Should you join the open banking revolution?

26 February 2018

Open banking aims to boost competition in the financial sector, making it easier for consumers to compare bank accounts and then switch to a better deal. Moneywise weighs up the pros and cons of this move towards sharing data.

The arrival of open banking in the UK opens a wealth of possibilities for people looking to better manage their  finances, laying the ground for apps that tell you when you could get a better bank account elsewhere – and where to go for a better deal.

A Moneywise online poll in January 2018 (see below) found that while one in 10 readers welcome open banking because they think it will make comparing accounts easier and introduce more competition to the sector, the majority are sceptical.

Moneywise reader Chez says: “I have yet to be convinced that it is something I want or need.”

Others say they are worried about the financial security of sharing data with third parties.

Unleashing your data

Open banking launched on 13 January 2018. It means that customers of the UK’s biggest banking brands can share current account data with trusted third parties if you give them permission to do so.

The Competition and Markets Authority is behind this project and wants to stimulate competition in the banking sector by making it easier for customers to compare accounts across multiple providers.

Banks are now required to hold your financial data in a standardised format, which can be used by third parties, such as apps and websites.

At first, only the nine biggest current account providers in the UK: Allied Irish Bank, Bank of Ireland, Barclays, Danske Bank, HSBC, Lloyds Banking Group, Nationwide, RBS and Santander have been required to open their data for customers.

However, five of these brands – Bank of Ireland, Barclays, HSBC, RBS and Santander – have missed the deadline for some customers and won’t be fully integrated until September 2018. There was no  financial penalty imposed on the banks who were late. They were simply given extra time to comply with the rules.

Initially only your current account data can be shared with third parties. However, the rules will be extended to cover all credit cards, e-money (services such as PayPal) and savings accounts that are accessible online by the end of 2019.

By then, the rules will also cover all current accounts that are accessible online, regardless of provider. So a building society offering current accounts with no online functionality would not have to comply, but smaller banks who offer online accounts will.

This is part of the second European- wide Payment Services Directive, which aims to create a regulated ecosystem for payments and account information.

Brexit shouldn’t make a difference because this is a directive (and thus is implemented by our national regulator), rather than the rules being imposed directly by the EU itself.

Looking to the future

It will take time for third party companies to understand what customers are looking to get from their data and what can be achieved with the data they have access to.

Open Banking – the organisation set up to promote the scheme – says that  firms will initially offer basic services, such as an app that lets users view transactions across all their accounts, so you can better manage your spending. This could be expanded so that customers can transfer their current account overdraft to another provider, depending on which bank is offering the best rate.

However, there are doubts over whether people will engage with the new technology at all. Since the introduction of the seven- day switching service for current accounts in 2013, engagement has been low. Data from Bacs, the company that runs Direct Debits in the UK, shows that just 931,956 of the more than 60 million accounts in the UK were switched during 2017.

Victor Trokoudes, chief executive of money management app Plum, says that while initial progress is likely to be slow, in a matter of years open banking will transform the way consumers interact with their finances.

“We expect that in three years’ time we will have entirely switched to a holistic platform to manage money, beyond traditional banking,” he says.

“Enabling customers to manage all of their finances in one place will remove complexity and, with the application of artificial intelligence (AI) and automation, people will be able to grow their money in the best way, without hassle.”

Open banking could also have a ripple effect on other areas of the finance industry, even if the rules do not directly apply to those products. In future, your data could be used by mortgage lenders to judge affordability as it will document your monthly income and outgoings.

Richard Hayes, chief executive of digital mortgage broker Nuvo, says that third party firms could use open banking data for everything from basic tasks – such as filling in forms automatically – to working out whether lenders are likely to accept your application.

“Open banking means access for brokers and lenders to more accurate information about a customer’s financial situation,” he says.

“This, in turn, speeds up the approval process, as very often delays in decisions are because of inaccurate or incomplete information. It will significantly reduce the amount of documentation and checks that need to be completed too.

“Also, by having access to accurate data on a person’s spending habits, calculating affordability will be much more robust, leading to better decision making.”

The same principles can be used when applying for other types of financial products, such as credit cards and personal loans.

Staying safe

Many people remain sceptical about the benefits of open banking. Moneywise’s poll found that 73% would not use open banking, with most of this group saying they would be unwilling to let a third party access their financial data.

But these concerns may be overblown, according to Francesco Simoneschi, chief executive of financial data firm TrueLayer. He says that the regulator’s checks are in line with other areas of financial services.

“It isn’t surprising that many people are reluctant to share their data with third parties under open banking. A lot of scare stories have been written about the security surrounding it,” he says.

“People should always be careful how and with whom they share their personal information. However, it’s important to note that there is a big difference between sharing personal data freely with an organisation such as a retailer or social media site, and with a third party via open banking.

“The reality is that for a company, app or service to use personal financial data through open banking it needs to pass rigorous security and compliance procedures, including regulatory licensing. The entire process is overseen by the Financial Conduct Authority (FCA) and results in companies having a level of security akin to banks and other financial institutions.”

Consumers can make sure they are dealing with FCA-regulated firms by checking the Financial Services Register at

Mr Trokoudes argues that, in time, customers will feel the benefits of open banking. It will force banks to up their game, as consumers with poor products will be more likely to switch.

“More often than not, when it comes to switching, people fail to get the best deal when comparing products or services because they tend to stick with the financial institution they are familiar with and already have an existing relationship.

“With open banking, the banks’ whole approach to selling financial services – not to mention the way they use data – will be forced to change to prioritise the interests of the consumer, rather than their balance sheets.”

In reply to by anonymous_stub (not verified)

About once a fortnight Virgin Media sends me junk mail telling me how much money I could save by buying services I don't want from them. I'm quite happy with my existing 80MBS service which has a key feature that Virgin doesn't offer. I feel that signing up would lead be very similar with firms continuously pushing you to switch to products unsuitable for you. Finally how do you measure Customer service? I closed my account with a well known Spanish Bank when I discovered how difficult it was to make a large withdraw when I needed to. Funnily paying money in was never a problem.

In reply to by anonymous_stub (not verified)

It is strange that Open Banking is announced for Jan 18 but that many big banks are not ready. Why? Do they not like the idea? I tried to check the legitimacy of a "Fee Finder" website with my bank and was told, at first via secure messaging, that they couldn't, then by telephone that they could because they had a register of legitimate companies and finally that they could not because the register was out-of-date. They blamed the FCA for not updating the register. Where worries over security are paramount, one wonders whether this confusion is deliberate, (to put off open competition) or whether it is just incompetence, which is perhaps even more alarming..

In reply to by anonymous_stub (not verified)

With RBS and HSBC involved? On their recent records ........... no chance.

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