It is safe to say that the 2007 financial crisis changed the way we conduct banking in the UK and continues to do so.
10 years on from the banking crisis, though the initial aftershocks have settled, many lessons were learned with changes still being implemented in the financial sector.
The changes to financial services can be seen quite clearly in the increased regulation of banks, with a raft of changes being introduced by the UK Government and regulatory bodies in the UK.
In this article, we discuss the concept of open banking in the UK and summarise the key things you need to know.
What is open banking and why is it being introduced?
Open banking refers to a new piece of legislation introduced by the Competition and Markets Authority (the CMA) which comes into operation in January 2018.
- It is being introduced to increase competition within financial markets and to provide consumers with more opportunity to source better deals.
- Open banking will require banks to allow third parties to access information about customer accounts.
- Opening banking is intended to apply to the majority of banking products, from savings accounts to ISAs and other retail banking products.
How will open banking work?
Banks will be required to implement technology that allows for the integration of customer bank accounts and enables third parties to access customer information.
Each bank will create their own Application Programming Interface (API) to the specification standards to enable this integration with other services.
A customer using a third-party provider may be able to access their account data to see the products and services offered by all their institutions in one interface, instead of only products and services offered by one bank.
Ideally you would not necessarily need to hand over any login data, and use unique encryption keys generating by the app.
How open banking will benefit customers
Open banking is no doubt a different way of doing banking in the UK. Some of the potential benefits customers could realise from open banking are:
Customers will have greater control over their money and can choose which financial products and services to subscribe to and which to leave.
It gives customers more choice, for example, a customer looking for a bank account could more easily compare account deals and select the account offering the best savings rates.
- Quicker financial transactions
Greater automation and streamlining of banking processes should speed up the amount of time it takes to conduct financial transactions.
Are there any risks?
Opportunities, as with everything else, also present risks. There are risks with open banking that customers and banks will need to safeguard against.
One of the key risks and areas of concern revolves around the security of APIs, which is a particular issue given recent incidents of data breaches and cyber attacks.
The public still remembers the financial crisis and not all sectors of the public or the customers who lost their fortune in the banking crisis have regained trust in the banking system.
The consequence of a data breach or cyber attack could be quite severe and may end up being too much a cost to pay for increased control and faster transactions.
Examples of Open Banking
Some banks have been dipping their toe in the water, with HSBC currently testing a beta platform, which enables customers to add up to 21 different banks.
Other examples do exist which have apps that you can download and use now.