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Open Banking

Friday, 16 February 2018

On 13th January, the same day as the implementation of PSD2, the Open Banking initiative was launched in the UK. A month after its introduction, what has been the impact of the introduction of this significant change to UK banking practices?

Briefly, legislation has been implemented in the UK which mandates that banks and building societies must allow regulated businesses access, using API technology, to a customer's financial data, if that customer has given their permission. The objective is that individuals can allow apps and online services to analyse their spending and find better deals on anything from financial products such as loans and mortgages to other items such as shopping and broadband.

Initially not all of the nine Banks mandated to offer it were fully ready for the launch date and a number of revised dates were agreed for several of the Banks including Nationwide, Barclays, HSBC, RBS, Bank of Ireland and Santander.

There have, however, been several new Open Banking initiatives already launched: Yolt, the smart money management app owned by ING, became the first third party provider to complete a successful connection under the new Open Banking system (with Lloyds Bank). Openwrks, another money management app, was the first third party provider to connect to all banks currently providing functional APIs. Zopa, an online personal finance peer-to-peer lending company, is partnering with TrueLayer to enable consumers to verify their income using Open Banking, without having to upload documents.

Whilst the topic has received a significant amount of attention in the media – “Open Banking revolution”, “a fundamental change” - what is not yet clear and unlikely to be so for some time is how it is regarded by consumers and the rate of take-up for it. Certainly the consumer can benefit from the advantages it offers, yet there is also the question of security and whether the new freedoms are either fully secure or could be subject to fraudulent practices.

Whilst the Open Banking website states that Open Banking is safe and secure and that customers’ data is encrypted and shared securely, and will only be shared if a customer gives their consent, nevertheless concerns about the issue of security have been raised by consumer organisations and websites such as Which? and MoneySavingExpert.com.

After all, it was only at the beginning of December that it was revealed that a number of supposedly secure banking apps were actually vulnerable to hacking and could allow fraudsters to retrieve, user names, password and PIN codes. It will therefore be unsurprising if it takes time for consumers to gain confidence in the new initiative. Recent research by consultants Accenture apparently found that 85% of those asked said the fear of fraud would put them off sharing data, and 69% said they would not share financial data with businesses that were not banks.

Whether Open Banking is a success or not must depend to a great extent upon whether or not it is adopted by consumers. Initially this is likely to be slow, but market analysts and regulators expect consumer behaviour to change steadily over time. By the end of 2018 it will be interesting to see how willing consumers have been to adopt and make use of the new functionality.

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