Guide to Open Banking
Open banking creates a vast amount of new options for managing your money. Here’s what it could mean for you.
What is Open Banking?
Broadly speaking, Open Banking is the system that enables apps to access your bank account information to help you manage your money. An example of this might be an app that lets you see the balances of all the accounts you hold with different banks in one handy place, like a budgeting app.
With Open Banking you can securely share bank transaction information with accredited third-party providers – like banks and financial services companies – to access the services they offer. It also means financial technology companies can create new apps, services and products.
Open Banking literally makes banking more open: it empowers customers to have more access to their own data and the opportunity to share that with financial services providers who may offer them a better deal.
What you can do with Open Banking
Open Banking allows you to:
- view and manage multiple bank accounts in one place, even if they’re held with different providers (for example one account held with Lloyds and one with Barclays) via an app. So you don’t have to keep logging into and out of different online banking apps
- subscribe to comparison services such as our free 'Your bills’ service in the Meerkat App. This allows you to see how much your bills are costing and alerts you to areas where you might be able to make savings
- speed up a mortgage approval process by allowing a mortgage or loan provider to digitally view your current account records
- download a budgeting app to help you see where you spend money and how to avoid getting into debt.
What are the origins of Open Banking?
Open Banking evolved with an aim to give customers more control over their own data and more choice over how to manage their money.
The idea is to allow more providers to innovate and enter the financial services market – an area traditionally dominated by big-name banks. It also allows new products and services to be created.
The belief is that by creating more competition, all providers will have to improve what they offer, giving customers a better deal and making their lives easier.
Open Banking has the potential to dramatically transform financial services, according to the ‘Unleashing the Potential of Open Banking’ report, produced by the Emerging Payments Association (EPA), a membership organisation of banks, payment schemes, retailers and more.
“There has been much hype and many headlines on the subject of Open Banking over the last three years, but it is hard to argue with the view that it has the potential to dramatically transform financial services in years to come,” said report editor Huw Davies, Chief Commercial Officer and Co-founder Ozone Financial Technology: “In fact, I would go further and say that it is the most transformative change to the industry, certainly in my 24 years in payments and banking.”
The report added: “The Emerging Payments Association passionately believes that Open Banking will be a force for good and a driver of innovation, value and positive change in the payments industry.”
Are there any downsides to Open Banking?
It’s not usually recommended that you share data or allow any kind of access to your financial records, so the idea of Open Banking can be a bit confusing. But it’s designed to be very safe and convenient thanks to all the security measures that have been put in place.
The Financial Conduct Authority is responsible for regulating new products and services that use Open Banking in the UK. It has strict rules in place to try to ensure that disreputable firms and providers are unable to offer these services.
How to use Open Banking safely and securely
When you sign up for an Open Banking service, you need to take the same precautions you would with any other online banking service.
- never share details of passwords or pin numbers for any of your accounts even via Open Banking. No bank, building society or trustworthy third-party provider will ever ask for these.
For you to benefit from full protection of your money, third parties involved in Open Banking must be regulated by the Financial Conduct Authority (FCA) or an equivalent European regulator.
“Open Banking is very secure”
Johnnie Ball is co-founder and chief data officer with cashflow management firm Fluidly, a winner of the 2018 Nesta Open Up challenge for businesses making use of Open Banking.
He said: “I think Open Banking will be a significant part of people’s lives for those who use financial apps, which is going to be the majority of people given current trends.
“It’s not as though everyone will know they are using Open Banking. One of the great things about it is its simplicity. You download an app, enter your user login and after that won’t know anything about it other than that you’re getting a great service.
“Open Banking technology is very secure, so long as the company you are dealing with is obeying the law.
“My advice for anything that involves your personal data would be to read the terms of service and ensure you are comfortable and to go for brands with a good reputation.
“There’s far more likelihood that someone will become the victim of fraud by giving their credit card number over the phone or emailing a photo of their passport.
“People get worried about all their bank transaction data being misused but ultimately someone already has that data (the bank) and they are already using it for things, such as personal credit scores.
“Bank data is already being used, but in a monopoly. This is liberating your data, taking ownership and choosing who you allow to interact with that data.
“If you want a financial management app to let you know if you’re about to go overdrawn or could get a better deal from an alternative energy supplier, this allows those apps to exist. No one wants to spend hours trawling the internet for these things.
“It allows lenders to offer customers loans and financial products far more accurately, competitively and in a much more bespoke way.
“It removes pain from users’ lives and allows things to operate with a lot less friction.”
“People engage with Open Banking services because they provide value”
Kieran Hines, Senior Banking Analyst at financial services technology research, advisory and consulting firm Celent, said: “Open Banking on the face of it is a quite alien concept. If you say to people ‘there is this great new concept where third parties can access your bank account information,’ people naturally are quite hesitant and tend to reject the concept.
“What we will see happening, and to some extent is already happening, is that people will engage with Open Banking services because they provide value. Customers will be less and less aware of the realities of what happens to power these services and more interested in taking advantage of what they can offer.
“In the same way that people don’t need to know how an ATM works in order to use it. What we need to know with Open Banking is ‘if I provide consent to this mobile app to see my data, they can give me something better than I have now.’
“Over time Open Banking will become something that is just part of the experience customers have and they’ll be aware of how that can be used to improve the services they receive.”
Mr Hines feels that the emergence of a truly transformative provider could propel Open Banking into the mainstream and accelerate the take-up of third-party services, in the way contactless card payments got a shot in the arm when Transport for London rolled out the Oyster card and demonstrated the benefit of tap-and-go payment.
How popular is Open Banking?
While Open Banking legislation was first passed in 2018, many of the services - and opportunities it intended to create are only now becoming mainstream.
More than two million customers in the UK were using Open Banking by September 2020, according to the Open Banking Implementation Entity (OBIE). That figure had almost doubled in six months.
Imran Gulamhuseinwala OBE, OBIE trustee, said: “Open Banking used to be the best-kept secret in financial services. With two million active monthly users and growing strongly that is clearly no longer the case. We can now see that people want to exercise their rights over their data and will do so, as long as you make it simple and secure. Open Banking-enabled products are rebalancing the market in favour of consumers and small businesses. Users are now able to engage more with their finances and getting access to better products.”
But, according to a survey by Which? Money, seven in ten respondents said they were unlikely to consider sharing their financial data with a third party, as allowed by Open Banking.
Jenny Ross, Editor of Which? Money, said: “Open Banking could be revolutionary for giving consumers greater control over their finances and more choice over the products and services they use – but two years on, huge numbers of people are still in the dark over what Open Banking is, or are reluctant to use it.
“If Open Banking is to ever be a success, regulators and industry must do more to promote the benefits and demonstrate that customers are properly protected from data breaches and scams in order to boost trust in these services.”
Open Banking: the story so far
- August 2016 – findings of a Competition and Markets Authority (CMA) investigation into retail banking concluded that larger banks don’t compete hard enough for customers. Open Banking was one suggested solution.
- January 2018 – The UK’s nine big banks became obliged to make it possible for customers to give third parties access to their transaction information and financial data to benefit from services, in accordance with the Payments Services Directive 2 (PSD2)
- December 2018 - 100 regulated providers of Open Banking
- December 2019 – more than 50,000 payments were made via Open Banking, according to the OBIE
- January 2020 - The OBIE announced Open Banking in the UK had passed the 1m customer mark and there were 204 regulated providers.
- 2020 and beyond –Open Banking is expected to become more widespread, with more and more different ways to make use of it. It’s also expected to extend beyond current and payment accounts to allow customers to give third parties access to other accounts in a system called Open Finance. This could include mortgages, investments, pensions and more.
The Financial Conduct Authority asked for industry input into a consultation on Open Finance as part of driving forward its future strategy on the issue – with submissions closing in October 2020.
In Australia, the rollout of its consumer data right (CDR) is allowing trusted third parties access to data held by utility and telecoms firms, as well as banks. Essentially, it enshrines the belief the customer owns their own data rather than the organisation that collates or holds it.
- 72% of UK adults will bank via a phone app by 2023
- 84% of financial services companies are investing in Open Banking
- £1 billion – the estimated annual economic boost to UK GDP by Open Banking.
AutoSergei™: An Open Banking bill checking service
Compare the Market’s AutoSergei service includes an online bill checker that uses Open Banking technology. It searches through your transactions and helps you to spot whether your bills have gone up or down, letting you know if and when there are opportunities to switch and save.See how to keep your money in check with Auto Sergei
What if I don’t want to use Open Banking?
You don’t have to participate in Open Banking. You’ll only use it if you sign for a service that makes use of the new mechanism and you can cancel that permission at any time.
If you choose to allow a third party – like a bank, financial institution or company – access to elements of your financial data in order to make of their services – that permission will usually only allow access to specific data, for specific purposes, for a limited period.
If you don’t want to allow any third-party access to your financial data, nothing will change and your account remains entirely private.
What happens when you sign up to Open Banking?
If give consent to a third party to allow Open Banking, you’ll be redirected to the online banking login page of the account for which you want to share information.
You’ll then enter your login details as normal and be taken to a screen where you can see a list of third parties you’ve given Open Banking consent to. You can withdraw your consent at any time you choose.
Can I cancel an Open Banking agreement?
Yes. You can easily and immediately stop engaging with an Open Banking provider if you change your mind about using its service or no longer need it.
There should be a dashboard in your online bank account to show any third parties you have Open Banking agreements with and you can simply remove any you no longer want to use.
It’s as simple as cancelling a standing order.
Where do I go for help if I have a complaint about Open Banking?
In the first instance, if you have a complaint about an Open Banking service, you should contact your provider directly. If this doesn’t resolve the matter, then you can contact the Financial Ombudsman Service.
Its contact details are:
- Phone: 0800 023 4567 (free phone) or 0300 123 9123 (low cost call)
- Email: [email protected]
- Website: www.financial-ombudsman.org.uk
If your Open Banking complaint is about your data not being securely and safely used, you can also report the company to the Information Commissioner’s Office. Do so online at: https://ico.org.uk/global/contact-us/ or call 0303 123 1113.
Compare the Market’s Bills Checker
Open Banking and comparison go hand in hand, which is why we’ve launched our own bill manager service, to help save you money and find better deals. With our Bills Checker service, you can:
How to get started with Bills Checker
Step 1: Make sure you’re registered for online banking.
Step 2: Download the Meerkat app and go to ‘Your Bills’. Click to add an account to activate Open Banking. We’ll ask your permission to request your data.
Step 3: Once your bank has run the necessary security checks, you’ll be all set up and ready to go.
Download the Meerkat app now and go to ‘Your Bills’ to start saving money on your regular payments.