Open banking has helped innovate financial services and improve customer financial planning and decision-making. But what exactly is it? We’ve got the answers.
Open banking is the sharing of financial data and services with third-parties like banks and financial services.
You can share data like your bank account information and transaction history. Many financial services and products use open banking, and the process gives you more control over your financial information.
Chances are you’ve been utilising open banking more than you think. Examples include:
In the UK, open banking is a government-led service regulated by the Financial Conduct Authority (FCA), so it operates under strict security and privacy standards to protect your data. Companies can only access your information with your consent, and you can revoke it anytime.
If you no longer want an app or website to access your data, you can either:
Like any financial service, there are potential risks with open banking. Here are some precautions you can take:
You can read more on how to stay safe online.
Before any data is shared, you must explicitly provide consent for the third-party provider to access your data.
Open banking allows you to share your financial data securely with third-parties through application programming interfaces (APIs).
APIs basically allow two providers to ‘speak’ to each other, passing the information you've given permission to share. The APIs are built with strict security measures, such as encryption, to protect data during transmission.
Open banking frameworks need regular reviewing and renewing of your consent for data access.
Thanks to open banking, you can view your account balances, transaction history and spending patterns across multiple banks in one place.
The idea behind these apps is to help you understand your financial habits better and make informed financial decisions.
Apps like Money Dashboard, Emma and Snoop utilise open banking to analyse your financial data and offer personalised budgeting advice, spending insights and financial goal tracking.
Open banking allows third-party providers to initiate payments directly from your bank account without using traditional payment methods like credit cards.
Using open banking, loan comparison platforms can access your financial data to assess your creditworthiness more accurately.
The idea is that it can help you find loan offers that match your financial situation and needs.
Savings and investment apps
Apps like Plum, Moneybox and Wombat can use open banking to analyse your spending patterns and automatically move spare change or small amounts of money into savings or investment accounts.
Credit scoring companies can use open banking data to build a more comprehensive and accurate credit profile.
Similarly, insurers can look at your other financial information to help assess what insurance premium to offer you.
Thanks to open banking, people can change banks easier. By granting permission to a third-party provider, you can easily transfer your financial data to a new bank.
You can see all that’s going on with your finances immediately and find where needs most attention, meaning you get a better experience.
It’s also easier to budget, shop around for the best deals and make payments quickly and easily from your bank or building society.
Prior to the launch of open banking, smaller banks often didn’t get a look in against their larger competitors.
Open banking promotes competition in the financial sector by allowing third-party providers to access customer financial data, meaning smaller providers have a better chance.
Lenders can benefit from open banking by getting a better view of a customer's financial situation.
Improved data can reduce the chances of customers who may struggle with repayments being offered unrealistic credit limits or loans.
Open banking has the potential to enhance inclusion by providing better access to financial services for all demographics, potentially bringing more people into a formal finance system.
Overall, open banking is there to give you a better financial experience.