|Open banking: The money revolution nobody knows about|
It’s going to transform the ways you manage your money but you've probably never heard of it
Thursday 11 January 2018 18:20 GMT
Concerns have been raised that fraudsters could capitalise on the new development Getty
This weekend a major change in the way banks manage your data takes place, one that could completely revolutionise how we bank, who owns our financial data and which companies can offer us targeted financial services.
It’s called Open Banking and it’s driven by a new EU directive and new UK competition rules. Changes taking effect this weekend mean that banks will have to share financial data such as transaction history and spending patterns with other (regulated) third-party providers if the account holder requests it.
That might sound like baffling small print, but it could genuinely shake up the way in which you manage your money.
Instead of your personal data being something jealously guarded by your bank, you’ll be able to request that approved companies can also access it. That will mean they can help you analyse and improve your spending habits or simply just point you at financial services that better meet your needs.
But it’s not without its critics, and those critics argue that Open Banking will actually strip power from the consumer by creating complex chains of data access, making it harder to prove who was at fault if information is stolen.
Concerns have also been raised that fraudsters may capitalise on this development by tricking customers into sharing their login information under the banner of ‘Open Banking’.
Perhaps most alarmingly, though, very few people seem to have actually heard about it. As far as revolutions go, this one is remaining firmly within the palace walls so far.
Who needs it?
There has been some real fintech innovation in recent years and months. There are now apps that analyse your spending habits and save affordable monthly amounts on your behalf, and apps that drip-feed your money into your account so you don’t overspend (check out our favourite apps here).
With Open Banking, such apps can get your permission to use your data instead of relying on co-operation from the banks. It could allow innovative firms to develop app dashboards that list all your financial products in one handy place.
It could also make it easier for third parties to assess which bank account is best for you by actually analysing your use. For example, many of us have no idea how much our overdrafts cost us but a company that could access your account could provide far more clarity about cheaper alternatives.
Rachel Springall, finance spokesperson at moneyfacts.co.uk, says that this change could do far more than just make switching accounts easier.
She says it could be used to help get people approved for finance or to allow debt management tools to better recommend current accounts.
“One example of how the data could be used is for those consumers looking to save money for a specific goal who feel that they don’t have enough disposable income. Sharing their data with a budgeting app could uncover some unnecessary purchases and work out where they can save money, whereas before they may not have been as motivated to look deeper into their transaction history themselves.
“Using an app to easily see every account in one place will be helpful for consumers with multiple accounts from different firms.”
Those consumers who have actually heard about the Open Data revolution may well be worried about whether shared data will remain secure.
After all, ‘open’ and ‘banking’ are not two words that naturally go together in a world where people have to guard their financial data against fraudsters.
That reluctance could be key in whether new Open Banking rules herald a revolution or a slower, more hesitant pace of change. And that could allow banks a head-start in making use of the rule change.
“Open banking has the potential to transform consumers’ relationship with financial products, but it hinges on consumers’ willingness to embrace it,” said Jeremy Light, a managing director at Accenture who leads the company’s Payment Services Practice in Europe.
“Until new entrants to the financial services sector can earn consumers’ trust, banks can draw on their extensive heritage to secure an important early advantage.”
Some commentators have sought to reassure consumers by highlighting that Open Banking does not mean a free-for-all.
Springall says: “It’s likely that some consumers remain concerned about sharing their personal information or having it hacked. However, Open Banking was set up to create software and security systems that comply with the data security standards and protect any information. Data is to remain encrypted and any usage of information is tracked.
“Consumers would need to give companies their permission to access any data and then expressly authorise the bank or building society to supply it.”
Astonishingly, despite being one of the biggest developments in consumer banking in decades and one that could totally transform how we manage our finances, most people don’t know that anything is changing.
Back in September, the consumer champion Which? carried out a survey that showed 92% of the public had not heard of Open Banking.
What’s more, over half (51%) said they were fairly or very unlikely to consider sharing their financial data, even if doing so would mean they were offered more relevant products and services.
That reluctance was also apparent in a survey carried out by Accenture. It questioned more than 2,000 UK consumers and found that 69% said they would not share bank account information with third-party providers. In fact, 53% said they would never change their current banking habits and make use of Open Banking rules.
But Dave Tonge, chief technology officer at Moneyhub Enterprise, says that the data security will be at least as robust as existing security protocols such as direct debits, as well as having to be renewed every three months.
He says: “Technology is transforming financial services and will bring huge benefit to consumers, particularly in how they organise and take control of their finances, but one of the biggest barriers remains fear around sharing data. This reflects legacy issues within the sector and also how difficult banks have made it for consumers and new entrants including third-party money management tools.
“There is still…education needed to bring consumers up to speed with just how much Open Banking can improve their financial interaction, through monitoring spending and making better saving and investing decisions.”