When outlining your priorities, needs and money habits, your transactional data is probably more valuable than the cash you actually keep in the bank.
The banks have traditionally had a monopoly over your data, but new regulation is targeted at weakening this tight grip, putting you back in the driving seat.
Known as Open Banking, most agree that this regulation has the power to drive innovation and transform the way we manage our money – if done right. But to unlock its full potential, it involves sharing your data with companies other than your bank.
This can understandably be a concern, especially when you hear news stories of high-profile hacking and scandals of data misuse. For decades we’ve also been told that sharing your information with someone other than your bank is dangerous.
For this reason, it will be up to the industry to prove that data privacy is at the top of the agenda from day one. Data has always been valuable, but it’s now becoming invaluable for individuals wanting to plan and manage their finances.
What is Open Banking?
Open Banking essentially describes a set of regulations, including the European Payment Services Directive 2 (PSD2) and the Competition and Markets Authority’s Open Banking Remedy.
The current regulation framework covers all payments accounts, like current and savings accounts, and it’s widely acknowledged that Open Banking will extend to other financial products.
This European-wide legislation is expected to foster competition and drive innovation by enabling individuals to share their transactional data with third parties, and getting companies to share product information and customer satisfaction scores.
What does this mean for you?
Essentially, people will be able to share their data with the companies they chose to help deliver more personalised services, products and advice.
Data helps shape your identity as a consumer by outlining your priorities, interests, needs and habits. This is incredibly valuable for banks, who have – until now – been able to keep all this information for themselves.
Open Banking recognises that your data is, in fact, yours, and puts you back in the driving seat when it comes to managing your money – not at the whim of the banks like it has been for as long as many of us can remember.
People can now use their spending habits and savings details to get access to more personalised and better quality advice, but the opportunities that stem from this regulation to help you manage your money better are endless.
Currently apps like Yolt allow you to sync your high-street bank account to budgeting apps that analyse your spending habits and provide helpful nudges to keep you on track with a savings goal. Companies like Habito use AI to help provide you with free mortgage advice online, and apps like Squirrel can help with bill management.
Seeing all your incomings, outgoings, and spending habits through one platform should make it easier to manage your finances, enabling you to make better, more informed decisions with your money. Companies will be able to help you identify better rates on pensions, mortgages and investments for consumers, arming you with the tools to make switching simple. When it comes to investing, people will be able to get more personalised advice at a low cost.
The role of technology in Open Banking
Technology is the backbone of Open Banking, connecting all the pieces of your financial skeleton together and driving innovation.
The industry is using Application Programme Interfaces – known as APIs – to safely and efficiently share data between banks and third parties, and Artificial Intelligence (AI) to help machines learn from large data sets and deliver more personalised products and services.
Cloud technology has transformed the way information is stored, allowing companies to be more agile, lower costs and communicate with their customers in ways that better suit them. Even distributed ledger technology, the tech behind bitcoin, could significantly improve the accuracy, efficiency, and security of payments, clearing and settlements over time.
Whilst this technology is encouraging industry players to shoot for the moon, there’s a responsibility for companies integrating this technology in the foundation of their businesses. It’s easy to underestimate the value that can be passed onto the customer by implementing this technology into the backbone of businesses now.
This philosophy is radiating far further than the fintech start-ups as incumbents try not to be left behind. So far they’ve been slow to react – whether it’s the legacy systems weighing them down, boardrooms failing to understanding the potential technology holds, or a C-Suite apathetic to change. But momentum is shifting, which will only be a good thing for the consumer.
As financial services start to move away from being just a utility, Open Banking is forcing banks to innovate and disrupt themselves to keep up with change.
What are the risks of Open Banking?
The concerns around Open Banking are understandable, and largely boil down to trusting the security of sharing your data with third party organisations. The opportunities created by Open Banking also have the potential to exacerbate some of the problems in the traditional system.
Individuals are right to demand that their details are kept safe, it’s up to the industry to prove that data privacy is at the top of the agenda from day one.
Companies wanting to use your data will need to comply with strict guidelines to show how robust their defences are and most will be required to have fraud insurance. Remember, banks aren’t safe from the threat of cyber-attack either, but ensuring the right safeguarding and redress processes are in place will be critical so consumers are confident they know what to do if things do go wrong.
Data has always been valuable, but it’s now becoming invaluable for individuals wanting to plan and manage their finances. Once the opportunities Open Banking brings become clear, the concerns should fade.
What is Moneyfarm doing?
Understanding the potential Open Banking holds to help empower consumers to manage their money in the right way for them, Moneyfarm is taking steps to make the most of this opportunity.
We’ve partnered with First Direct and Bud on its artha app, a platform that allows consumers to see all their account information from their different providers in one place, along with budgeting tips and product suggestions.
Moneyfarm has also bought an Open Banking-ready platform that could enable individuals to link their bank accounts with a chatbot that provides regular updates on balances and goals. We’re the first robo advisor looking at how to incorporate this into our service to provide more personalised advice.
This should help make the planning phase of saving and investing much more simple, which is a founding philosophy of ours.
Over the coming months and years, the way you interact with your money and think about personal finance should be transformed as financial services prioritise innovation. Your data will help you plan your finances and suggest the right products for you, and at the right value.
As the industry wakes up to the step-change, partnerships are starting to pop-up. It’s all about putting you back in the driving seat when it comes to making the right decisions with your money. Open Banking will help remove some of this guesswork.