The introduction of Open Banking legislation is designed to open up a more streamlined, customer-centric future for personal banking. In a move that many within the finance industry have deemed revolutionary, open banking will offer consumers an unparalleled degree of control over their finances and data, whilst sparking a new wave of innovation and competition in the industry.
In 2016, The Competition and Markets Authority (CMA) concluded that the older, incumbent institutions within the finance industry retain a great deal of control over the industry. This monopolisation of the market was considered to be stifling growth and limiting access to smaller companies, whilst creating high costs and poor service for customers.
Central to the open banking revolution are a number of legislative changes in the UK and European Union. Most notably, the Second Payment Services Directive (PSD2) will require banks, building societies and other financial providers to let customers access and share their financial data with regulated third-party providers.
In conjunction with PSD2, the Competition and Markets Authority is forcing a number of the UK’s largest current account providers (including RBS, Barclays, Nationwide and Lloyds Banking Group) to comply with the new legislation by January 13th, and allow mobile and web applications to access financial data – providing the consumer is consenting.
How Does It Work?
The laborious nature of banking could be a distant memory under open banking. Instead of having to log into each companies services through separate apps and log-ins, open banking will pave the way for one individual website or app to provide a single point of access to all of your financial information, from current and savings accounts, to credit cards and investment portfolios.
Open Banking uses API’s (Application Programming Interfaces) to securely share customer information between trusted third parties. Allowing these companies to access financial data and transaction information and use it to offer additional products and services.
API’s are already used by many companies worldwide to offer integrated digital services. Apps such as Uber already ‘overlap’ with Google maps, for example, to provide a more extensive service and social media platforms such as Facebook and Instagram also overlap in their content and services. Open banking is the same idea, consolidating your banking into one compact, easy to use service.
To get financial guidance under the current system, consumers and businesses alike are required to hand over confidential banking information to each unique price comparison or advisory website, and this requires the process of signing in through your banking service. From that point onwards, you are essentially allowing a third-party to access your data, then act on your behalf when searching for deals.
Open banking cuts the red tape and streamlines everything into one comprehensive service. This opens the door for innovative and agile new companies, especially those with a focus on technology, to build entirely new services which put the consumer at the centre, rather than the financial institution.