Heralded as one of the ‘most exciting developments in financial services for years’, Open Banking launched on Saturday 13th January 2018.
Nine institutions – eight Banks (Allied Irish Bank, Bank of Ireland, Barclays, Danske, HSBC, Lloyds Banking Group, RBS Group and Santander) and one Building Society (Nationwide) – will be required from Saturday to share their data with third parties.
The aim of Open Banking is to increase competition and innovation with the hoped outcome being a more positive customer experience. With this innovation, customers will be able to see all of their accounts in one place as well as being able to access a range of other financial services online including financial product comparisons and budgeting tools.
How we pay for goods changed has little since the introduction of coins in around 500AD! Gradually cheques and credit cards were introduced over the course of the latter half of the 20th Century before telephone banking revolutionised the banking industry and how we, as consumers, made payments.
That ‘revolution’ seems tame compared to what was to come with chip-and-pin payments in the early 2000s and the arrival of the internet and e-commerce.
Online banking continues to grow apace with the development of mobile banking & mobile payment apps such as PayPal working alongside contactless payments. The expectation for a quick, smooth financial transaction has therefore been increasingly heightened.
Open Banking is now being seen as the next step in this evolution, not only heightening expectation, but heightening opportunity for innovators to provide personal financial management solutions, challenging the banks stronghold on offering such solutions. The data access will allow companies to gain insights into consumers financial habits, allowing them to focus in on providing them with value-added services away from their ‘normal’ bank.
It’s difficult to know how the consequences of Open Banking will pan out. Trust will be a major factor with uncertainty around how such data-sharing will be perceived. A key demographic will be the 60+ bracket, previously perhaps written off as computer sceptical, but now making up a quarter of the UK population thus representing the fastest growing internet user group with arguably the fastest expanding spending power.
It’s important to note that this sharing of data will not happen automatically. Customers need to ‘opt in’ in order to allow any third party having access to their data. Whilst this concept sounds concerning, due to the bank’s vast investment into protecting their customers data, it is claimed that your data would be no less safe than it is now.
So why do it?
In the future, it is envisaged that you will be able to view all your financial accounts on one app or platform, regardless of the provider. The theory is that if you are not on the best deal for one of these accounts, you will be notified of ‘better’ deals elsewhere that fit your income, expenditure and credit history. This will potentially remove the inertia that prevents many customers managing their finances more effectively, a factor banks hugely benefit from.
One thing that is certain, Open Banking will shake up the banking industry regardless of the consequences and it will be up to them – as well as all other financial institutions – to react and keep a pace with the latest revolution.