Over the last decade, financial technology aimed at consumers has developed at a rapid rate. Whether or not you want to take out a loan online or transfer your friend money for a takeaway, you can now do it all from any smart device.
Since January 2018, Open Banking has meant that banks can now let you share your financial data with authorised third parties. What does Open Banking mean for you and how does it work? CashLady takes a closer look.
What is Open Banking?
Open Banking is a secure way to allow financial service providers to access your financial information.
With your permission, your bank can share your financial data with authorised third-parties who provide financial products and services.
What’s more, it paves the way for new services and products that could help you find better deals. For example, many providers of payday loans now use the data provided through Open Banking to:
- Perform affordability checks
- View transaction histories
- Verify incomes
This ensures a more streamlined service for both the lending business and the consumer.
You will be protected by your bank as long as you only share your data with a provider regulated by the Financial Conduct Authority (or European equivalents). These are known as authorised providers.
Do I have to use Open Banking?
It is your decision whether or not you share your data with any third-party providers. There is no obligation to use this new way of banking.
The rules are there to force banks to share your information with a provider, but only if you give permission for them to have your data.
When you sign up to an app or a website, you will be asked if you give that provider consent to access your information. They will then go to your bank to make the request for your data.
You can change your mind at any time and withdraw this consent.
What are the benefits?
Open Banking can result in better consumer experience, as it will help to increase the potential for new financial products. It could also allow people with less than perfect credit histories to obtain loans, based on their current circumstances.
Since a regulated website or app can have information about your bank accounts (if you want it to), you should be able to get a clearer picture of your finances all in one place.
For example, you could download a budgeting app which could help you to work towards cutting back on your spending or increasing your savings. With your current account information already there, it would give you a more tailored service.
If you have different bank accounts, it can be frustrating having to log in to multiple banks to check your balance. This also makes it more difficult to get a quick overview of your financial situation.
Open Banking means that all of this information could be on one app, so you can see your finances at a glance.
The same goes for price comparison websites. If you choose to let a regulated site access your current account information, the quotes you will get should be tailored to your financial circumstances.
Are there any disadvantages?
One disadvantage is that open banking is an opt-in, rather than an opt-out situation. So your account is not automatically enrolled. You need to consciously choose to share your information.
It’s also worth noting that the rules only relate to online accounts. This means that if you don’t use online banking, you won’t be able to share your current account information with third-party providers.
Another pitfall is it removes face-to-face encounters between you and your bank. This could lead to a potential break down of your relationship.
Am I protected if something goes wrong?
It is important to repeat that you will only be protected by your bank if you have shared your information with an authorised third party. Always be aware of who you are sharing your data with.
You should have your money refunded by your bank if you use a regulated provider and fraudulent payments are made.
Open Banking has the potential to benefit consumers by offering simpler, more efficient ways to manage your finances and find the best deals. Remember, Opening Banking is ‘opt-in’, so if you do not wish to share your data, you don’t have to.