Open banking FAQs answered

By Marianne Curphey


You may have heard of a new initiative called "open banking". The idea behind open banking is to share data that banks have, until now, kept to themselves. The goal is to improve consumers' banking experience and give them access to better, more suitable and more competitive financial products.

While open banking sounds great in theory, it's not without a catch. Consumers first must agree to share their personal data to get recommendations for the banking, credit or insurance products most suitable to their personal financial circumstances.

We've answered some basic questions about how open banking will work, what it will look like in practise, what the drawbacks are and more.

Q: What is open banking?
Open banking is designed to create new platforms for financial institutions to give consumers more choice over products and services. UK banks will have to cease being one-stop shops, and start providing more personalised services.

Consumers might gain the ability to:

  • Monitor all their bank accounts so they can detect fraud at an early stage.
  • Compare current account offerings from different banks.
  • Choose the best financial terms for credit cards, loans and other borrowing.
  • Keep track of debt.
  • View all accounts from one place.

For example, instead of having your bank account with one provider, and your credit card with another, you would choose a current account from your bank, then select other products such as credit cards and insurance from a wide marketplace.

With open banking, you also would receive offers for insurance products, credit cards or loans based on your financial history.

Eventually, you could manage all your accounts from a single app on your smartphone or tablet.

Q: When can you expect to see open banking in practise?
The Competitions and Markets Authority (CMA) has told banks they need to adhere to open banking standards by January 2018.

"The implementation of Open Banking is quickly progressing and the start of [2017] will see personal customer transaction data available on a read-only basis," Jake Ranson, banking and financial institutions director at Equifax UK, said in a public statement in January. "There is not much time until the Open Banking Standard's full scope, including business, customer and transactional data is complete."

Initially, the information is likely to cover price comparison services, such as applying for loans, credit cards or mortgages.

Q: Will open banking work?
Success is not guaranteed. "This is not the first attempt to do this," Dave Levy, associate partner with Citihub Consulting, said in an emailed response to questions.

The key to making open banking stick? Security.

"The real issue will be ... whether consumers feel comfortable with their data being shared in this way," says David Black, banking specialist at DJB Research.

According to research from Equifax, consumers are still unsure about the benefits of open banking. In a January 2017 survey, 45% of respondents said they were not likely to use open banking when it becomes available due to a number of concerns, including security (67%), and the ability of third parties to contact them (62%).

When asked about sharing personal data through open banking, 60% said they would not consent to do so.

There's also the fact that UK consumers don't switch current accounts with any regularity, and are still reluctant to share a lot of their data. Since the Current Account Switch Service was introduced in 2013, a total of 3 million people have moved their current accounts, according to BACS.

Q. How will it benefit consumers?
If open banking is a success, UK consumers can expect to see various benefits.

Firstly, you will be able to manage all your financial affairs from one platform, which should help you keep better track of your income, savings, outgoings and credit commitments.

Secondly, banks will want you to choose them as your primary platform, so they will need to provide a good quality and competitive customer service in order to attract new business. And since protection of shared data is such a major concern, each platform's security will have to be top-notch, which is great for consumers.

For small businesses, there will be benefits in having information about income, spending, credit, loans and pending payments accessible on a single site. Open banking also might enable businesses to negotiate better credit terms with lenders who are able to see their financial history and current trading position.

Levy said there will be other advantages, too. "For example, mortgage affordability tests will be based on income, expenditure and savings, rather than a proxy scoring methodology," he said. 

"If the Open Banking Standards succeed, it will reduce costs and allow things to be done that cannot be done today," Levy said.

See related: What are banks doing to protect consumers from fraud?, Why your bank, credit card issuer is texting you, New EU rules give consumers more insight about personal data

Published: 11 April 2017