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In August 2016, the Competition and Markets Authority (CMA) published a report into the UK’s retail banking market that concluded that older and larger banks weren’t competing hard enough for customers’ business, and smaller and newer banks were finding it difficult to grow.
They found that currently only 3% of personal and 4% of business customers switch to a different bank in any year – despite potential annual savings of almost £100 for the average personal customer…and even more if you are a regular overdraft user.
As part of the remedy for this problem, the CMA told the banks that they had to implement Open Banking by early 2018 (in fact, the key date is 13 January 2018).
Open Banking is an umbrella term for a range of changes that will allow trusted third parties (companies like Yoyo) to access bank account information, including balances and transactions, and even make payments on behalf of the account holder.
Now, you’re probably thinking this sounds a bit dangerous, so let me explain why the way in which Open Banking has been designed means it is actually very safe – banking customers are always in control and there are many potential benefits.
Giving a trusted organisation permission to access your bank account will be done in much the same way as you give apps and websites permission to access your Facebook profile.
From the trusted organisation’s app or website, you will be redirected to your bank, where you will sign in and be told exactly what information and permissions the company is asking for – importantly, you are in control of whether to give that permission or not.
Once you have given the trusted organisation access to your bank account, you will be able to see this permission from your banking app or website and remove it at any time.
At this stage it’s worth noting what I mean by a “trusted organisation”. These are companies (like Yoyo) that are registered with the Financial Conduct Authority (FCA), and they are the only ones that will be able to access your data. The FCA will keep this list of those that are registered up-to-date and public.
So that’s Open Banking explained, but what will these trusted organisations do with your data and what is the upside for you?
Well, in some ways, we just don’t know yet. The UK will be the first country in the world to deliver this level of access to bank accounts in this way.
The business models that will emerge to take advantage of it can only be guessed at. That said, there are some obvious ideas that we are confident will be ready for use by 13 January.
We expect to see a flurry of apps offering to keep tabs on your spending by categorising all your debit card transactions and grouping them together. For example, you’ll be able to see how much you’ve spent on eating out vs supermarkets this month.
You’ll be able to set spend targets and be alerted when you’re spending too much. Some banks offer this sort of service already – but new startups might be able to offer a much richer experience with the same underlying data.
Maybe you have a savings account with one bank, a current account with another, and a joint or household account with a third. What a pain to keep an eye on all of them. Open Banking will allow an app to pull information from all three banks, and show it in one place.
This could help you, for example, spot that you’re running low in your current account, and need to transfer some funds across – which you would be able to do straight from the app. No more overdraft fees! In future, this could also include credit cards and loans. You may even be able to trigger fund transfers automatically – keeping you in the black while you get on with your life.
Banks love current account data – they get to see your income and all your outgoings. It’s why, especially when you’re younger, your bank is often the only place you can borrow money – as they are the only ones with enough information about you to make an informed credit decision. But – as with any monopoly – you will pay for it, with bank loan interest rates often much higher than competitors.
Open Banking will allow any credit card or loan company to access that same current account information (with your permission of course!), which will give them the opportunity to offer you a rate on your borrowing that reflects your actual profile, and one that is hopefully lower than what your bank would offer you.
Yoyo’s already made a start in this area! In November 2017, Starling Bank entered into a first-of-its kind partnership with Yoyo to enable its customers to automatically reap the benefits of retailer-specific loyalty programmes every time they use their Starling payment card in Yoyo-accepting high street stores.
This partnership provides just a glimpse of what the incoming Open Banking framework will mean for consumer banking and represents a tangible example of the benefits that open and permissioned sharing of data will bring.
Find out more here.
So to wrap up, Open Banking is coming soon, it’s a secure and easy way to share your bank information with other companies you want to give access to, and it will open up an array of innovative and valuable new services.
Finally, something to look forward to in January!