The Daily Telegraph - Saturday - Money
Cover charge Why insurers will love open banking
Small Print Sleuth
There’s nothing more annoying than shopping around for every service and utility we buy.
In today’s competitive world of price comparison the only way to ensure that you’ve always got a good deal is to switch every year.
But the time and investment required to do this for your credit cards, bank accounts, gas, broadband, insurance, breakdown cover and a million other things practically add up to a fulltime job.
Inevitably, most of us let a few things slip through the cracks – and end up paying twice as much as we might have done if we’d devoted our time to being good consumers and shopped around for everything.
All this may be about to change, however.
A few days ago saw the launch of a new project that has the potential to revolutionise the way we manage our money.
It’s called “open banking” – a name that gives the impression that perhaps it’s all about your bank account. In fact, it’s about so much more.
The main purpose of the open banking project is to allow consumers to be able to easily share their bank account transaction history with anyone they want to.
At first thought you may wonder why on earth you’d ever want to do that.
But by allowing comparison websites and other new pieces of technology to analyse the way you spend your money, you open up the potential for better, more targeted recommendations for the goods and services that you’re looking to buy.
If an app on your phone or tablet can see how much you spend on your energy, insurance, travel or even your morning cup of coffee, it may be able to make smart recommendations as to how you can save money.
At the very least, by being able to match up the way you spend your money with information that you supply about your age, postcode, family size and so on, these new apps will be able to tell you whether you’re spending more or less on various things than people like you.
At their most sophisticated, they should be able to fix you up with better deals – and make it easier than ever to switch and ensure you’re always getting a decent price on your biggest items of expenditure.
The reason open banking was devised was to help people better compare bank accounts. This will indeed be one of its most effective uses, as comparison websites will be able to give you a much clearer view of which bank will be best value for you if they can look at your transaction history.
If you’ve got an overdraft it can be all but impossible to work out which bank is best in today’s world. Each has a different charging structure: some charge interest, some levy daily fees, some give you a buffer.
But by allowing a comparison service to look at your transaction history it will be able to say, based on your behaviour over the past year, that this is what each of these banks would have charged you. That’s incredibly powerful.
What are the disadvantages? Well, you may be worried about the security of your data and fear that the new service will be a gateway for fraudsters, but that’s not keeping me awake.
The open banking team have built a robust system and the process of sharing your data will be just like logging in to your internet banking.
The change will inevitably give rise to a new generation of “phishing” emails that appear to come from reputable companies participating in the programme. But consumers are quickly becoming wise to this kind of scam – and only apps approved by open banking will be able to get access to your data.
As you can tell, I’m reasonably optimistic about the possibilities of open banking. But if I were pushed to identify some risks, the main one would be that people’s data is interpreted in ways that serve the companies’ interests more than the customer’s.
For example, there’s no prescribed way in which comparison websites will need to analyse data. It wouldn’t be difficult for them to make projections about your spending levels that, in turn, generated more recommendations for certain providers that paid them better commissions.
Perhaps more sinister is the idea of what will happen if insurers start to use this data. Admiral sparked outrage when it tried to start using its customers’ Facebook feeds to price insurance. But access to your bank account transaction history could be even worse.
Insurance pricing is all about statistics. So if analysis of customers’ bank accounts showed that certain spending habits indicated a greater risk, we could find ourselves being penalised for the way we choose to live our life.
From a bank statement you would be able to tell that certain customers spend a lot in bars on Friday nights, or deposit money in a gambling account, or buy a latte at Starbucks every morning.
These could all be used as reasons to increase – or lower – your premium on the basis of analysis of the claims history of other people who do the same things.
There’s never any nuance when data is used in this way. Even as things stand, insurance customers are often asked to pay more after being involved in a car accident that wasn’t their fault. That’s not remotely fair, but it’s based on the fact that people who are involved in an accident are statistically more likely to be involved in another.
It may be statistically true that people who blow most of their wages on payday are more likely to be involved in an accident, for example – but it doesn’t feel like a fair way to use people’s data.
The more advanced uses of open banking are some way down the road. And I suspect it will be many years before most of the population feel comfortable about giving their consent to a third party to see what they spend their money on.
Nonetheless, I’m looking forward to a time in the not too distant future when open banking will let an app do all the hard work for me when it comes to shopping around, leaving me safe in the knowledge that I’m always getting a good enough deal. Wouldn’t that be great?
‘I look forward to an app doing all the hard work for me’