What is Open Banking?
In 2016 The Competition & Markets Authority undertook a review into the UK banking sector and looked at the barriers facing new entrants.
For a long time, the major traditional players were able to put up high barriers to new entrants and it was felt this stifled innovation and choice for the consumer.
Open banking is something that is happening right now and could revolutionise how both businesses and individuals manage their finances, however, it remains something with a low profile and where the end user remains unaware of its potential.
How does Open Banking work?
I am no techie but I do understand a little about what an API is. An API enables data to be shared between one application (or piece of software) and another. If you have ever logged onto a website and chosen to log on with your Facebook or Google details then you have used an API.
Open banking is about taking the use of the API a step further.
Again, if you are a business you have probably already used this system many times without even realising. Open banking is about allowing your bank to share and accept information to and from a third-party. For many businesses their cloud accounting system will automatically import transactions from the bank account and your payroll software may allow you to generate your payroll in one system and automatically pay from your bank account.
These are common ways in which open banking works. A recent report from Forrester commissioned by Transunion showed a whopping 99% of businesses expect to benefit from expanded use of open banking and for a variety of different reasons;
This is where it gets really interesting. We are already seeing lenders link to the borrower’s bank account to enable them to import transactions and read how the bank account operates. This is cutting down on the paper records needed to obtain borrowing and cutting down the time it takes for borrowing to be applied for, accepted and completed.
We are also starting to see a glimpse into how open banking is improving the user experience. We are seeing the likes of Curve offer a single payment card that can be linked to any bank account, this saves carry multiple cards and simply allows you to choose which account the payment comes from by using the Curve app.
If you think that your own bank’s Internet banking or digital app is the only way to access your money then that may be a very dated way to think.
It will no longer be the case that you have to use your own bank’s applications. In the same way that you use an email client that suits you, you will use an Internet banking application that best suits your needs. A third party application can be used which can then draw in all information it requires no matter where you bank or how many different banks or card providers you have.
It is simply taking how we operate the rest of our digital lives and applying it to our finances.
Why Open Banking?
Put simply, it’s about enhancing the user experience and breaking down the barriers to new entrants. We all want speed and convenience in our modern lives, we all want things to work in a way that suits us.
Open banking removing the barriers and allowing new entrants to innovate in a sector that has resisted true innovation too long.
As well as enhancing the experience, open banking is about giving the data owner control over what happens with their data and how that data is shared with whom. When it comes to data controlling who has access is a key criterion, the Forrester report commissioned by Transunion showed that 88% are willing (to varying degrees) to share their data with banks, 80% with mortgage brokers, 80% with credit card providers, and 76% with credit reference agencies. The good news is that you can control who sees what and that consent can be revoked. An infographic by Transunion on this is available here.
The video below is from Openbanking.org.uk and gives a nice overview of how open banking works and will continue to develop in the future.
If you are not aware of open banking then it may be time to gem up and have a look at how it could make your personal and business life more efficient.
By Dave Farmer