What is open banking?
With open banking services now on the scene, it won’t be long before a range of online apps targeting small businesses will be asking you to opt into their money saving, open banking services. But what is open banking? How do you use it? Is it really new? And is it really secure? Katy explains all …
What is open banking?
Open banking enables you to log onto one web site or app on your phone to see all of your accounts, your credit card, bank account and savings – in one place, even if they are from different providers.
It is a concept that has been mandated by the UK Government to give consumers more control over how we share our financial data. It is in line with EU rules and it is intended to make banking fairer by ensuring that consumers can automatically be made aware of alternative, more competitive bank accounts and other financial services
hink of it as having a ‘compare the market’ type app permanently scanning your financial accounts and transactions and making recommendations about where you can find better deals.
How do I use open banking?
You have to opt into open banking through the web sites of third party providers of open banking services in the first instance, rather than through your own bank’s app or web site.
When you do opt into open banking on one of these company’s sites or apps, you will be redirected to your own online banking login page, where you’ll enter your security details directly.
Crucially, you enter your log in details on your existing online banking app, not the new third party providers’ app and these details are not shared with the third party when you do so. Open banking never asks you to share your log in details for your bank with anyone other than your bank.
Once your bank has checked that the firm who has sent you to their open banking page is authorised, it will share your data with securely, but it will not share your log on details. This ensures that whilst the third parties can access and extract relevant data, they cannot access your account and use it.
Once you start to use online banking, you will see a list of any firms you've given consent to via online banking on your bank statements, and your bank will make it easy for you to stop sharing data with any of these at any time at any time.
What are the benefits of open banking?
Open banking makes it easy to find out what bank account is best for you or your small business. It makes it easier to hold multiple accounts and to compare or switch financial products too. Ultimately, you could be able to manage all of your financial accounts and bills on a single digital platform and to plug in apps that can help you avoid charges or boost your savings by automatically moving money between accounts. Such apps might even be able to find you cheaper service providers than the ones you are with, for example, your energy provider, your phone and your broadband provider.
Open Banking Ltd, the organisation set up by the UK’s Competition and Markets Authority to drive this initiative provides a more detailed account of the benefits of open banking to both personal and business customers.
Who can use open banking?
For now, personal and small business accounts are the only accounts open banking applies to. It will though, be extended to cover other online payment products, such as credit cards and e-wallets, over the next two years.
Is this really new? There are apps already out there that do this …
There are apps, such as Chip, Bud and Moneyhub, that allow you to share data across your accounts. Many though, ask you to hand over your bank log in details and to give them permission to ‘screen-scrape’ data from your accounts. This can expose you to fraud.
Open banking will not require you to reveal your log in details to anyone other than your bank. You will know exactly what is being shared and you can revoke access more easily than with screen-scraping apps. New open banking apps are more secure than the screen-scrape apps that have been around for a while.
Is open banking really secure?
Although open banking is far safer than existing apps that use screen scraping and require you to share your bank account log in details, there are still some concerns over data privacy, security and financial exclusion. To quote Which? Magazine:
“Even regulated firms aren’t immune from cyberattacks, as evidenced by the recent Equifax data breach, and bank account transactions can include highly sensitive personal data about spending habits, political affiliations, medical care, family and friends.
“Open Banking Ltd says: ‘The regulated third-party provider the consumer has given their consent to for sharing their data with, is responsible for ensuring any personal data they process, store or transfer is appropriately and securely protected. The consumer can directly complain to the third-party provider in the first instance, and should this not resolve the issue, they can lodge a complaint with the Financial Ombudsman Service (FOS). They can also lodge a complaint with the Information Commissioners Office.’
“But, with a complicated chain of providers sharing access to your data, multiple parties could be potentially liable for loss of a personal customer’s data though error, attack, or fraud. The issue of ‘consent’ needs to be looked at carefully, so that consumers understand exactly what they are agreeing to when they share their data. This is particularly important when apps or services combine open banking with other methods of data sharing. For example, if an app uses the open banking API to access current account data, but has to rely on screen-scraping to access data for other products such as mortgages and credit cards, it's vital that the distinction between the two is made clear.”
Which? will be watching closely to make sure financial and data regulators work hard to safeguard consumers in this context, and build trust in these new services.