The idea is that by sharing this information, customers will be able to access the best deals for their needs and manage their money better. It will also offer a new way to make online payments straight from your current account through a third party’s website or app.
Banks will share your data (but only if you want them to) using new software that talks to other companies’ software.
The UK launched its Open Banking initiative on 13 January 2018. It follows an inquiry into the banking industry by the UK competition watchdog, the Competition and Markets Authority (CMA).
The CMA found that older and larger banks do not have to compete hard enough for customers’ business and that smaller and newer banks find it difficult to grow.
This means that many people are paying more than they should and not benefiting from new services, the CMA said.
The changes force the UK’s nine major banks and building societies (HSBC, Barclays, RBS, Santander, Bank of Ireland, Allied Irish Bank, Lloyds, Nationwide, and Danske) to share your financial data with authorised providers when you ask them to.
Australia is another country which has announced a similar Open Banking initiative.
Data is released in a secure, standardised format.
With more access to customer data, financial technology (fintech) companies will be able to develop and challenge the big banks. This will in turn spur these established players to improve their technology and customer service.
How it works
Say you want to share your data with an app that could analyse your spending to help save you money.
After downloading the app you’d give your consent to share your data. You’d then be redirected to your bank’s online banking site where you’d log in to your account. Your bank will carry out security checks before providing the app with a history of your spending and income.
The app might then, for example, suggest a bank account with a higher threshold before overdraft charges kick in, and provide a link for you to start switching to the new account straight away.
Before Open Banking was introduced, apps required users to give them their banking password in order to log in and access their financial data. But now that banks are building new software that can communicate more directly with the app, only the bank and the customer need to know the password.
Remember, you only have to share your information if you want to. If you want to continue banking as you always have, you can. There’s no requirement to opt out.
And even if you’ve given your consent, you can withdraw it if you change your mind.
Third parties who use Open Banking to access data must be authorised by the UK Financial Conduct Authority or an equivalent European regulator.
Be careful that any organisation you choose to share your information with is who they say they are; fears have been raised that fraudsters will use the changes to their advantage.
Open Banking complements the European Union’s Second Payment Services Directive (PSD2) rules aimed at modernising Europe’s payment services, which also came into effect on 13 January 2018.
Part of the directive dictates that the EU payment market must be opened up to companies offering payment services, based on them gaining access to information about the payment account.