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Open Access Banking – What’s it all About?

On January 13th the UK’s open banking regulations came into effect and this is likely to bring changes to the banking sector that could see a total transformation of financial services.  Open banking means that all UK banks are legally required to open up their data via a set of secure application programming interfaces (APIs) so that consumers can adopt a more modular approach to banking by giving third parties direct access to this data.  The Chairman of the UK’s retail banking investigation predicts that open banking will be a huge transformational change for personal customers and small businesses.

For the first time, secure apps will provide personalised services and information to cover all financial needs in one place and make it easier for people and business owners to find out which bank account would best serve their needs.  This means that, in future, instead of doing all banking through one or two companies, customers may have a current account with one providers, and bolt on other financial services (such as insurance policy, mortgage, investments, ISAs, etc.) through other providers, all under one user interface of their choosing.  This approach is known as banking as a platform (BaaP).

Under the new regulations, banks will be required to create open APIs so that customer data can be shared with authorised third-party applications in a secure, common and consistent format.  They include open APIs for product and reference data which will enable developers to create price comparison services, or include ATM locations on their maps, for example.

The regulations cover confidential customer transaction data which will enable developers to securely view a user’s transaction history when applying for a mortgage or loan or to create apps that will alert a user when they are at risk of becoming overdrawn.   Basically, the Open Banking system means that people can allow businesses other than their bank to access their financial date, leading to speedier processes.  The same legislation means that surcharges for payments made by credit card, debit card or other payment systems (such as PayPal) will be banned, saving consumers even more money.

Under the new regulations, customers are provided with the keys to their own financial data which will give them more control over their data and their finances.  For instance, it will enable customers to change providers with a few clicks of the mouse in the space of a few minutes, instead of waiting up to seven working days to switch.  Consumers will be in complete control and the data will only be transferred to another lender or company if the customer gives explicit permission when they want to take advantage of a better offer from another provider.

Open Banking is likely to bring many benefits for the consumer, such as lower overdraft charges and higher interest rates on savings accounts.  This has major implications for SMEs who would have faster access to loans and get more help with bookkeeping. 

We’re pretty sure that Open Banking will feature heavily in the news as we settle into this new way of banking, so we’ll keep our eye on any developments so that we can keep you, our readers, fully up to date in the coming weeks and months.