‘Open banking’ the next financial revolution
Next week will see major changes to managing money matters on the move, says Gareth Shaw
My mobile phone, much to the chagrin of my wife, is permanently in my hands. As much as i try to put it down, the lure is irresistible – from the latest breaking news alerts, a vast library of tunes and flicks and a seriously addictive bubble-popping game where the goal is to rescue pandas (don’t ask), I can’t quite seem to part with my device.
When it comes to managing my finances, my phone is now essential. Looking at the meticulously curated folder of apps called ‘Finance’, I can log into three different bank accounts (two of which are exclusively mobile-only), manage my savings, check my credit score, invest in my stocks and shares Isa, calculate my tax bill and buy car, home and travel insurance.
In fact, it’s hard to remember the last time I did any of these financial activities on a desktop computer.
On 13 January, what I can do with my money on my phone (indeed, on any device online) is going to be turbocharged, thanks to a new initiative called ‘open banking’. The rather unsexy name belies its promising capabilities – indeed, the likes of the Competitions and Markets Authority, which has ordered banks to offer this to customers, believe that open banking could revolutionise the way we interact with our financial providers and access products and services.
Now for the technical bit. Banks will soon be able to share customer data by publishing what’s known as ‘open APIS’ or application programming interfaces – essentially a data feed of all your transaction history.
The aim is to encourage innovation and improve competition, by making it easier for you to hold multiple accounts and compare or switch financial products. Ultimately, it could allow you to manage all of your financial accounts and household bills through a single digital platform, with the option of allowing apps to ‘plug in’ and offer more personalised and intuitive services. For example, an app might help you avoid charges or boost your savings by automatically moving money between various accounts. Open banking could also spur action in other markets, by encouraging you to look at your energy or phone bills.
I’m intrigued to discover what the boffins in the UK’S digital world have created to support open banking. Ostensibly, any tech firm – Amazon, Google, Apple, you name it – could put their considerable skills and resources behind developing apps and services that could make them, not your bank, the primary source for managing your finances.
In the run-up to this major initiative, I’ve played around with a few apps for one bank which has made its API available.
Starling Bank is an app-only bank that has partnered with the likes of Yolt, which aggregates all of your accounts into one place; Yoyo, which allows you to earn points and rewards for shopping with your Starling debit card; and Moneybox, which rounds up your debit card spending and invests your spare change into an Isa or investment account.
Other banks have been quick to embrace the upcoming changes. For instance, HSBC’S online-only brand First Direct has partnered with fintech company Bud so that customers can see all of their accounts in one place – including those from other providers – and make use of various moneymanagement tools.
HSBC has also invited 10,000 customers to trial its new app ‘HSBC Beta’ which allows you to add accounts from up to 21 different banks so that you can see all of your current accounts, loans, mortgages and savings in one place.
But the possibilities spread beyond account aggregation. You could share your data with your mortgage lender with a click of a button, getting rid of the need to send three to six months of bank statements and payslips. It would have a totally realistic view of your spending behaviour, meaning it could potentially offer you a more tailored mortgage deal or better rate.
So, what are the downsides? In a world of cyber-crime, hacks and data breaches, there is understandable anxiety about sharing sensitive financial information with third parties, especially over the internet.
Under open banking rules, third parties who collect and transform your data into something (hopefully) useful must be regulated by the Financial Conduct Authority, which means you have access to the Financial Ombudsman Service and Financial Services Compensation Scheme should something go wrong.
But, as we saw with credit reference agency Equifax’s recent data breach, regulated firms aren’t immune from cyberattacks. Your bank details hold all sorts of sensitive pieces of information about you – your habits, vices, political views and the details of your friends and family.
Indeed, consumers could find themselves in a complicated chain of providers sharing access to your data, with multiple parties potentially liable for loss of a personal customer’s data though error, attack, or fraud.
Indeed, the issue of ‘consent’ also needs to be looked at carefully, so that consumers understand exactly what they are agreeing to when they share their data. It will be down to financial and data regulators to work hard to safeguard consumers in this context, and build trust in these new services.
If it does, and enough people embrace it, open banking could harness a wave of consumer power, and truly unshackle us from the services that don’t deliver value for money by personalising how we compare and access products. Our relationship with our banks, the current guardians of our finances, could be steadily unpicked as we manage our finances in new environments.
So, it looks like my new year’s resolution may well be to spend even more time on my phone. Just don’t tell my wife.
‘Open banking’ could revolutionise the way we interact with our financial providers and access products and services