Whether you are using Google maps to order your Uber, signing into an app using your Facebook account, or watching a YouTube video on a different website, you may have realised your digital experience is becoming increasingly integrated. So, what is the banking sector doing to keep up?
In 2014, the Competition and Markets Authority (CMA) published two studies finding that, "essential parts of the UK retail banking sector lack effective competition and do not meet the needs of personal consumers or SMEs." As a measure to increase innovation within the retail banking sector, 13 January 2018 will see Open Banking’s second phase come into force.
The Open Banking website says:
- "At present, Open Banking technology enables organisations to easily compare Personal Current Account, Business Current Account, Business Loan and Commercial Credit Card products from banks operating in the UK. It also makes it simple for organisations to access detailed information – such as locations and opening times – on bank branches and ATMs."
For the second phase, the nine largest current account providers must let their customers easily and securely share their data with regulated third-party providers, if the customer asks them to. The banks will be publishing APIs that can initiate payments from and read the transaction history of Personal and Business Current Accounts, making it possible for third-party apps to act as a dashboard for a number of current accounts and become the main interface a customer uses for banking and payments.
Open banking can help banks improve their customer experience, while helping their customers manage their money. It could have a significant impact on applications for financial products, such as loans or mortgages; if a borrower's financial information can all be accessed from one place, the entire process of applying for and securing a financial product can be easier and more efficient. The initiative also aims to make it easier for customers to decide if they want to switch their accounts by comparing products and managing their accounts without having to use their bank.
What are the potential risks?
For one, there's a big question about opening up sensitive financial data. How can banks share this data with third-parties while making sure it remains safe? According to Open Banking Ltd., "The regulated third-party provider the consumer has given their consent to for sharing their data with, is responsible for ensuring any personal data they process, store or transfer is appropriately and securely protected." Customers can check the Financial Services Registry to see if a third-party provider is regulated.
Banks have also started to update their current account terms and conditions, with Co-op Bank, HSBC and Santander stating that it's the customer's responsibility to check that the third-party provider they want to use is authorised, potentially opening customers up to security risks.
When so much emphasis is placed on the customer knowing who they are giving their information to, the key issue is trust. Traditional banks are currently so powerful because of the amount of trust customers have in them. It can be hard for newer FinTech companies to develop this and make people comfortable with sharing such personal information, raising questions about just how much impact Open Banking will have in providing large high street banks with competition.
Increasing use of technology in the financial industry has created a lot of change, and it can be hard to know the impact Open Banking may have. Research from Accenture found two-thirds of consumers in the UK won’t share their financial data with third-party providers with 53% saying, "they will never change their existing banking habits and adopt Open Banking." However, challenger banks like Monzo, Atom, and Bud have been shaking up the banking sector and plan to use Open Banking to continue to do so.
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