A report by Which? In 2017 revealed that 92% of people have never heard of open banking. You may not be aware of what this new legislation is, but open banking could change how you manage your finances.
What is open banking?
Open banking is an initiative led by the Competition and Markets Authority (CMA) to change how banks handle and control your financial information.
In short, open banking will mean your financial providers have to share your financial information (this includes balances, transaction history and spending habits) with third parties, so long as you give them permission to do so.
These third parties dubbed ‘account aggregators’ access your financial information through your bank, building society, loan and credit card providers and compile all your balances and transactions in one place, often in an app.
Several money management apps existed to provide these ‘account aggregation’ services long before open banking came into play. They accessed your financial information through a technique called ‘screen scraping’.
Whilst this is a tried and tested technology, the new legislation will prevent companies using this technique to compile consumers financial information in the future.
Before 13th of January 2018, there was no regulatory financial institution keeping tabs on these money management apps, but now, any company hoping to provide these aggregation services through open banking will need to be authorised by the FCA with all the governance, security and protections this provides to the customer.
How does open banking benefit me?
There are clear benefits of this new legislation and at OpenMoney we’re thrilled that financial services are evolving to make managing money easier and more transparent for customers, something we’ve always championed.
We hope that the ability to see a single snap-shot of your overall financial position in one place and better compare financial products will allow people to get a better understanding of their finances.
Many of these apps (like our app OpenMoney) also allow you to analyse your spending across accounts and create budgets and savings goals for the future.
What are the risks of open banking?
I couldn’t use phrases like ‘open banking’ and ‘your financial information shared’ without addressing the security concerns that consumers will no doubt have about these account aggregators. After all, our banking information is always something we’ve been told to keep to ourselves.
As scary as it sounds, the truth is that there are very strict safeguards in place to keep your money secure:
No company can access your financial information without having your express permission to do so
Your banking log-in information provided to any money management service should be encrypted to at least the same level as your online banking service - do not provide these details to any services without reassurance that this is the case
As I mentioned above, any company attempting to use open banking to access your financial information must be authorised by the FCA.
If you’re not keen on the idea of sharing your financial information, you don’t have to. As long as you don’t give any third parties permission to access your data, nothing has to change for you.
We’re really looking forward to seeing how open banking encourages innovation and competition in the finance industry.
The choice and transparency can only lead to better outcomes for consumers, as long this isn’t at the expense of customer security and confidence.