‘Open banking’ still a closed book for many
Revolution hasn’t been won, but there is a market for apps making it easier to keep tabs on our money
It was hailed as a ‘revolution’ – an initiative that would shake up the banking industry and give us more choice and more control over our finances.
It would be a catalyst for innovation, transforming the way we interact with financial providers and products.
No idea what I’m talking about? You’re not alone.
We’ve just reached the twoyear anniversary of ‘open banking’, the grand plan unveiled by the Competition and Markets Authority (CMA) to break the stranglehold of older, larger banks and give smaller providers a chance to reinvigorate the market.
Yet it’s fair to say it still hasn’t had the disruptive effect the CMA might have hoped. In fact, nearly three-quarters of people haven’t even heard of it, according to recent research by Which?.
Under the rules introduced in January 2018, you’re now able to give permission for other companies to access your current account and credit card data. This doesn’t mean handing over your login details; instead banks can share feeds known as ‘open APIS’ – short for application programming interfaces. The idea is that approved third parties, such as budgeting apps, are able to ‘plug in’ to the information that was once accessible only to you and your bank, and use this to provide more personalised services.
What this looks like in practice could be anything from an app that shows all your financial accounts in one place, to one that boosts your savings by automatically shifting money from one account to another, or one that helps you to find the right mortgage for you.
Of those who had heard of open banking, only 4 per cent have used an open banking ‘account aggregator’, allowing them to view multiple financial accounts in one app.
In an effort to raise awareness, innovation foundation Nesta is running a competition to showcase companies using innovative solutions based on open banking.
The 15 finalists include Moneybox – which rounds up your debit card spending to the nearest pound and funnels this cash into a savings or investment account – and Kalgera, which is designed to help protect your loved ones from fraud. It can send alerts when unusual activity is spotted, without giving you access to their account.
Toucan works in a similar way, by connecting your bank account to a friend or relative and sending an alert when it spots a warning sign. You can set what these are – when your balance drops under a certain amount, for example.
There’s also Canopy, a rentreporting platform that tracks your rental payments and reports these to the credit reference agency Experian. Rental payments are not usually recorded on your credit report, so this service gives you the chance to build your credit worthiness (ie your chances of being accepted for credit products such as a mortgage) by creating a track record of keeping up with payments.
Nesta’s shortlist is a neat reminder of how much potential open banking has. But our research found that the fundamental idea underpinning it is a barrier – 65 per cent of people we surveyed said they’d be unlikely to share their financial data, even if it meant getting financial products and services that were more tailored to their needs.
This isn’t all that surprising, given the ever-increasing anxiety about data breaches and our information falling into the wrong hands. But these third parties using open banking are arguably no more vulnerable to breaches than the big banks – and, like the banks, they’re subject to regulation by the Financial Conduct Authority (regulated firms are listed at https://www.openbanking.org.uk/customers/regulatedproviders/)
Similarly, if you have a complaint, you’ll be able to turn to the Financial Ombudsman Service if you can’t resolve it directly with the firm.
Companies won’t be able to access your information without your explicit consent, and you can revoke this at any time. While the lukewarm response from the public so far means that open banking can hardly be declared a triumph, I’m loath to write it off just yet. The runaway success of app-only bank Monzo, which is hailed for its instant spending notifications and budgeting tools, shows there’s a big appetite for services that make it easier for us to engage with and keep tabs on our money.
And that’s just one side of open banking – as the Nesta shortlist shows, there really is something for everyone – savers, borrowers, vulnerable customers all stand to benefit.
This isn’t necessarily the case for the big banks though. If it were up to them, they’d happily keep your data all to themselves. This attitude has got to be partly responsible for low levels of awareness about open banking – the high street giants are unlikely to be shouting from the rooftops about something that could pose a threat to their market dominance.
The biggest hurdle to overcome, though, is the lack of trust. If the industry is able to demonstrate that not only are there tangible benefits to sharing your data, but that your data is also properly protected, there’s no reason open banking can’t deliver the revolution it promised.
The grand plan was to break the stranglehold of older, larger banks and give smaller providers a chance