Understand how open banking could benefit you
What is open banking?
Open banking is part of a piece of European legislation known as the Second Payment Services Directive, or PSD2. This requires banks to open up their data to third parties, designed to boost competition and the variety of products in the banking, credit card, and payments space.
Open banking is the UK version of PSD2. The UK’s open banking regulations came into effect on 13 January 2018 and force UK banks to open up their data via a set of secure application programming interfaces (APIs). The aim is to improve SME access to finance, including improving the choices available and speed of an SME’s ability to change providers.
At the moment, only the UK’s nine largest banks and building societies must make data available through open banking. Other smaller banks and building societies can choose to take part in open banking. Those banks and building societies which currently offer open banking are:
- Allied Irish Bank
- Bank of Scotland
- Lloyds Bank
- The Royal Bank of Scotland
- Ulster Bank.
Other banks and building societies which will be joining open banking soon include Bank of Ireland, First Direct and M&S Bank.
Let’s look at five major benefits of open banking:
Open banking will allow the individuals that use different banks to see all their bank accounts at the same time, which should make it easier for them to manage their money. As well as being able to see all bank accounts in one place, banks are looking to add value for customers with a range of smart features such as spending analysis and ‘balance after bills’, which shows how much the customer has left in their current account until payday, once their regular bills have been taken into account. Other features may include savings rule suggestions to customers based on their spending habits.
Open banking will allow access to online income and spending history for the last 12 months, which should make it easier for an individual to take out a loan.
A ‘payment initiation service’ will allow providers to initiate a payment from an account held with another provider. Open banking should create a cheaper, more effective alternative to make payments. Open banking requires the UK’s big banks to support a new, simpler way of initiating payments bypassing payment gateways like Paypal or Worldpay and card processors like Visa and MasterCard. Because these middlemen take a cut of each transaction, the savings from direct bank payments might be passed along to consumers.
If explicit permission is given to a regulated app or website for small and medium business, open banking can bring the benefit of integrated accounting and tax services and fast access to capital by giving providers real time access to account information, instead of filing paperwork.
It is claimed that open banking is at least as safe as online banking. However, open banking necessitates that data can move around more freely than before and nefarious types will surely be scheming to get their hands on it. Customers will need to remain highly suspicious of emails, text messages, notifications, or any other correspondence which asks them to click a link or to provide personally identifiable data.
Article from ACCA In Practice