Open Banking took effect in the United Kingdom just over three years ago. At its core, Open Banking is about secure and consumer-permissioned access to data—and that complements our core competency. It signals a transition of power to the consumer, allowing consumers to share their financial data with authorised third-party financial service providers to maximise their own financial wellness. But why were “Open Banking” rules created in the first place, and what does it mean for you and your money? Here’s what you need to know.
What is Open Banking in the UK?
Open Banking is a series of reforms initiated by the United Kingdom’s Competition and Markets Authority. These reforms were created in parallel with the European Union’s Second Payment Services Directive (PSD2), which also came into effect January 13, 2018. The goal of these initiatives was the same: To foster more competition and innovation within the financial services sector, which, in turn, will lead to more and better products to help you manage your money.
Thanks to these reforms, all UK-regulated banks have to let you share your payment related financial data (such as your current account and credit card transactions) with authorised providers offering budgeting apps, lenders, advisors or other banks – as long as you give your permission.
Why Does Open Banking Matter?
Open Banking is important because it enables a paradigm shift in how we interact with money. It enables you to tell banks to transfer your data to authorised providers in order to compare products or sign up for products more easily. It enables authorised providers to offer you more choice through open banking-enabled apps and financial and banking services.
These apps and services – which include budgeting, borrowing, saving, mortgage and credit-builder apps – work with online or mobile banking to make it easier to maintain your financial health and wellness by helping you:
- See all your finances in one place to better understand and improve your financial behaviours
- Make payments directly from your bank account
- Shop around for better deals
What is the Open Banking Standard?
The Open Banking Standard specifically refers to a UK initiative launched in 2015 by the Open Banking Working Group to explore ways that financial data can help consumers understand their finances and make smart choices. The Open Banking Standard relies on data being securely shared or openly published through Open Banking APIs that would let third party apps, such those developed by FinTech companies, access users’ data through their bank accounts.
Common Questions About Open Banking Explained
Is Open Banking Safe?
Open Banking is safe and secure. That’s because Open Banking uses application programming interfaces (APIs) to transfer data. Unlike the conventional secure data access method which requires you to share your login details with an app, Open Banking APIs let you control the data you share, with whom and for how long without sharing your password information. Moreover, Open Banking exists with the banks’ established and highly secure technology programs, providing another layer of security
Who Can I Share My Data With?
You can share your data for any ‘payment account’ you hold (including current accounts, credit cards, prepaid cards and some savings) with any authorised third party, as long you have given that company your permission. These third parties are regulated by the UK’s Financial Conduct Authority (FCA) and can be found on the FCA’s Register and/the Open Banking Directory You have the option to switch off Open Banking from your bank account at any time.
Which UK Banks Support Open Banking?
At the moment, the UK’s nine largest banks are required to support Open Banking, which include: Allied Irish Bank, Bank of Ireland, Barclays, Danske, HSBC, Lloyds, Nationwide, RBS and Santander. Other smaller banks and building societies can also choose to take part. That number is growing. To see the full list, take a look at the FAQs on the UK’s official Open Banking website.
What About Open Banking in the UK and Brexit?
The FCA made a few changes to its Open Banking identification requirements to mitigate the risk of disruption to services as a result of the UK’s exit from the European Union (EU) at the end of December 2020. Going forward, it’s expected the UK is likely to align with EU regulations where it meets the needs of its own internal market, and is predicted to use these regulations as a blueprint of its own, but adjusted to meet its separate needs.
Regardless of the UK’s relationship to the European Union, many argue the UK’s Open Banking standard is broader than the EU’s PSD2, and could therefore be used as a blueprint for other countries globally. While the road ahead isn’t entirely clear, it’s evident Open Banking technology will continue to drive innovation and competition within the industry, providing us all with more convenience and choice.
