What is Open Banking?
The concept of Open Banking has been in the retail banking pipeline for a while now. As its full implementation draws closer, what does it mean and how will this affect banking services in the UK?
Following the Competition and Markets Authority’s (CMA) review of the retail banking market, it was found that established banks were preventing new and smaller banks from entering the market.
This resulted in a lack of innovation and less competition in the market. Consequently customers were paying more for retail banking services.
To remedy this, the CMA is introducing Open Banking.
If the customer consents, other banks and third parties will have access to their data through open APIs (Application Programming Interfaces).
The theory behind this is that being able to access this valuable information will allow new entrants and other third parties to innovate and modernise the retail banking sector.
How will it affect banking customers?
Only individuals and small businesses will be given the option to share their data.
If and when these banking customers click the box to agree to this, they are allowing certain information to be available to competitor banks and third parties.
These entities will then use the information to provide a range of banking services to customers.
In real terms, banking customers can expect new products such as apps and other technology that will improve the retail banking experience.
On the face of it, this will not significantly change banking services in that the bank and the accounts you hold will remain the same.
However, Open Banking will mean that the services of other banks will be more readily comparable and available. It is hoped that this will lead to a more personalised experience for banking customers, tailored to specific needs.
What are the advantages?
• Innovation and in turn new and effective products in the retail banking sector
• Increased competition in the market
• Easier for customers to find the best deal on banking services
• More options for customers
What are the disadvantages?
• Customers may be reluctant to consent to sharing their data, especially given the increase of cyber-crime we have seen in recent months
• Banks will be disintermediated from customers – a move away from the traditional banking service may be perceived as negative for some
• Uncertainty as to the security of data shared
When will we see these changes?
The Open Banking data release is split into phases.
Phase one was implemented in March 2017. This involved making data on ATMs, Bank Branches, Personal Current Accounts and Business Current Accounts available.
The next major step in launching Open Banking is due to happen in January 2018. This is when we will see banks releasing certain customer information to competitor banks and third parties.
The timeline can be found here.