The new open banking initiative launched in 2018 and, as it’s a relatively new concept, many of us might not be sure of exactly what it is and how it works.
Open Banking is a secure way of giving authorised providers access to your financial information through banks and third-party applications. The Open Banking scheme was put in place to improve the network of data sharing between businesses and to give customers a better view of their finances. The regime is also supported by regulators as a way of encouraging innovation and competition amongst financial institutions.
Regulated providers who are part of the Open Banking scheme will be able to access your financial information, such as your transaction history from your online banking account, but they will only be able to do so with your consent. You will always have the option to choose whether you would like a company to see your financial information or not before continuing with the process.
You can share data for any of your online payment accounts, such as your credit card, current account and even some saving accounts.
Some third-party financial institutions like online direct lenders will use the data shared through Open Banking to decide if their product is suitable for you. They may use this information as a verification check, for example to make sure that personal information like your name, matches the information that was supplied in an application. The provider will also have access to your banking activity so they can view all the payments coming into your account, as well as your regular expenditure and any credit facilities you are using.
Open Banking can be used for a number of purposes which can be beneficial for third-party providers and for customers.
One of the customer benefits is that financial providers can tailor their offering to suit your needs, ensuring their product is suitable and based on the financial information they can see about you. This means that they could be in a better position to provide you with affordable credit solutions and they are less likely to offer credit that you cannot afford.
Open Banking can also be used in conjunction with products like budgeting apps which group all your online accounts together in one place, so that you can analyse your finances. The information that is collated can then be utilised by the app to recommend suitable credit products or make suggestions on how you can improve your spending habits. It also makes for a more seamless banking experience as it enables users to see all their banking information in one place at the same time without having to switch to different apps.
We often fear the things we don’t understand and this can sometimes be the case when it comes to Open Banking. Whilst it’s a fairly simple concept to get behind once you’ve understood it, steering clear of something you are not sure about might be the favoured option for those that have no experience of the service. Better safe than sorry right? Thankfully, there are credible online resources available that can tell you more about how Open Banking works and how it may be beneficial for you.
A lot of us regard our finances as being a very private aspect of our lives and something which we aren’t always comfortable sharing with people, even those that are closest to us. We may feel embarrassed if we are struggling financially or aren’t managing our income responsibly. The thought of a company you don’t know being able to see all this information about your spending habits can therefore be quite daunting and so many might be put-off from opting into the service at all. However, think of it this way – Open Banking helps companies to get a better understanding of your finances and, in doing so, can help them provide a more affordable service for you. And they can only access your financial information with your consent.
So, this is the first time you’ve heard about Open Banking and now you’re wondering, is Open Banking safe? Knowing that your banking information can be shared quite easily between financial institutions can be a worrying thought and with fraudsters becoming more creative as technology advances, it’s reasonable to be concerned about how your data is being handled. After all, fraudsters can set up fake numbers, websites and use a whole host of sophisticated methods to collect your information, many times without you even knowing.
The reality is that anytime your data is being shared, whether it is making an online purchase, submitting a credit application, or even answering your phone, there is always a small risk of fraud. But rest assured, there are some ways to minimise these risks.
Open Banking is a relatively new scheme and so it can be difficult for customers to understand it at first. Put simply, Open Banking is exactly what the name suggests - an open way of banks and other financial bodies sharing financial data between themselves. Whilst this presents many opportunities for innovation and growth within the industry and can be a great way of managing your money, many might still have questions about the process.
There is no mandate that states all customers must use Open Banking, though some organisations have embedded it into their processes to aid in things like decision making, payment initiation and account set-up. It is your choice to decide if you want your data shared with a provider and if you are truly unsure, you can always decline the request whilst you do some more research.
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