What is Open Banking?
From Saturday 13 January, Open Banking will allow consumers who ‘opt-in’ to share their current account data with other organisations, electronically and securely. It also offers new ways to pay for things without having to use a credit or debit card.
Why would people use Open Banking services?
Choosing to give a third party provider (TPP in the jargon) access to your account data means they can offer more convenient, personalised services. For instance, when someone takes out a mortgage, sharing their account data could avoid having to print bank statements to send to the provider to prove income and outgoings. Sharing data could make the experience of taking out existing products quicker and easier.
New services like account ‘aggregators’ or personal financial management apps bring an individual’s accounts together in one place so that they can more easily keep track of their finances. These apps offer new insights about spending patterns and where savings could be made, potentially helping people manage their finances more effectively.
At the moment, the only way for an individual to get access to these services is to give out their login details. Open Banking will mean an end to taking this risk.
Providers using Open Banking technology might shop around on the consumer’s behalf, alert them to special offers coming to an end, make recommendations for new products tailored to their spending patterns and, with the consumer’s permission, switch products. This is not just for individuals, small businesses stand to benefit, too.
What’s the downside?
Consumers will need to decide whether to share their account data if asked by a TPP to do so. They will need to know how new products work; how companies intend to use and store their data; and whether they will sell it on or share it with other parties.
Open Banking could result in people signing up for products and services they don’t understand and find their data has been shared or used in ways they didn’t expect.
It is possible to infer a lot from an individual’s account data about that individual’s lifestyle, preferences and interests. This puts more power in the hands of companies and makes consumers vulnerable to scams, mis-selling and unethical practices.
Is it safe?
As safe as it can be. Consumers can choose to use Open Banking services or not, and always have to give explicit consent to the TPP accessing their banking data.
If, as a result of using a service, there is an unauthorised payment from a customer’s account, then their bank is duty bound to reimburse the funds straight away, even if it was the fault of the TPP. If an individual isn’t happy about how their complaint has been dealt with, they can take it to the Financial Ombudsman Service.
Consumer data protection rights will be strengthened when the new General Data Protection Regulation (GDPR) comes into force in May 2018. Organisations will only be able to access account data with the consumer’s explicit consent and should only take the data they need to deliver the service the consumer has signed up for. Breaches of this regulation will be subject to heavy fines.
The Consumer Panel is committed to championing consumers’ interest as the Open Banking market develops. We’re currently doing research with the London School of Economics to find out more about how people give their consent to share their personal data. From this we’ll be making recommendations to the FCA about how to reduce consumer vulnerability in the new market and ensure consumers can reap the benefits of Open Banking.