Open banking arrives in the UK – what does it mean for you?

Published by Adam Williams on 13 January 2018.
Last updated on 13 January 2018

Open banking arrives in the UK – what does it mean for you?

A potential revolution in banking starts today, although many customers are still unaware that changes are occurring.

From today, Saturday 13 January, customers with nine of the UK’s biggest banking brands will be able to share their current account data with third parties, if they give permission to do so.

This is called “open banking”, with the new rules intended to increase competition in the sector, as third parties will be able to access financial data in a standardised format from your provider.

This should make it easier for you to compare products and move your bank accounts between providers.

All customers with Allied Irish Bank, Danske Bank, Lloyds Banking Group and Nationwide will be able to share their data from today. The remaining five banks in the programme - Bank of Ireland, Barclays, HSBC, RBS and Santander – have missed the deadline for some customers.

At RBS and Santander the delay is restricted to their business and private banking brands, meaning most personal current account customers will be able to participate in open banking from launch.

The other three banks - Bank of Ireland, Barclays and HSBC – will be fully integrated by September 2018.

However, it has been argued that customers are still unaware of what open banking means and that not enough providers are taking part at launch.

“Open banking may have a limited impact over competition outside of the biggest banks which are on board,” says Rachel Springall, finance expert at Moneyfacts.

“It’s not clear at this stage how many challenger banks will be taking part. Therefore, consumers will still need to do some legwork to compare deals at the moment.”

While data shared under the open banking rules is secure, it is likely that some customers will shy away from sharing data because of security fears.

“It’s likely that some consumers remain concerned about sharing their personal information or having it hacked,” Mrs Springall adds.

“However, open banking was set up to create software and security systems that comply with the data security standards and protect any information. Data is to remain encrypted and any usage of information is tracked. Consumers would need to give companies their permission to access any data and then expressly authorise the bank or building society to supply it.”

Why are these changes happening?

These changes have been implemented because of the second European-wide Payment Services Directive (PSD2). This is intended to increase competition in the banking sector by allowing new firms and third parties to access your data.

While the open banking rules only cover current accounts at nine providers, this will eventually cover more accounts under PSD2 rules. By the end of 2019, the open banking rules will be mandatory for all credit cards, current accounts, e-money (services such as PayPal) and savings accounts that are accessible online.

Victor Trokoudes, co-founder and chief executive of money management service Plum, says this is first step on a long road towards fully integrated and accessible banking.

“For too long, banks have been guarding customer data instead of using it in a way that benefits them,” he argues. “In fact, banks in the UK have been so defensive that most of them had clauses in their T&Cs that prevented people from sharing their data.

“Open banking means open competition in the financial services industry – and it will be the consumer who benefits most from this. Up until this point, financial service providers have been purposely vague about the true cost of overdrafts, borrowing, FX (foreign exchange), insurance etc. Open banking means that this information can be made very clear via the data in people’s bank accounts.”

Ishaan Malhi, chief executive and founder of online mortgage broker Trussle, wants the new rules extended to include all types of financial products – including mortgages.

“Open banking has the potential to greatly improve the mortgage experience for millions of homeowners,” he says. “It's therefore a shame that a number of banks have yet to show their commitment to it, having missed the implementation deadline.

“The potential of open banking is huge and could further improve the mortgage experience in a wide range of ways, including simplifying and speeding up the mortgage switching process. This is particularly important in eradicating switching inertia, which we know to be costing around two million UK homeowners around £10 billion a year."

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