Should you share your spending habits to save cash?
New rules let money-saving websites access your bank account history — if you agree. So . . .
THE idea that anyone other than your bank can go leafing through your current account, mortgage and credit card statements might send a shiver down your spine.
Yet this is exactly what happens if you sign up for Open Banking.
This new scheme allows all banks in the UK to share your financial data with other banks and authorised start-ups such as budgeting apps and moneysaving websites — provided you agree. This includes bank statements, credit card accounts and debts, including your mortgage.
Open Banking was introduced at the beginning of the year to encourage firms to do more to fight for your business.
It followed research by the competition watchdog, the Competition and Markets Authority, which showed that just 3pc of people switch current accounts in a year.
It was hoped that if other banks could access information on your spending habits and debt, they might be able to detail exactly why you could get a better deal from them. That should, in theory, enable them to make it seem more attractive to switch deals, helping to boost competition between banks.
But there are some major downsides to this banking revolution that can put your private life — and finances — at risk.
Here, we explain why it pays to be on your guard . . .
HOW OPEN BANKING WORKS
BEFORE anything happens with Open Banking, customers must give their consent for a third-party provider to access their accounts. Your bank will not give away your data without your say-so.
Software is then used to share customer information. It doesn’t allow direct access to a bank account, but it does release access to certain information. Banks and any app registered with the financial Conduct Authority (FCA) can make use of bank data, so they can analyse how you spend in order to tailor products to your needs.
They might use the information to make lending decisions, save you money on bills, tell you ways to reduce your overdraft charges, credit card interest or loan repayments, or simply help you to budget.
Some firms, such as lender Zopa, have used the new rules to speed up loan applications.
Zopa can now verify income automatically by pulling in customer data made available through Open Banking, rather than requiring applicants to scan in and upload documents.
When taking out a loan, as in the Zopa example, the company would probably need to see a snapshot of your current account only once, to assess if you can afford the repayments. But if you sign up to, say, a budgeting app, it will need ongoing access to your data to monitor your spending.
Crucially, Open Banking is something you have to opt into.
So if you do nothing, nothing will change in terms of who can access your financial details.
Should you choose to engage with Open Banking, you can change your mind and withdraw your consent at any time.
TOOLS YOU CAN USE TODAY
HSBC became the first big UK bank to release an Open Banking app. Using Connected Money, you can see your current account as well as online savings accounts, mortgages, loans and cards, whether with HSBC or a rival bank. The app groups your spending across 30 categories including groceries, shopping and utilities.
It also offers a spending analysis and ‘balance after bills’, which shows how much you have left in your HSBC current account until payday, once your regular bills have been taken into account.
Meanwhile, startups have been very busy, too.
Bean, a free service, connects to your bank and credit card accounts and highlights regular payments.
It also helps with suggestions for cheaper credit card deals, energy contracts, insurance deals and savings accounts. It claims the average Bean user saves more than £672 a year — visit usebean.com. Another is Smart-bill. This free app claims it will save you an average of £300 a year by trawling through your bank accounts and cancelling unwanted subscriptions and highlighting rising bills. It can find new deals for energy, insurance and mobiles, and alert you when policies need renewing.
RISKS TO WATCH OUT FOR
NATURALLY, there is some concern about security because Open Banking creates new opportunities for fraudsters. A recent study by YouGov research found 77 pc of people were concerned about allowing companies other than their main bank to access their financial data.
If your information falls into the wrong hands, it could be used to steal your identity or raid your account.
By knowing so much about you, it will also be far easier for fraudsters to trick you into handing over more information later, or to carry out a scam.
Consumer groups, including fairer finance and Which?, have expressed concerns.
James Daley, of fairer finance, says: ‘ There’s a risk of dealing with start-ups which might be in such a hurry to get their product out to market that they won’t have invested properly in security. With no track record, there’s no way of knowing if their offering is safe to use.’
There is a further risk to your money following an EU rule change. Under the Payment Services Directive, you are now allowed to share online banking log-in details and passwords with third parties, such as money management apps, that are not registered under the UK’s Open Banking.
This is a risk because you might not get your money back if you are scammed.
Banks have updated their terms and conditions to spell out that they may not reimburse you should something go wrong in this instance.
Mr Daley asks: ‘Will banks stand by victims of fraud? It’s a big worry.’
GUARD YOURSELF FROM DANGER
THERE are security measures in place to make sure our bank accounts are only accessible to those with authorisation.
Crucially, Open Banking does not mean handing over your online banking passwords, so even though you can consent to a third party looking at your statements, they don’t get an access-all-areas pass.
All third-party providers — that is, Open Banking apps — have to be approved by the FCA before they can appear on the open banking directory.
This means you can check that you’re dealing with a genuine company at register.fca.org.uk.
remember, you can withdraw consent at any time by contacting your own bank.
A YouGov study found that only 28 pc of UK adults were aware of Open Banking.
The younger generation — normally the first to accept innovation in banking — are less aware than older people. YouGov claimed only 14 pc of 18 to 24-year- olds had heard of it, compared with 39 pc of over-55s.