Blog 53

open banking

When it comes to innovation and introducing new technology, the financial industry has been quite slow on the uptake until very recently. In the meantime, we’ve seen many disruptors like Monzo and Transferwise among others enter the payments market with quite specific services to take on banks and help customers manage their finances in a more flexible way. They’ve been focusing heavily on digital services and customer experience to go in line with the modern technology and customer behaviour. Some companies exist purely online and don’t have physical branches. However, financial institutions are now playing catch up and investing more into tech to optimise their user experience and services to keep up with the smaller players.

Today, consumers can have multiple bank accounts for a number of services - savings, mortgage, loans etc, and they can be with different banks. So far, this has been quite difficult to manage and get a good overview of them all together. Open banking is one of the latest trends to address this and display financial information from different accounts on one screen.

Open banking is a new service that allows authorised financial providers to share data with each other to display it in one account regardless of the bank as long as the customer gives their permission. For example, if you have a current account with Barclays, by linking accounts from Lloyds, Natwest and HSBC, you can see your credit, mortgage and even utilities information in the same app. Moreover, authorised third-parties like utilities or insurance companies can also be part of this. This is to offer a more transparent view of finances, help get more tailored products and manage money in a more effective way. Open banking allows businesses to help customers find ways of saving money through deals. Smaller businesses could also have an opportunity to create more innovative products to suit their customers.

Because only regulated providers are allowed to be part of open banking, the security is high and customers can be sure their data is protected. Ultimately, they remain in charge of who can access their financial data.

Mitigating financial risk

This is undoubtedly a simpler way of managing finances, but it also involves sharing financial information with not only other banks, but third-parties, albeit regulated. There are a number of standards they need to meet to provide secure and reliable services, but they can also hold a big responsibility in helping vulnerable customers manage their finances easier.

There’s a potential for open banking to help companies provide useful tools to anyone struggling with their finances. Moreover, by tracking spend or patterns in behaviour which leads to overspending could help prevent it. Opening up customer data to other regulated schemes could really help address this. For example, organisations that having access to a customer’s gambling information could offer tools to encourage them to self-exclude or set limits on how much they could spend at a time.

Building software that monitors spend across different bank accounts and the proportion of transactions relating to gambling activities could be very useful to those trying to reduce it. It would offer vulnerable customers more control over their finances and improve responsible gambling.

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Open banking in other industries

Industries outside of finance could also hugely benefit from open banking. These are sectors where financial security and money management are equally important. For example, the data shared between bank accounts could be used to help ascertain anti-money laundering risks and assist with enhanced due diligence in online gambling. This financial transparency could also be linked to responsible gambling initiatives, such as engaging organisations like GamCare with helping vulnerable individuals reduce their gambling activities. The UK Gambling Commission is looking for technical tools to help manage risks for both responsible gambling and anti-money laundering, and have already championed open banking as a potential solution. As the entire gambling industry is currently working towards increasing security measures and protecting their customers, this could be a welcome solution.

There’s a good chance that open banking will become something we’ll see more of across a number of industries in the future once more financial providers and suppliers get on board with it. It will be interesting to see how others will adopt it and how it will affect innovation or the way businesses tailor their services. Open banking could be something that could transform the financial industry.

If you'd like to discuss these opportunities with us further, drop us a message.

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