2018 sees the introduction of Open Banking in the UK. Designed to enable super-fast payment methods and innovative banking products, we explain what it’s all about.
What is Open Banking?
Open Banking is intended to make it easier for companies to offer different and innovative financial services, while giving consumers and small businesses more choice and control over their money and financial information.
It will be achieved by requiring some banks and building societies to make certain customer information accessible to other regulated companies in a standardised, straightforward and secure way – using what are known as Application Programming Interfaces or APIs.
Information can only ever be shared after a customer has given their explicit consent and customers can, of course, choose not to share their information.
Is Paragon involved?
To get things started, the nine largest UK retail banks and building societies have been given a legal requirement to allow certain information to be shared securely with other approved companies. These are Barclays plc, Lloyds Banking Group plc, Santander, Danske, HSBC, RBS, Bank of Ireland, Nationwide and AIBG.
Other banks and building societies can voluntarily do the same but Paragon is not planning to enter the first phase of Open Banking in 2018. This means that we won’t be sharing your information with other institutions, even if requested. We will however, keep a close eye on events and keep you up-to-date should anything change.
Where did the idea come from?
Open Banking was one of the changes put forward following an investigation by the UK’s Competition and Markets Authority which concluded that there was a need to improve competition and choice in retail banking and financial services.
It’s often mentioned together with PSD2. This is the second Payments Services Directive which modernises European payment regulation enabling consumers and small businesses to have greater control over their financial data.
When is it being introduced?
You’ll probably notice the first changes from January 2018, when the first nine companies enter the Open Banking network and other providers make changes to comply with PSD2.
You won’t notice much change at Paragon, other than a regular email offering you the opportunity to review a statement online.
Elsewhere, it’s likely that newly regulated companies will begin to offer customers the opportunity to make payments directly from their current account after giving their consent.
How will Open Banking benefit customers?
After sharing banking information using the new technology and allowing other companies to analyse account transactions, it’s hoped that customers will be able to find new products more suitable for their individual needs.
New products might include, for example, a budgeting app that reviews expenditure and suggests savings or a broker service that proposes suitable loan products. Alternatively, customers that use their overdraft facility regularly, may choose to share their current account information with a comparison service to find a new provider with lower charges.
Is it safe to share my information?
Open Banking is creating software and security systems that give customers the option to share their account information securely.
In addition, any company that is enrolled with Open Banking in the UK will be regulated by The Financial Conduct Authority (FCA) and customers will be able to find and check the legitimacy of these companies on the FCA website.
However, as always, it pays to be careful when sharing your data and you should keep up-to-date with all the latest security information from Open Banking and other recognised authorities.
Want to find out more?
To find out more about Open Banking, visit the Open Banking Implementation Entity at www.openbanking.org.uk. Their ‘Background to Open Banking’ guide is particularly informative and you can find it here.
02 January 2018