”. According to the body that promotes the standard, it is a “safe and secure” way for financial data to be transmitted from one provider to another.
Do I have to agree to give my consent?
You are not obliged to give your consent. You would only do so if you wanted a third party provider – an app or platform, say, to use your data in some way that might benefit you. Check the terms (which should be easy to find) of the third party app or platform so you can be sure that your data is as safe as possible.
The Information Commissioner's Office provides useful information on how to protect your personal data and you rights. Find out more here.
Do they pass my data on to other third parties?
There should be a statement from the third party you are signing up to that it will not sell on your data, if that is the case. If you are in any doubt or can’t find the answer to your questions on the website – ask the provider to confirm.
Is Open Banking a good thing?
How much consumers actually stand to benefit remains to be seen, but there is a lot of potential for people to start making better financial decisions and to benefit from being more engaged with their day-to-day finances as a result of opening up access to different service providers.
The examples given by the Open Banking website www.openbanking.org.uk include:
- A current account comparison site that looks at the way you use your current account to recommend the best account for you;
- A money management app that gives you tips and advice based on your current account usage;
- An app that monitors your balance and warns you if you are going overdrawn;
- A secure website where you can see all your financial information in one place to give you a clear picture of your financial position, even if you hold products with different providers.
- Speeding up a loan or a mortgage application because you give the lender permission to see your banking information directly;
- Making it quicker and easier to set-up and make payments to retailers, directly from your bank account (instead of having to use a credit card/ debit card);
- A global view of your financial situation – information will be pulled from your different bank accounts and presented in one place;
- Finding the right financial products for you – it will allow third parties (e.g. a price comparison website) to pull your spending patterns / habits from your bank, analyse them, and recommend products based on this i.e. a cheaper overdraft, a better credit card
Am I at risk?
People are rightly wary of granting access to their financial data. It’s important to note that under the Open Banking terms, no one will be able to access any information without your express consent. However, there are fears that people might grant their consent without really understanding what they are giving consent for. [Don't just click agree if you're not sure of how your data will be used.]
As long as the company you are allowing to access your information is authorised by the Financial Conduct Authority, you are protected against fraud.
There is also concern about firms selling customer data on. [Such data allows companies to build up a very clear picture of a person, their interest and expenditure.] The quantity of information about you and your money habits is a valuable commodity. The ethics of data use is a fast growing area that is trying to keep up with even faster changes to technology.
If you are worried, you may be comforted by the stricter rules coming into force in May 2018 for how firms look after your personal data. The General Data Protection Regulation requirements are a step up from the existing Data Protection Act and will legislate to issue fines to firms that do not look after people’s data in accordance with the Information Commissioner’s Office guidelines (which you can find here).
In a nutshell
If you give your explicit consent, a financial services provider will be able to access your bank account information.
The idea is that this will make internet and mobile payments easier, help customers to manage their accounts and enable providers to offer more appropriate products for customers’ circumstances.