What is Open Banking?
Technically, Open Banking is a series of reforms on how all UK-regulated banks and other financial institutions deal with your information. That includes your spending habits, regular payments and companies you use.
Simply, it means that every bank must open up data - with your permission - for anyone to access, use and share.
'With your permission' are the keywords there. Open Banking is a lot less sinister than it sounds. It doesn't mean that just anyone can view your financial data - only the providers you choose to share your data with have access, plus you have full control over the duration of time that you share your information. These providers are typically financial services that analyse your data to provide you with insights on your spending.
Open Banking-authorised companies will offer one of two services:
Why is Open Banking so great?
The idea is that companies will be able to build better products that save you time and money. More transparency also allows companies to access data which was typically kept in-house, encouraging challenger companies (such as Monzo and Starling) to innovate in the market and fuelling more personalisation, improved decision-making and more automation.
What data does it share?
You have the choice to share any 'payment account' data that you have. That includes current accounts, credit cards, prepaid cards and some savings. Bear in mind that Open Banking only works online.
Who can I share my data with?
Only share your data with third parties that are authorised by the FCA - that means that in the event that something goes wrong, your bank will cover you. It might be a good idea to check that the company appear on the FCA's Register or the Open Banking Directory.
Is it safe?
Yes, as long as you use FCA-regulated third parties! All information is encrypted and all parties are required to comply with data protection rules including GDPR regulation.
So how can it help people in debt?
Historically, customers in debt who wanted to set up repayment plans have had to fill in long budget assessments, calculating the sum of all their different income and outgoings from various accounts.
Then Open Banking came along, and it truly transformed the experience.
Companies are now able to offer customers the chance to gain an overview of their budget in just a few clicks, allowing them to understand how much they can realistically afford.
Being behind on bills is not beneficial for anyone. Companies receive less money that is owed to them and individuals are burdened by more stress and less financial freedom. The obstacle has long been that while individuals wish to get rid of their debt, they are often in vulnerable circumstances and unsure of how much they can afford that won't break the bank.
Open Banking removes that barrier by not only allowing individuals to gauge how much they can put towards paying down their debt but also giving companies the opportunity to understand their customers' vulnerability. With this insight, companies will be able to treat all customers (especially vulnerable ones) more fairly, since they can identify which customers are in a worse financial situation and will never risk asking anyone to pay anything they cannot realistically afford.
At Ophelos, we have integrated Open Banking into our user journey to make the experience more simple, transparent and equitable. We've partnered up with Credit Kudos to provide people with an overview of their budget and a smoother customer experience.
For more information about how Credit Kudos is transforming financial services, why not check out their blog?