For hundreds of years, we’ve used banks to store our money. We have our wages paid in and draw them out. Now, with Open Banking things are about to change.
Recently a new innovation allows companies to access your banking details to tailor their products to your financial needs.
In just a few swipes on a smartphone, a customer could find a better mortgage, compare household bills, cancel unwanted subscriptions, control direct debits and track payments – all tailored specifically to your spending / financial habits.
With customers’ permission, third-party providers can access their current account information to provide products that are better suited to their needs.
For example, a credit reference agency or mortgage comparison site can provide a customer with a product that is tailored to their own personal financial and individual needs.
Who knows about Open Banking?
Despite the benefits to the consumer, relatively few people have even heard of Open Banking – a recent survey showed just a quarter of people know about the latest innovation in the banking industry – with just 20% of those actually knowing what Open Banking means or what it can provide for them.
What is Open Banking?
There are a plethora of banking apps that use this new technology.
For example, an app called “CHIP” uses an algorithm to analyse a person’s spending and work out how much they can afford to save each month — then it siphons that cash away into a separate savings pot.
Next time you log into your online banking you may see an option to register your bank accounts with other banks too – HSBC and RBS are 2 examples of this.
Once you’ve registered all your accounts onto the one portal it makes it so much easier for the consumer to assess where the money is being spent and create a budget for bills etc.
In the UK we are adverse to change – bank accounts, mortgages, utilities – we’re a loyal bunch when it comes to what brand we purchase. It is said that people in the UK are more likely to divorce than switch bank account!
The idea behind Open Banking was to show consumers the different products and services offered by different providers and to help encourage us to shop around to save money.
This, in turn, would lead to more choice, better service, more competitive prices and a wider range of products designed to save people money.
Open Banking allows people to see all their current accounts, credit cards, savings accounts and mortgage accounts in one place no matter who they bank with.
2 examples of Apps that offer this service are “Yolt” and “Bean” – Yolt allows you to view all of your current, savings and credit accounts on one platform. It will then send you insights and tips on how you are spending money and what your key expenses are.
Bean allows you to compare deals on all your household bills and track payments on all your accounts from a single dashboard. Not only that, it has a really helpful tool that will automatically cancel any unwanted subscriptions – so you’ll never be stung by an introductory offer running out.
A slow start
Although Open Banking was designed to increase competition, innovation and to help consumers to save money and give more financial freedom, this has been overshadowed by fears of privacy and security breaches of their personal data.
However, after a relatively slow uptake, it is predicted about 33m people will have signed up to Open Banking apps or technology by 2022.
The company that is responsible for rolling out Open Banking in the UK, The Open Banking Implementation Entity (OBIE), have said it has up to 200 regulated financial companies enrolled in Open Banking with more and more waiting to join.
The OBIE says that consumers are now being offered products and services that are actively helping to move, manage, save and make more of their money by the use of Open Banking technology.
For example, “Credit Kudos” is a free online service which looks at a person’s spending habits and ‘financial behaviour’ to determine their creditworthiness and work out if they are eligible for certain financial services or credit without it affecting their credit file.
If it’s savings you are interested in then apps like “Plum” can make a great difference. Plum uses Open Banking technology to work out your income and spending habits. Then, every few days, Plum works out the perfect amount to transfer to your savings so you can watch it add up little by little. It can even invest your spare money into the stock market for you. Not only that but Plum will also do the leg work of shopping around to make sure you never spend more than you have to on those regular bills – if it finds a cheaper deal elsewhere it will switch you in seconds.
High street vs Wi-Fi
As consumers move more and more to online banking services, traditional high street banks have had to change the way they operate and become part of the digital revolution.
In 2018 HSBC was the first to launch an Open Banking app – “Connected Money” which allowed consumers to view their current, savings, mortgage, loans and credit accounts all in one place regardless of who they banked with. It would then group spending habits into a number of categories, such as groceries, utilities, travel etc. making it a great budgeting tool.
Santander has recently partnered with “MoneyBox”, an app that will round up transactions and transfer their spare change into a savings account, stocks and shares or even an ISA – it was designed for people with little spare cash to build savings via “micro-payments”.
Open Banking apps provide help, advice and tips on saving and spending money but the latest wave of innovation has come in the Debt Management sector.
Credit scoring companies are starting on the road to Open Banking with a view to providing more affordable services and to allow people who would have been traditionally refused credit due to their history.
Traditionally credit scoring could only affect people who had a “visible” credit history. Open Banking could allow companies like Experian or Equifax to build a picture of the financial records of “credit invisible” people. This is known as a 360 Score rather than a Credit Score. These are people with little or no financial information on which to draw a conclusion and will allow the poorer and more financially vulnerable sectors to access mainstream finance and services.
It is hoped this could then eventually lead to financial advice being pro-actively offered to a targeted group of the population, or focus on people who are in debt but may otherwise ignore their financial problems.