Open banking is having a big impact on how people take care of their personal finances. UK consumers are protected when they allow third party financial service providers to access their data. But how is open banking changing things for consumers, businesses and banks?
What is Open Banking?
So what is open banking? To put it simply, it represents a range of reforms to how banks hand the financial information of customers. The changes were first called for by the Competition and Markets Authority.
The changes meant that all banks that were operating in the UK have to let customers share their financial data with authorised providers offering financial services, such as budgeting applications or other banks. All customers have to do to make this happen is to give permission to those authorised third parties.
The aim was to provide better levels of competition in the financial services sector and also drive innovation in these areas. Ultimately, the change was geared toward helping consumers. It’s now possible to analyze your spending and create budgets much easier thanks to the possibilities opened up by open banking.
7 Ways It’s Impacting Financial Services in the UK
So what impact is Open Banking having on businesses, consumers and financial service providers in the UK.
1. New Channels of Digital Revenue
There are now new channels of digital revenue opening up for financial service providers and banks. Banks know that it’s easier than ever for them to offer new services to customers, even if those customers usually bank with one of their rivals. They’re now willing to think differently and get more creative in order to make new money through these new digital channels. It’s proof of the innovation that open banking was designed with the intent of encouraging.
2. Choosing the Right Providers and Products is Easier
Because consumers now have so many options when it comes to choosing the right providers of services, they find it much easier to find the particular service that’s right for them and their goals and aims. That’s the way it should be because previously, using the services of one bank when your other bank was under no obligation to share your financial information made life a lot harder than it really ought to have been.
3. Consumers Find it Easier to Stay on Top of Spending
With the rise of open banking has come a wave of new financial apps that have an impact on how we manage our money, track our spending and hit our financial goals. Thanks to this, consumers now find it easier than ever to stay on top of their spending and ensure they’re keeping everything in check. This has got to be a good thing and shouldn’t be overlooked when considering the benefits brought about by open banking.
4. Consumers and Businesses Access Faster Financing
For businesses that need to access financing from banks, it’s now easier than ever to do this. The same applies to ordinary consumers who might want to apply for loans and things like that. It’s easier for them all to access financing because it’s faster thanks to the improvements brought about by open banking. Information relating to customers and their spending habits can be shared much quicker between banks and financial service providers.
5. Fintech Companies Have Access to Real-Time Customer Data
When fintech companies are designing financial service apps that are going to be used by customers, they need to be able to access customer data quickly and in real-time. That’s now more than possible thanks to open banking. This is not only good for fintech startups but potentially great for consumers who can start using their services much faster and much more easily. They’ll also be able to use a service that’s accurate and up to date at all times.
6. Better Customer Engagement
Customer engagement is something that a lot of banks and financial institutions really care about at the moment and it’s made all the more possible thanks to open banking. Banks know that as open banking increases in popularity, more new and young businesses will enter the sector and start offering their financial services. That means the banks need to have engaged customers so they don’t lose them, and that competition can only be good for consumers in the end.
7. Banks Are Having to Adapt
Banks are having to adapt to ensure they’re not left behind as open banking becomes more ubiquitous. We’re already seeing that this means banks are offering more services and insights that weren’t there before. This is them attempting to keep hold of customers and ensure that their customers feel they’re being provided with a well-rounded experience. It’s something that HSBC, for example, have been commended for. They even have a dedicated open banking app.
Is Open Banking Safe?
One worry that people have regarding open banking is its safety. Because the process involves being open with your data, it’s easy to worry about safety and wonder how safe you really are using open banking. But as long as providers are fully authorised to access the data, everything should be fine. Only providers that you’ve specifically authorised will be able to look at your data and GDPR rules apply, providing consumers with levels of data protection that’s pretty strong.
It’s clear that open banking is making waves and changing how businesses and consumers control their finances, while also throwing up new challenges, as well as new opportunities, for banks and financial service providers in the UK. In terms of what happens next, it looks certain that core services will continue to change and improve thanks to open banking.
What does this mean for Australia?
Australia is still in the testing phase for Open Banking, the Government has not been quick to approve it and but the Big Four banks must make credit and debit card, deposit and transaction data available for pilot testing from July 1st, 2019.
At Navag8, we look forward to the opportunities that a more competitive and open market holds.