What is Open Banking?
New rules have been introduced which mean that banks must allow you to share your financial info with other authorised providers. What is the reason for the introduction of these new open banking rules and what does it mean for our finances? In this guide, we will take you through everything you need to know about open banking.
For some time now, you have been able to allow third-party providers, like apps for budgeting, to access your account data. As of the 13th of January 2018, you are now fully protected when you do so, providing your provider is authorised.
If you are with any of the big banks for your bank account or savings, you will probably have received a letter, email or text in the last few weeks explain that the terms and conditions will change on the 13th of January 2018. This has caused much confusion as people are becoming worried about these changes and what they mean. To ease your worries, aim to clear everything up.
The Opening Banking Low-Down
Open Banking refers to the series of reforms implemented as to how banks deal with your information concerning your finances. This was called for by competition watchdog the Competition and Markets Authority (CMA). Alongside this came the new regulation, ‘the second Payment Services Directive’ (PSD2).
Essentially, these all mean collectively that all UK-regulated banks will now have to allow you to share your own financial data with authorised providers offering budgeting apps or other banks, so long as they give you permission. This data could include your spending habits, regular payments and companies which you use. In other words, you bank, credit card and savings statements.
The reasoning behind these changes is the hope for more competition and innovation in the financial services industry. In turn, it is hoped that this will lead to far better and more choice of products for you to manage your money by.
An example for you: you are now able to connect your bank account to an app which has the ability to track your spending habits and even recommend a new product like a credit card or savings account to save you a lot of money.
You will be able to share data from any ‘payment account’ which you hold; credit cards, current accounts, prepaid cards and savings accounts. However, in its infancy, open banking is aimed more towards use with a current account.
The rules will only apply to the accounts which can be accessed via the web and you will need to connect your own online banking with a third party so it can access your data.
What if I do not want to share my data?
Just because of this new rule around open banking, it does not mean in any way that you have to share your data if you do not wish to.
The rules simply state that the banks have to let you share your information only if you want to and if you give permission to the new provider. No one can look at your accounts without this explicit permission.
Every single provider has to ask for your direct consent in order to access your information when you sign up to whatever it is you sign up to. This provider will then send a request to your bank, your bank will then process the request and share your details since you have given permission. You are also entitled to withdraw your permission to access the data at any given time.
If you would rather stay banking the way you are doing at current, you do not have to change and no one is going to force you to do so. Remember, if you are uncomfortable with sharing your data with third-parties than you do not have to do so.
How do I check if a provider is authorised?
To check if a company id authorised, you can check on the FCA Register. Providers should have it written somewhere on their app or website as to whether they are authorised, along with a registration number.
As of present, it is still unclear how long it will take for each provider to become authorised.
Is my data safe with Open Banking?
As long as you make sure that the provider is authorised, they will only be able to access the data which is relevant to the service which you have signed up for. For example, if you asked a provider to look at your current account with a particular bank, they would not be able to look at your savings account or credit card unless they have permission to do so. And because you only gave access to your current account, they will not be able to.
In addition, all providers are required to comply within thru les of data protection. The provider should alert you before you commit to signing up which data they will use, how long they will do so for and what they will do with it. If you have any doubts, hold off sharing your data and do some background research on the provider.
Should I use Open Banking?
Whether or not you choose to use open banking is completely your own call. Open Banking will potentially revolutionise how you are able to handle your own finances.
If you discover that you are happy to share your data with third-parties in the hope of budgeting better and getting better deals, then open banking id for you. With the new rules providing a safeguard for you, you should be better protected.
Nevertheless, you do need to be careful when it comes down to sharing your data and do not just share it with anyone because these new rules are implanted to protect you, they do not apply to unauthorised providers of course. You will only be protected by your bank if something were to go wrong when sharing your data with an authorised company.
Since it is still the early days, it is not yet certain if open banking will be a success or not, but it does certainly provide more financial freedom.