Open Banking has had a transformative impact on the way financial data is used and shared since its introduction. Contrary to popular belief, Open Banking is not a product or piece of software. Rather, it’s a piece of legislation that allows trusted third parties to view current account information securely, providing the practice has been approved by the account holder. More so than anything else, Open Banking has spawned a mini-revolution in the provision of financial products and services, making everybody’s lives easier. But its appearance has led many people to question, how safe is Open Banking?
Open Banking Explained
Your bank knows a lot about you. Your account shows how much you earn and spend each month, what your outgoings are, and who you make regular payments to. Such information is useful to you and various other financial institutions for a number of reasons.
Since Open Banking was introduced in 2018, it has required the large current account providers (Barclays, HSBC, Lloyds, Santander, Nationwide) to open their data. Crucially, they don’t just disclose your information to anyone who requests it. Instead, providing you give your permission, they allow providers to plug into your financial information securely. This process makes it much easier for lenders to access accurate financial data about you, which can speed up their decision on whether to loan you money. From mortgages to unsecured loan applications, Open Banking has the potential to revolutionise how you manage your money.
What impact does Open Banking have on UK bank accounts?
In terms of logging into your online banking platform, you won’t notice any difference in how your account is set up. The difference is only notable when a third-party provider seeks to access your financial data securely. Of course, you need to give them permission to do this; they can’t just tap into your data without your approval. Opening up your data can save you time and effort (particularly where form filling is concerned) and may even improve your chances of being approved for credit.
How safe is open banking?
Open Banking is incredibly secure. Any third party that wishes to utilise Open Banking must be authorised by the FCA. Providers that are approved to use Open Banking must then adhere to strict rules and regulations in regards to data protection, and customers are supported by a financial ombudsman if any issues do arise. Another thing to be aware of is that Open Banking is completely optional. If you don’t want your data to be shared, you can simply refuse consent, and nothing will change. You can also change your mind later down the line.
Who can access your data?
The premise of Open Banking is to provide you with more control over your banking system. Therefore, you must give a third party permission to access your data, and you can change your mind at any time. You can grant two levels of permission to third parties, which determines what they can access:
- Account information services – this information includes things like your bills, monthly income, and details about your overdraft.
- Payment initiation services – a provider is able to make a transfer or payment on your behalf.
Third parties are only able to view information relevant to the account that you have approved, and they can’t access data from linked accounts or others in your name. So, for instance, a third party wouldn’t be able to see your credit card balance just because you allowed them to access data from your linked current account.
Is there a register for Open Banking?
Helpfully, the FCA maintains an Open Banking register that you can search at any time. You can look for a company by name or reference number, and you will be able to see the permissions that the FCA has granted them. This is a good bit of due diligence on your part, as it will ensure you’re dealing with lenders that you know you can trust.
Do I need to sign up for Open Banking?
You can refuse to participate in Open Banking, and you can opt-out at any time. It is not mandatory. Also, to get involved, you will actively need to opt into Open Banking, providing the financial institution with your consent. Although there are undoubtedly benefits to using Open Banking, you can opt-out if you choose and keep your data private. Bear in mind that some products and financial services are only available to people who opt into Open banking, but they’re not overly common. As such, make a decision that you feel comfortable with and don’t feel pressured into opting in.
What are the key Open Banking takeaways?
Primarily, Open Banking is a way for you to better manage your finances and is designed to put you in control. It is a secure way to share your bank details with a third party, which can help things like loan applications. Open Banking also unlocks various helpful services, which can improve the financial tools that you use every day. You should also remember that you’re in full control over how your data is used, so you can withdraw permission at any time.
For more information about how Open Banking works and how it can benefit you, Koyo Loans’ Open Banking Resource is a hub of useful information.