Open Banking principles

The Competition and Markets Authority (CMA) has ordered Britain’s high street banks to adopt ‘opening banking’ principles. In doing so it has heralded a new era of data-sharing between financial service organisations.

In the next two years, a data revolution will take place in retail banking. Key to the change will be the adoption of a common, open standard that enables the seamless digital exchange of consumer data.

For financial service organisations, the implications of this change will be huge. The opportunity will exist to develop a range of new banking products and services, including those to assist personal financial management.

The data exchange will be powered by Application Programming Interfaces (APIs), the technology that millions already rely on to automatically share information across phones, tablets, and desktop computers. By 2018, says the CMA, retail banks should to have open APIs permitting ‘authorised intermediaries to access information about bank services, prices, service quality, and customer usage’.

The goal, says the CMA, is the establishment of services that enable consumers to manage accounts from several providers through a single application, allow easy transfers between current and deposit accounts, make simple and safe price and service comparisons, and monitor accounts and forecast cash flow.

An open data source will also provide real-time data on an individual to help financial organisations tailor service accurately. This information flow should also enable more thorough due diligence from financial bodies and remove any arguments around the possible miss-supply of financial information by a consumer in the case of a loan going bad.

For many in the financial sector, the move to open banking represents a first step on the road to fully immersing the consumer in the information they need to manage all aspects of their financial life in a developing digital economy – that could eventually mean apps and dashboards bringing personal savings, pensions, and banking information together at a single destination.

This can only come about, however, if public concerns around data security, privacy, and identity theft can be properly addressed through the establishment of adequate safeguards – and if the system is developed to ensure customers are, at all times, in control of where data is accessed, and by whom. We have seen a lot around ‘education’ within our recent identity debates and the general consensus from participants is that education is pivotal in a changing era.

The new system is intended to help the consumer better understand their expenditure and encourage a greater responsibility for personal finances. For that to happen, traditional banks need to work together with challenger banks, new FinTech businesses, and price comparison websites on a range of technical and governance issues. This is potentially an exciting collaboration and a time to start embracing new and cross-sector ways of working, which are primarily not that different – some are further ahead in some areas but not in others.

The most difficult of these, perhaps, will be the development of an accreditation process that will eventually allow institutions to gain access to customer data. But that alone isn’t the only challenge. As with any significant market shift repercussions will be felt throughout the industry – and these are issues we’ll examine in the future when we look at:

  • The challenges brought about by ‘open banking’ – and the infrastructure required to underpin the transformation
  • How high street lenders are likely to respond to this rapidly shifting landscape and how you can maximise the opportunity it provides both you, and the consumer
  • What it all means for the consumer – and the potential pitfalls that must be avoided