What is Open Banking?
Open Banking is a new finance regulation being introduced in Europe which requires banks and financial institutions to allow third parties access to customer data – if the customer agrees to it.
So how does it work?
Currently, third-party finance providers gain access to your account by asking for your banking password and username. They do this, so they can build a profile of you and recommend where you could be making savings or find a better deal. This technique is called “screen-scraping” and involves the third-party retrieving details of your spending habits, direct debits and which bank you are with. Naturally, this is not very secure.
Open Banking ensures that financial services is no longer siloed. Banks must allow third party providers access to your data in one seamless process. For instance, a customer could connect a budgeting app directly to their bank account without having to go through lengthy approval procedures. It’s important to keep in mind that if you do not want to have your account details shared with these providers, you are under no obligation to do so.
Each provider will ask for your permission at which time you can consent or reject. Even if you initially agree but later change your mind, your permission can be rescinded at any point.
But why would anyone do this?
In our digital world, customers are becoming increasingly lenient with their data as they want to be reassured they are getting the best deal, which often involves being kept updated with new offers and services. Open Banking provides a secure solution to this change in attitude, as it offers customers greater control over their data and services, and encourages account switching.
Third party providers such as budgeting tools or comparison sites can already gain access to a customer’s bank account, but the process is not regulated. These companies are usually start-ups, experimenting with new technologies and algorithms, and so the process of allowing these providers access to a customer’s bank account is not as secure as it could be. However, under wider PSD2 regulations, this is set to change. Open Banking commands banks to protect and oversee the exchange of data. And it’s all done whilst not compromising the customer experience.
Do you have any questions about Open Banking? Let us know in the comments below.