The worlds of finance and technology have been converging for some time and have given rise to a new, booming sector called Fintech, which is changing the way we do things and our relationship with the way we manage money. Whilst much of the progress to date has been to support those in the industry – e.g. making it easier for systems to talk to each other and payments to be reconciled and settled faster – we have been building towards the development of Open Banking for UK consumers and businesses.

As the industry body leading the fight on this notes, “Open Banking enables you, or your company, to give companies access to your accounts so that they can provide new products and services to help you securely move, manage and make money available more easily and efficiently”.

What are the advantages of Open Banking?

With your consent, Open Banking allows banks to share the data they have on you – spending habits, payments and commitments and other pieces of information – with approved third parties. With access to such data, these third parties – of which fintechs are a good example – can provide users with services to improve how they manage their finances, deliver services faster and even save them money. The aim is to improve the overall user experience through increased personalisation, automate some processes that are currently slow and unwieldy and give the user more choice.

Take for example a mortgage application. Sharing data through Open Banking can make the whole application process much more streamline. By sharing statements and transaction data with mortgage providers, they can make a quicker, more accurate assessment of your income and outgoings giving the provider a fast and rich picture of your ability to service any given loan. As well as making the process faster, it makes it more robust too.

There are numerous other applications too; from helping customers to select the products of best fit (e.g. cashback credit card vs. rewards credit card) to providing real-time analysis of spending patterns, showing trends and comparisons (e.g. comparing what you spent last month on utilities or food, for example, with previous months).

On the flip side, data on spending patterns and income can also be used to offer support to people sooner, before they get into financial difficulties.

More socially inclusive banking

The other advantage of Open Banking is that it has the potential to help people access products and services that may previously have been denied to them. This is true of customers who find it difficult to prove an acceptable level of creditworthiness through a conventional credit rating and therefore find that services like credit cards and loans are out of reach. Even more essential could be its use in the private rental sector where banking data could be used to determine a tenant’s ability to pay where the applicant has had no prior access to credit.

What are the risks from Open Banking?

It’s important to say that banks can only share this information with your consent and you can opt out as and when you choose. You also have the right to ask any company to provide you with all the data that they hold on you.

Data is the new currency and financial institutions want it. Trust is crucial in financial services and a data breach of any financial institution now is not so much a poor headline but a terminal event. Companies will have to invest heavily in their information security platforms so as to comply with both Open Banking regulation and the forthcoming general Data Protection Regulation (GDPR) that will see firms fined heavily if they misuse or mistreat customer data.

Open Banking: AP-why?

Application Programming Interfaces (APIs) allow information to be shared via different applications. For example, Uber will use a Google maps API to show you where you and your cab are, while Facebook may use a weather website’s API to tell you to pack an umbrella when you leave for work in the morning.

These feeds have been in use for years but Open Banking will allow your current account data to be streamed to a credit card company so they can adjust their offers and rates to you better and will allow businesses to expand their consumer reach almost overnight.

Open goal

The banking sector needed to become more transparent and democratic after the Global Financial Crisis and these Open Banking changes are the foundations of allowing those modifications to be made. The businesses that use it well will succeed and their customers will benefit. Those who fail to use it properly, will not last long.