The rise of open banking
January saw the introduction of new open banking law changes, which have forced the UK’s nine largest banks to open up their data to third parties licensed by the financial regulator at their customers’ request.
Transactions data is released by banks in a secure form, meaning if account holders give their explicit approval, third parties can provide services based on that data. Data is shared via application programming interfaces (APIs) – essentially, these allow secure communication between your bank and a third party. The rules only apply to accounts which can be accessed online.
The idea behind the changes is to bring more competition and innovation to financial services, resulting in a better experience for consumers. They open up a new market in providing insights based on consumer spending patterns. Potential sectors that could benefit include insurance – allowing access to your spending habits could affect your premiums – and money management, as shown by the rise of Yolt and other spending analysis tools. Apps could comb through your transactions and recommend credit cards, savings accounts or even energy providers that might save you money.
However, users should consider the full cost of such services. Whilst the consumer must give their express permission to any company wishing to access their information, these firms can then see their entire spending history. Some may choose to sell on any data insights they glean (so read the terms and conditions!). Essentially, the user pays in lost privacy, especially as many of these services are without charge. Consumers should also be aware that comparison information may not be impartial; an app that recommends a cheaper energy deal might not have searched the whole market, merely offering tariffs from a company that has paid them.
Open banking means the convenience of monitoring your spending is massively increased, but also that many more firms might know where, when, and on what you are spending. Whilst all firms requesting access to such data are regulated, it pays to remain savvy with your financial data.