Open banking: A fresh way to manage money
ABANKING revolution started this month – but you may well not have noticed it yet. Open banking has been described as a quiet revolution, as its full impact will only be felt over time, but the implications could be huge.
It could eventually transform our money habits and how we budget, as well as how we search for products like current accounts, energy and broadband, for example. So what exactly is open banking – and how could it help you?
The initiative launched on January 13, with major banks coming on board. In a nutshell, open banking will allow you to share information about your banking history with firms other than your bank or building society. This information will be shared securely, so you won’t be passing on your banking passwords.
Sarah Coles, a personal finance analyst at Hargreaves Lansdown, says: “The change is likely to spark a boom in apps that will help people manage their money.” Why might you want to do this?
The aim is that it puts more power in the hands of the consumer to find the best deal for them, based on their actual spending habits. This could be a current account, or eventually it could be something else. Imran Gulamhuseinwala, Open Banking trustee, says: “New ways of managing money, of making lifechanging financial decisions, of paying for things, will appear.” What’s the background?
A previous probe by the watchdog Competition and Markets Authority (CMA), found many people could be significantly better off by switching banks to a deal which better suits their needs, yet many stick with their bank year in, year out. Open banking is part of wider moves to boost competition and make financial firms work harder to keep existing customers and attract new ones. How does open banking work?
It’s about making the most of advances in technology to share information securely, without you having to reveal passwords. It works in a similar way to the technology that allows people to sign into other online accounts using Facebook. Are customers forced to take part?
You don’t have to. It’s an ‘opt-in’ system. If you want to take part, you will need to actively give your consent. The aim behind open banking is that it puts the consumer in control of their information. How could open banking change how I handle my money?
Helen Saxon, chief money analyst at MoneySavingExpert.com, says that, as this is just the start of the process, there could be many benefits that haven’t even been thought of yet. “There are a lot of unknowns and likely many benefits we don’t yet know of,” she says.
If companies know what you’re spending on energy or broadband for example, they could analyse the data and guide you to better deals, she suggests.
Those behind the initiative say that, looking into the future, benefits you may or may not want to take up could include clever money management apps, as well as apps that monitor your account balance and give you warnings if you’re about to go overdrawn.
There could also be new ways of being able to see all your finances in one place, as well as current account comparison websites.
You may also find the process of getting a loan or a mortgage may happen more quickly if a lender has been given permission to see your banking information directly, rather than you needing to dig out reams of information yourself. I’m worried about fraud. How can I protect myself?
Only firms that are regulated and meet certain standards will be allowed to take part in open banking. The Financial Conduct Authority (FCA) lists regulated firms on its website.
In general, any concerns about fraud can be reported to Action Fraud, and if you think you may have been the victim of a scam you should tell your bank immediately.