It’s been a long time coming, but on 13 January 2018, open banking officially arrived.
Since then, it has been greeted with scepticism by High Street banks and sheer, bare-faced ambition by a host of emerging fintechs. However, it is still something of an unknown entity to the average consumer.
Used correctly, open banking could help you save more money and maximise your returns. Read on to learn how you’ll be able to benefit from the open banking revolution to be a smarter saver.
Open Banking at a Glance
At its heart, open banking intends to increase competition between financial markets by making it easier for savers to find the best deal. All banks are now required to use an Application Programming Interface (API) which acts to protect consumer information and shares some basic stats with third parties.
Simply put, this means that any customer of any bank can use their everyday account to keep tabs on any other investments and savings which they have. For instance, a Danske Bank customer could use their usual Danske app to keep track of an NS&I bond, a MarketInvoice IFISA, and an IG ETF, all centralised in the one place.
With all of this financial information available at a glance, savers can make increasingly informed decisions about their spending habits, bill payments, savings and investments. Furthermore, a number of fintech companies have begun to offer free comparison services for open banking users, ensuring that savers are always being shown the best deal.
For instance, Smart Bill has announced an intention to use open banking to “solve” the £4bn subscription trap in the UK by launching a service that automatically sources the best deal for their customers’ bills. Similarly, online mortgage broker Trussle will help homeowners find the best deal on their mortgage, in an effort to “simplify and speed up the mortgage switching process”.
“This is particularly important in eradicating switching inertia, which we know to be costing around two million UK homeowners around £10bn a year,” said Trussle’s Chief Executive Ishaan Malhi.
In addition to this, current accounts, savings accounts and investments (including ISA-eligible investments) can also be tracked through open banking, with banks legally obliged to tell customers if they are able to get a better deal from another provider.
And already there are signs that open banking will lead to more competitive rates for savers, and better deals on loan products.
Compare the Best Savings Rates in the UK
Opportunities in Open Banking
Recent research from Temenos found that eight in ten bankers see open banking as an opportunity rather than a threat, and 62 per cent said they would be prepared to distribute third party products through their platforms and channels.
This suggests that traditional banks are confident in their ability to compete with the best deals on the market and may even see open banking as an opportunity to prove their value to customers.
“Open banking is the beginning of a new era in which banks will increasingly leverage their strength in their distribution network and their existing infrastructure for transactions, partnering with consumer-friendly and data driven start-ups that can revolutionise the last mile delivery of financial services,” said Benedetta Arese Lucini, co-founder and chief executive of Oval Money, a personal savings and financial education app.
“Today, the consumer experience is cumbersome, but open banking APIs will mean a faster, easier and more seamless service across all providers.
“This will make the benefits of regular saving available to even more people with the opportunity to deliver customised solutions for underserved groups of users.”
While the open banking revolution promises to give savers a more active role in their financial management, most consumers will benefit by simply doing nothing.
High Street banks across the UK have already started partnering with fintech firms to offer new services such as robo-advice, paperless mortgages, and credit card apps. And after a prolonged period of low interest rates on savings accounts, there are signs that open banking could force banks to offer more competitive returns to both new and existing customers.
In theory, this means that open banking has the potential to revolutionise the savings landscape.
But in reality, only three banks are currently able to offer full open banking services. Allied Irish Bank, Danske Bank and Lloyds Banking Group are already offering these services to customers, but Nationwide, Barclays, Bank of Ireland, RBS and HSBC will not be ready until March.
Until then, savers will just have to manage their finances the old-fashioned way – by keeping track of their spending habits and searching for the best savings rates.