Open Banking

Open banking: the quiet digital revolution one year on

Low public awareness of the many benefits that come with the new rules Lucy Warwick-Ching January 11, 2019

Imagine a world in which, with a few swipes on a smartphone, you could find a better mortgage, compare household bills, cancel unwanted subscriptions, control direct debits and track payments across each of your accounts.It’s not a fantasy. A new wave of apps powered by our personal financial data already exists and has done for the best part of a year — but comparatively few people know about them.This weekend marks a year since the launch of open banking, a government-backed initiative that introduced a secure way for consumers to give financial providers the ability to access their financial information. The rules require UK banks to share their current account holder data through an integration technology called application programming interfaces (API). These APIs can then be used — with the customers’ permission — by third parties, including challenger banks, fintech firms, tech companies and credit reference agencies to open up the financial services industry, and provide consumers with products better suited to their individual needs

.Despite the hype around the launch, public awareness remains low. Just one in four people have heard of open banking, according to a survey of 2,000 people by Splendid Unlimited, a company that helps banks design and build digital platforms. Worse, only one in five of those who had heard of open banking said they knew what it meant or entailed.Here, FT Money presents a user’s guide to this quiet digital revolution, highlighting apps that could save you time and money, future innovations and how the industry is addressing security concerns.Connected Money This app allows HSBC customers to see all their accounts in one place — including those with rival banks — in order to assess where their money goes and see how much cash they will have to spend once bills have gone out.Chip This app uses an algorithm to analyse a person’s spending and work out how much they can afford to save each month — then it siphons that cash away into a separate savings pot.Open for businessWhen asked to describe open banking in their own words, the top two responses in Splendid’s survey were “banks sharing your information” and “all accounts in one place”. Beyond this, understanding of the rules was hazy.

 Respondents were also cynical that open banking was more self serving for finance companies than beneficial to customers. “Open banking has been a bit of a damp squib until now,” says James Daley, managing director of consumer group Fairer Finance. “One year since launch we’ve seen very few of the banks make good use of the new technology and some have struggled even to keep up with the pace required by the Competition and Markets Authority (CMA). There’s very little that can be shown for all the work that has gone into open banking at this stage. But hopefully there is plenty to come this year.”The concept was dreamt up in 2016 by the CMA which ruled that nine of the biggest banks and building societies would have to allow customers to share their financial data securely with other banks. The rate of bank switching is very low in the UK. It is said that you are more likely to get divorced than break up with your bank. It follows that when looking for an overdraft, loan, credit card or mortgage it is more likely that customers will resort to their existing bank, rather than shop around.The idea was that by opening up data to third-party apps, customers would easily be able to compare competing products from different providers.

 The CMA hoped this would lead to more choice and better products to help manage people’s finances.Open banking allows customers to log into one website, or open one app on their phone or tablet, and see all of their current accounts, savings and credit cards in one place — regardless of who they bank with.Yolt Yolt gives you oversight of your current and savings accounts, plus credit cards, on a single interface. It sends customers insights into how they are spending money and what their major expenses are.Bean By using this app, customers can compare deals on all of their household bills, cancel any unwanted subscriptions and track payments across every account, all from within a single dashboard.

According to research by PwC, more than 33m people are expected to have signed up to open banking driven services by 2022. However, PwC said customers had been slow to do so because of concerns over companies they had never heard of having access to details of what they have spent and when they spent it.“The idea of open banking was to drive competition and innovation and to give consumers the ability to save money and give them more financial choices, but it’s been overshadowed by fears over privacy and security of personal data,” says Andrew Hagger, personal finance expert at MoneyComms. “It was always going to be a slow burn, and people need to recognise a real benefit before they are prepared to dip their toe in the water.”Mr Hagger said the launch had not been helped by the fact that some UK banks “have a poor record of keeping existing computer systems up and running, so bolting on new applications may not be a priority and seen as a bit of a risk.”But the landscape is changing and experts predict that this year will see challengers, fintechs, and the high street banks continue to invest in open banking products — which most believe will result in tangible benefits for consumers. The company overseeing the rollout, the Open Banking Implementation Entity, revealed this week that more than 100 regulated financial companies have enrolled in open banking. It says it has another 100 waiting to join.

Imran Gulamhuseinwala, one of its trustees, says consumers are gradually being offered products and services which will securely help them move, manage and make more of their money.Credit Kudos A free online service which uses an individual’s financial data to assess their financial behaviour and work out whether they are eligible for a range of financial services and demonstrate their creditworthiness. Plum Plum connects to your current account and monitors your spending habits, setting aside an amount of money every few days that it has worked out is affordable for each user to save.“Banks have very firmly moved from viewing open banking as a compliance exercise to an opportunity to compete and innovate,” he says. “They have worked hard to implement the standards despite many challenges and an ambitious timescale.”The tipping point is likely to be when consumers feel such apps are not a gimmick and can usefully save them money or time. Examples could be giving an app permission to make an automatic “sweep” from a savings account into a current account to avoid unnecessary overdraft fees, or “informative nudges” that can save consumers money on their mortgage when new rates are released, says Samantha Seaton, chief executive of Moneyhub, a financial management platform.She says such changes will “empower consumers and businesses in the UK and across Europe to achieve greater financial wellbeing” and adds that “as the potential is realised, the next few years will be transformational”.

High street versus superhighway Traditional UK high street banks have been slowly but surely working on new digital services for customers. HSBC was one of the first to release an open banking app last year, Connected Money. By using the app, HSBC customers can see their current account as well as online savings, mortgages, loans and cards held with any other bank. The app is able to group customers’ total spending across 30 categories including grocery shopping and utilities, making it a nifty budgeting tool. Santander has partnered with the Moneybox app to offer its customers the chance to connect their accounts and “round up” their spare change from banking transactions into a savings account. Barclays customers can also view all of their bank accounts — even ones held with rival banks — in one app. The service uses new open banking technology to ensure that customers’ accounts are linked into the app securely without ever asking for sensitive details such as passwords. And as per open banking rules customers will be able to switch off access instantly at any time, at the touch of a button, through the same app.Moneybox With this app, users can invest their spare change by rounding up the cost of digital payments. For example, if you pay £2.79 for a coffee, you can round up the transaction to £3 and swipe to invest the extra 21p into a stocks and shares Isa or Lifetime Isa. It is designed to help people with little spare cash to build savings via micro-payments.Money Dashboard This app brings together your “accounts and assets” on a central dashboard, including current accounts, credit cards and savings. The app lets you seamlessly analyse your income and outgoings, see where your money is being spent, and understand how much progress you’ve made towards your financial goals. However, it is new fintech savvy digital-only banks such as Monzo and Starling that have truly embraced open banking, according to experts. “It’s easier for them with in-house IT capability and without all the headache of big bank legacy IT systems — so at least they know they are not building on sand,” says Mr Hagger.Starling Bank is particularly innovative, and allows customers access to its “Marketplace” where they can choose from a range of products and services that can be integrated with their account. So far, the offering includes Wealthify, a place to go for your Isas and investments, Pension Bee to view pension balances, Yoyo Wallet, which allows customers to collect rewards and points automatically, online mortgage broker Habito and Kasko, a travel insurance app where people can compare policies.Debt management The latest development in the open banking arena, says Mr Gulamhuseinwala, is the move towards apps that “help address some of society’s issues, in particular in the debt advice area”.


Credit scoring companies such as Experian and Equifax report that fintech companies have approached them to talk about how data sharing can enhance their own products and services — especially where it can be used to increase financial inclusion and help people access more affordable, streamlined services. “We’ve seen a number of exciting new personal finance management tools emerge, helping people manage their money more effectively with the extra insight provided through open banking,” says Jon Roughley, director of innovation at Experian. “This additional source of data can also be particularly helpful for building out the financial records of the ‘credit invisible’ population — people with little or no viable financial information to draw upon — helping them to access both mainstream finance and crucial public services online.”Flux This app digitises, automates and organises receipts from a growing range of retail partners, including Eat, Itsu and Costa, and enables users to collect loyalty stamps and special offers digitally through their smartphones. To use Flux, customers must have a mobile banking app from one of Flux’s banking partners, including Starling, Monzo and Barclays.Trussle This online-only mortgage broker’s switching alert helps property buyers find the best home loan, and lets existing users know when they should remortgage to find a better deal. It monitors factors including the value of the home, fees for an early exit and charges on a new loan to identify when the time is right. Experts believe open banking may even bring access to financial advice to those who need it most — people in debt. “If you make things more efficient, it makes it easier to reach people who might otherwise ignore their finances,” says Sean Hawkins, strategic partnerships manager at Ascentric, an online platform that brings together investments and pensions from different providers. Speaking at a recent roundtable hosted by technology provider Bravura Solutions, he added that people leaving university with debts “might simply think their finances are bad and ignore the issue. Open banking makes advice more inclusive.

A question of trust Despite the numerous applications of the new technology, concerns about security that are yet to be dispelled and the industry is seeking ways to reassure customers. The promises that open banking pioneers have made are easier budgeting, better deals and more control. If these translate into pounds and pence gains, trust is maintained and data are respected, experts say we can expect the mass adoption of innovations like budgeting apps, digital money assistants and dashboards in the future. Becky O’Connor, a personal finance specialist at life insurer Royal London, said: “At the moment, what we have is a lot of competing apps that, to the average user, do roughly the same thing — track and categorise spending, add savings goals and let you see if you are on course to achieve them. Many providers are not on board. The industry is still finding its feet, working out how to be most useful to banking customers and there are kinks to iron out.”Although awareness of open banking is still low one year on, Ms O’Connor says: “In a way, people don’t really need to know the term. What matters more is that as more people sign up to services that have adopted open banking, they actually see some financial benefit — and their data are not misused.”For open banking to gain traction in the year ahead, banks and app providers will need to build trust and educate customers on the safety of their data — and to prove that by sharing this information it delivers value. Listen: Open Banking: what is it and how can you benefit from the new rules Get alerts on Personal Finance when a new story is published Get alerts Copyright The Financial Times Limited 2019. All rights reserved.