Unless you’re familiar with financial technology jargon, the chances are you might not know what Open Banking is, or how it affects you.
Here, we explain everything you need to know.
How does Open Banking work?
Put simply, Open Banking is a banking practice that enables banks to supply your financial data to third parties with your permission. Whilst it might sound alarming, the third parties won’t be able to make decisions on your behalf or be given any security information such as your log-in details.
The project has actually received significant support from the regulator as it is seen as one of the best ways to encourage competition in the banking sector. By having access to your banking data, it enables innovative companies to build apps and services around the information that banks and other financial institutions hold. Accessing your financial information can give these companies a much clearer understanding of how you manage your money, so they can provide you with more tailored insight, products and services.
What are the benefits of Open Banking?
The main advantage of Open Banking is that it means apps and other services can provide you with a personalised service, as they are able to access specific data about you from your bank. So, for example, if you sign up to a money-management app, they’ll be able to see how you manage your finances, and what you spend money on each month, so they can provide useful spending insight to you, improving their services and ensuring it’s tailored to your individual requirements.
The use of Open Banking can also make it easier for consumers to investigate and compare different financial products, such as current accounts, credit cards, and loans. Banks must make this information readily accessible in a computer-readable format, so apps and money management services can interpret it quickly and make recommendations.
The lack of availability of this detailed banking information was also deemed to be holding back competition in the banking sector, as innovative companies simply could not offer the same level of personalised services and products without the detailed financial information the big banks had access to.
Will my bank provide Open Banking?
Yes, it should – high street banks are required by the regulator to support Open Banking, so the big names such as Lloyds, Halifax, HSBC, Santander, Barclays and Royal Bank of Scotland all now enable their customers to access and share their financial information and bank transaction history.
Which companies use Open Banking?
Lots of money management apps use Open Banking. For example, Plum connects to your current account and analyses your income and outgoings to identify your regular spending patterns, whilst Chip similarly analyses your transaction data from your bank, and uses this information to automatically save money each month. You can learn more about some of the money-saving apps which rely on Open Banking here.
How safe is my information?
Providers who request your financial information via Open Banking (with your agreement) will never get to see your log-in information, so they can only ever view your information as ‘read-only’. That means they won’t be able to access your current account or savings, but will simply be able to see the transactions you make, and how you spend and save your money.
Most companies that use open banking are fully regulated and should appear on the Financial Services Register. You can check the Register here. It’s always worth checking the reviews of any apps you’re considering using, and read about the measures they take to keep your data secure before you sign up.