Open banking goes live – what will it mean for consumers?
This month, the UK became the first country in the world to implement open banking.
What happens next will be closely watched further afield in Hong Kong, Singapore, Japan, Australia and the rest of the European Union, all of which are all in various stages of investigating open banking for their own banks.
The concept, we are told, will give consumers more choice, more control and a quicker, easier and more efficient way of accessing their financial data. Enabling them to switch with greater ease between providers getting themselves the best deal for their personal circumstances. One commentator has dubbed it “a gigantic financial experiment in which Britain is leading the world.”
What is open banking and what are UK consumers now able to do?
Open banking will be facilitated by the introduction of open banking apps. By downloading an app, the individual will have the power to ask their bank to share details about their financial transactions, direct debits, overdrafts etc with other third-party banks to see if there are better deals or products for them to switch to.
Currently the initiative only enables consumers to access and share, what in the UK is referred to as current account information. In time, it is anticipated that savings accounts, loans, mortgages and even pensions will be accessible.
As and when more services are brought into the process it is likely that the apps will expand to enable consumers to see dashboards of all their financial data, giving a complete picture of money coming in, going out, saved and owed helping everyone understand and engage with their finances in a more meaningful way.
How significant could this change be?
This change of engagement and proposed increase in transparency could be profound. Speculation is rife about the incumbent banks becoming little more than repositories for accounts, with the new kids on the opening banking block using it as an opportunity to snatch the more profitable services – something we raised in our FinTech report last year.
But for the consumer this shake up could be just what is needed. If done properly, the open banking experiment could bring better choice and greater transparency so long as banks and apps take informing and reassuring people that their financial data and personal information is safe and protected seriously.
This is vital, particularly when two thirds of people in the UK are reported to be reluctant to see their data shared with third party providers. Knowing what is happening with their data, when, why and how is absolutely essential.
The need for data transparency and security
Early stories about the apps launched so far show a mixed picture of information about how long data is stored for, with one app holding data for five years. There are also suggestions that some of the apps will be keen to continuously monitor financially activity. Unless consumers are completely clear on what services each app offers and how they can opt out and restrict data sharing, this approach will be problematic. Particularly for those who will want to test a range of apps before deciding which one is best for them.
Clarity about data is one aspect of concern, security of the data another. It is reassuring to hear that the UK Financial Conduct Authority have created an Open Banking Register which banks wishing to participate in open banking will have to be approved by. Clearly the hope is that this process will stop fake institutions and bad practice. This will help to steer consumers towards the main players in the marketplace. Though of course a close eye will have to be maintained to make sure players don’t drift into bad practice.
Additionally, banks will act as the middle man; in the form of being an API (Application Programming Interface). This means the banks have responsibility for actioning their customers’ requests – so if something goes wrong the customer can seek redress from their bank, rather than being left high and dry with no-one to complain to.
However, there is no such thing as 100% secure when it comes to data and transferring or sharing data and consumers shouldn’t be fooled into believing everything is going to be fine. Despite going out of their way to be as secure as they can, banks are not immune to data breaches, website crashes or persistent attempts by hackers to infiltrate their systems. Ensuring security of systems and security of data flows to third parties may be trickier than imagined.
Placing our trust in algorithms
Whilst security of data has been considered, it will be interesting to see whether the same level of consideration has been given to the impact of algorithmic bias. The complexity of algorithms and automated decision making is just beginning to dawn on people. Our recommendations to the G20 called for the building of trust in the digital world by seeking greater transparency about how algorithms could affect quality or price of a service, and how they can used to make decisions about consumers which could have negative implications. A good starting point to this will be establishing clear processes for lawful use and effective frameworks for addressing problems should they arise, such as rights to challenge automated decisions.
These issues cannot be side stepped or swept aside. If any bank is found to be using machine learning which demonstrate bias against a consumer based on data analysis, customers will not only question their reliability but long term their reputation could be left in tatters.
Reasons for cautious optimism?
With all these points of concern hovering around, open banking will have to prove itself necessary, useful and ultimately trustworthy for consumers to take it under their wing. This isn’t just about choice, convenience and transparency. It is about privacy, security and protecting consumers from bias and profiling.
With great disruption can come great opportunity, but history has taught us that disruption can also bring unintended consequences. Open banking will need a close eye, careful monitoring and measured enthusiasm. It will be interesting to see what happens next.