Fintech Tips: Open Banking in 4 easy steps

By Roger Baird on Tuesday 30 July 2019

Digital Banking

Open Banking is designed to pull all our financial dealing into one space. Is it the next big thing or a damp squib? Here’s what you should know.

Fintech Tips: Open Banking in 4 easy steps
Image source: Tim Mossholder from Pexels

Banks were forced to share customer data with other approved financial services firms by the European Union in January, as long consumers gave their permission. Potentially, the sharing of hundreds of millions of account details across the continent allows consumers access to cheaper deals and better services. 

The first seven months of the change have seen a dribble of new services. But the opening up of the financial data of Europe’s consumers may yet lead to profound changes to the way we bank in the future.


What is Open Banking?

The idea behind Open Banking is to allow customers to bring together their finances - current accounts, credit cards, loans and savings - so they can be seen in one place. 

The thinking is that this integration will spur innovation and improve competition, by making it easier for customers to compare financial products and switch between them.

A change in European Union law at the start of the year ushered in Open Banking, which was accompanied in the UK by a ruling by the Competition and Market Authority in January which forced the country’s nine largest current account providers - HSBC, Lloyds Banking Group, Allied Irish Bank, Bank of Ireland, Barclays, Danske, Nationwide, RBS Group, Santander - to share their data. 

But crucially, none of this can happen unless customers give their consent. They can withdraw their permission at any time.


What do I have to do?

A firm asks for your consent to use Open Banking data to provide you with a service. If you agree, you'll be redirected to your online banking login page where you will be asked to enter your security details. However, these details will not be shared with the third party. 

Your bank will check the firm is authorised to use Open Banking, and will then share your data. Customers should be able to see a list of third-party firms they have given permission to share their data.

Open Banking technology operates under the second EU Payment Services Directive and runs on application programming interface rules.


What are the benefits of Open Banking?

The aim of the service is to get customers and small businesses to a point where they can manage the range of their accounts and bills from a single platform, adding new services when needed.

For instance, Credit checking services such as Experian, Equifax and TransUnion may be pulled in to check on your credit scores. The Credit Ladder platform can currently be activated from Starling Bank’s app.

A number of apps claim they can save customers cash, by combing through their bills, and recommending they switch to a cheaper option.

For small firms and freelancers, banking and accountancy apps such as Coconut allow users to see their current accounts as well as providing on guidance VAT, expenses and invoicing.

Some apps already provide these services using a method called screen-scraping. This technology starts with a customer’s bank login details, and essentially poses as you hunting the web for your financial information. However, this system can expose customers to fraud and is being phased out, and is set to be banned in the UK in September.


What are the risks?

A complex chain of firms sharing access to your data means that potentially a number of firms may be liable for the loss of customer data through error, or fraud. 

Consumer body Which? Added it is “concerned that Open Banking could lead to a higher number of authorised push payment scams, where fraudsters trick account holders into making a payment or transfer, often by posing as their bank or the police”.

However, if you do notice an unauthorised payment in your account you should lodge a claim to your bank, even if that payment has been initiated through a third-party provider.

Your bank is obligated to make a quick refund, unless they have grounds to suspect fraud or negligence. If the bank thinks the third-party was at fault, it will later seek to recover the funds from it.

For banks, the commercial risk is that Big Tech giants such as Google, Facebook and Amazon, will increasingly move into banking services and payments. The fear for high street banks is that they are left holding your monthly salary and little else.

If you need to take complaints further consumers have access to the Financial Ombudsman Service, or if that firm has gone bust you can appeal to the Financial Services Compensation Scheme.

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