Open banking shakes up personal finance

This week a series of new rules are to be introduced to promote ‘open banking’ the aim of which is to give the customer more choice on financial products. It’s one of the biggest changes to modern banking in years and means that customers will be able to share their personal information with companies other than their own bank, thus opening up choice and access to better deals on utilities, mortgages, overdrafts and unsecured loans deals.

Some hail it as a quiet revolution that will make the system more competitive and give customers access to the best products available to them. However, some are concerned about the implications for people’s private data.

The rules which apply to all current accounts from next Saturday could result in big changes for the banking market and for those who wish to switch accounts which stand at just 3% of the UK population at present, according to figures from the Competition and Markets Authority (CMI).

However in terms of public awareness, a survey by Which? found that 92% of people had no idea about open banking, so how will it affect customers?

But, so far, word of this quiet revolution seems to have eluded the public – a survey from consumer group Which? found that 92% of people had not even heard of open banking. So how will it affect customers?

So what exactly is it? Helen Saxon, chief money analyst at; “The idea of ‘open banking’ is that it opens up data on your banking transactions. You’ll be able to share it with whoever you wish, the idea being that if companies know what you’re spending, they’ll be able to analyse the data and guide you to better deals, or better ways you can use your money,”

So the financial data currently held just by your bank about how you spend your money will now be transferred to the customer, meaning that the account holders can now authorise access to this information by other companies. Furthermore, new EU rules underlying this, which will spread across Europe later this month, mean financial institutions must let customers share their data easily and securely. Nine UK banks are required to comply with the new rules, Lloyds, HSBC, RBS, Danske Bank, Barclays, Santander, AIBG, Nationwide and Bank of Ireland.

What it actually means in practice is that customers should be able to use the services of other banks and financial institutions more easily. As an example, your banking app will now contain all your accounts no matter who you bank with, a process known as “account aggregation”

Another major change is that now under open banking users will be able to authorise access to their banking data without having to provide login details, which is how all apps that manage money data currently operate.

The OBIE, which is the Open Banking Implementation Entity set up to deliver open banking in the UK, states that the apps can only use the details for the purposes they have been given.  It is very much up to the individual to decide what information they share and for how long.

Helen Saxon explains further; “There are a lot of unknowns. The law changes on 13 January, but that’s just the start. There are already a few apps, like those that aggregate all your financial accounts or scan your current account and work out how much you have spare to save, then save it for you, which will benefit. This is because you’ll no longer be breaking your banks’ terms and conditions by sharing logon details with a third party, so the risk of you having to pay for any fraud resulting from this sharing is removed.”

Chief Executive of Plum a financial app that analyses how people are earning and spending, Victor Trokoudes says that banking and financial products will become utilities or commodities as a result of the new rules.

“People don’t know what the cost of an overdraft is … something like 40% of people in the UK have an overdraft but it is completely vague as to what the cost of the overdraft is for these people. The overdraft does not have to live within the current account. It could be from another provider and throw money in your bank account when it hits a low limit and, effectively, will replace the overdraft from the bank.”

The new rules have been welcomed by consumer group Which? as it will effectively open up the market and encourage transparency and competition for that unsecured loan or overdraft facility.

Gareth Shaw from Which? said; “Switching rates are still relatively low and that is because people have not been able to see what is in it for them, personally, and open banking has the potential to do that, to personalise your ability to compare current accounts and say, ‘I’m £1,500 into my overdraft two weeks in the month, I am not getting the best deal, I’ll switch to the bank that does give me the best deal’. Or, ‘I am in credit by £1,000 every month, I am not getting the best deal from my new provider, I will switch to a new provider”.

It is also very important to emphasise that consumers are under no obligation to share their data. “The most important thing to say is: ‘This is just a thing you can do.’ No one will force you to share your data with anybody”, said Saxon.

However, whilst the feedback has been mainly positive, some still urge caution. Gareth Shaw stating that whilst consumers feel empowered by the ownership of their data, and the freedom to choose what to do with it, there may be some uncertainty and unease when dealing with non-household brand names.

“One of the things to be mindful of is that consumers could find themselves in a complicated chain of providers. If you authorise one third party to access your money, and if there are potential losses, where does that fall? I think data regulators and financial regulators need to be really clear with consumers about how that is going to work. In order for consumers to really engage with this, they need to be confident that there are safeguards in place to protect them. There has been good progress on that.”

Saxon also adds that consumers should be aware that the information they get from a third party app may not be very impartial. “They may find you an energy deal that saves you money, but there’s no guarantee they’ve searched the whole of the energy market to find the cheapest tariff. They may just offer deals from companies who pay them for new business”

A spokesman for the OBIE says that all third-party companies which use open banking will have to be regulated by the Financial Conduct Authority and registered with them on a directory.