What is open banking – open banking explained

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Open banking is a way of seeing all your accounts in one place. But how will it work and what does it mean for your data? Are you at risk of fraud?

What is open banking?

Open banking means you’ll be able to share your banking data with other companies and manage a range of accounts via a single app or website. It will make it easier for you to move money between accounts. For example, moving money from your current account to your savings accounts and vice versa.

It will also make shopping around for a new bank account more meaningful. That’s because you’ll be able to get recommendations based on how you use your existing current account, not on scenarios outlined by the price comparison site.

SAVVY TIP: Open banking is sometimes also referred to as PSD2. However, this is in fact a separate EU payment directive. PSD2 (Payment Services Directive 2) sets out the legal framework for third parties to access banks and their data. Open banking sets out a common standard that banks must adhere to.

Who offers open banking?

The Competition and Markets Authority, which investigated competition in the banking sector, said that some of the biggest banks have to start rolling out open banking from January 13th. Those that are in the first wave of offering open banking are due to finish the roll-out by the end of March 2018. In time, more banks should offer open banking. However, some of the first wave of banks won’t meet the initial January deadline.

Here’s when the nine biggest providers of current accounts for individuals and small businesses are expected to start rolling out open banking.

AIBG (Allied Irish Bank) – from 13th January

Bank of Ireland – from later this spring

Barclays – from February

Lloyds Banking Group – from 13th January

Danske Bank (operates in Northern Ireland) – from 13th January

HSBC – for some customers this will be delayed until February. For First Direct and M&S Bank customers, it’s delayed until April.

Nationwide – from 13th January

NatWest/RBS – for a small number of RBS business customers it’s delayed until February.

Santander – for some Cater Allen private banking customers and several thousand small business customers, it’s delayed by up to a year.

SAVVY TIP: Open banking may initially be available to the bank’s own staff who are customers. It will then be rolled out to other customers gradually. This is designed to enable bank to test the system further before it’s available to all customers.

What difference will open banking make?

Open banking will let you do several things that you can’t currently do. We don’t know exactly what difference it will make until we see the range of apps that are developed in response to open banking. However, the Open Banking website gives these examples of services that may be available to you in the future.

  • A price comparison site could look at how you use your bank account now to recommend the best account to switch to.
  • A budgeting app could give you tailor made tips on how to improve your money management. This would be based on how you use your current account.
  • An app could monitor your current account balance and warn you if you’re about to go overdrawn. Or it could move money between your accounts automatically – even if they’re with different providers. For example, you could set up the app so it moves money to your savings account when your current account has a certain amount in it. Under open banking, you wouldn’t have to give permission every time a transfer took place.
  • An app or website could let you see all your financial accounts in one place – no matter how many different financial providers you’re with. You’d be able to move money around and make payments from any of the accounts you’ve opted to share data from.
  • A mortgage lender may be able to check your bank account directly rather than relying on you to provide bank statements. This could speed up mortgage applications.
  • It could be quicker and easier to set up payments directly from your bank account. You could make payments without having to give your credit or debit card details.

Open banking and data sharing

The other big change relates to sharing of your data and who’s responsible if it all goes wrong. Under open banking, if you choose to share your data from one bank with a third party app (for example, a money management app), your bank will compensate you if any money is stolen as a result of a security problem with the sharing of data.

Up until now, if you’ve wanted to use a budgeting app, many of them ask you to provide your login and password. Although the apps haven’t been able to make payments or move your money around, they’ve essentially been pretending to be you to get ‘read only’ access to your bank statements. In most banks’ terms and conditions, they’ve included a clause that says the bank won’t reimburse you if your details or money is stolen as a result of using the third party app. You might not have been aware of this, but it’s been there!

SAVVY TIP: Once open banking comes in, the data you share will be done via the bank’s own systems, not using a third party app’s systems. Therefore the bank will be responsible for refunding you if there’s been any fraud committed.

Will my data be shared automatically through open banking?

No. You will have to actively choose to share your data through open banking. It won’t be something that you agree to without realising because it’s hidden in pages of terms and conditions. If you don’t want to share your data with a third party app or comparison site, you won’t have to.

Does open banking increase the risk of fraud?

Hmm. This is a difficult one. The advantage of open banking is that, if your data is stolen because, for example, the bank’s system for sharing data was hacked, it’s the bank’s responsibility to refund you.

Any app or price comparison site that your bank shares your data with through open banking must be registered with the Financial Conduct Authority FCA). The only exception is if it’s based in the EU, in which case it may be regulated by its equivalent host country regulator. Either way, the security standards have been laid down by the FCA. However, that doesn’t mean that data can’t be stolen. Tesco Bank is just one bank that has been hacked, as has the credit reference agency Equifax, and both are regulated by the FCA.

The other issue is that fraudsters are – in my opinion – bound to use open banking to try and trick you into sharing data on sites that aren’t regulated by the FCA. In order to share your data via open banking, the app or price comparison site has to be regulated by the FCA. But my concern is that fraudsters will trade on the confusion about open banking and get people to hand over their logins and access their data that way.

My advice is:

  • Don’t sign up to share your data with an app without checking that it’s registered with the FCA. You can check the register on the FCA website.
  • Check what others are saying about the app – use sites such as Trustpilot to check its review rating.
  • Watch out for companies approaching you via social media – and definitely via spam emails or texts.
  • Try and pay a company you’re not familiar with by credit card as you get the best protection against fraud (namely, they don’t have direct access to your bank account). If you can’t do that, pay by debit card.
  • Know your rights – if you’ve signed up to share your data with a reputable price comparison site or app and it’s stolen, your bank should refund you.

Useful Links: Find out what banks are listed on the SavvyWoman directory

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Mobile banking; tips on how to bank safely

Bank frauds and scams to avoid – how to reduce the risks of being a fraud victim

VIDEO: What to do if you’re a victim of ID fraud

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