How confusing is Open Banking?

Open Banking. It’s been in the press a lot recently. Reports, statistics and conferences have all discussed it for positive and negative reasons.

Some say it heralds the dawning of a new, exciting era for finance. It’ll help us to see money and manage our lives in completely different ways to the past.

Others, like Mark Carney, sit a little more on the fence. He emphasised how fintech can ‘democratise’ finance, as well as how it could pose risks to the stability of the economy.

What’s frustrating, however, seems to be how little information has really been passed on about Open Banking. Particularly to those outside of finance and fintech. Or does that matter? Do all of us really need to know and understand Open Banking?

Last week, we read Faith Reynold’s report ‘Open Banking : A Consumer Perspective’, which discusses the regulations transforming how customers and their data are treated and better protected.

Sponsored by Barclay’s, it’s an interesting overview of the exciting and powerful ways Open Banking could reshape our experience of financial services.

The gist, if you look at Reynold’s narrative, is that the time has come for financial services to provide something the customer wants, needs and deserves. And it’s what many in finance see as Open Banking’s piece de resistance if you listen to what’s being said by policy makers such as Andy Pinder.

But, hang on, what is "Open Banking"?

You’re not alone if you’ve not heard of it. A poll of over 2000 adults conducted by YouGov on behalf of the credit referencing agency, Equifax, revealed that 90% of Brits have not heard of the Open Banking initiative.

At Starling, we’re passionate about what Open Banking means for people on an everyday level and how this impacts the way we see money. It’s a movement towards enabling consumers and small businesses to share their data, securely, with other banks and third parties.

The main idea is that the change will help us see all of our money – whether it’s savings, investments, loans, or day-to-day accounts – all in one place. We should then be able to better understand our money. Moreover, it’ll be much easier to compare different providers of various products to find the best deals.

So if you’re looking for a mortgage or a new credit card, you won’t get stuck with options from your usual bank – you might find a better option with another bank or a new fintech specialist

Opening Banking will help with easier, clearer, faster, decision-making when it comes to your money.

Attending the All Party Parliamentary Group for Fintech roundtable, we heard about the strategy being developed to ensure consumers benefits whilst providers are held to account. So far, the rules and regulations seem to be ticking all the right boxes.

With the hope of being agile, transparent and able to move fast, the strategy focuses on the features of the market identified by the government as giving rise to adverse effects on competition.

Last year, Andrew Pinder CBE was appointed to oversee the delivery of the industry-wide project as a trustee for the implementation.

As things stand, there’s a huge amount to be done in making it clear to consumers how certain elements of Open Banking work.

For example, what does “Open” really mean?

If it refers to customer data, what data is shared? How? Who looks after it? How secure is it? And ultimately, how can consumers be sure they’re really the ones benefitting? What regulations protect them?

Talking about “corporate data integrity and ethics” doesn’t mean much in the real world. Not unless it’s anchored in what’s practical and holds the right entities to account. This is particularly poignant given that there is overlap between the UK’s “Open Banking” initiative and the catchily named “European Payments Service Directive 2” (aka. PSD2).

So with legislation looking like being passed within the next year, who is responsible for helping people to understand Open Banking?

Is it the responsibility of the financial technology companies or is the government taking the reigns?

Because whilst it seems obvious to banks and fintechs what benefits exist, outside those circles it’s barely mentioned. People have little knowledge of the initiative and many feel dubious about sharing personal data through Open Banking. A great example: 60% of respondents to Equifax’s poll said they wouldn’t consent to sharing their data.

Yet the benefits are real. A recent report from Money and Mental Health Policy Institute (MMHPI) called ‘Seeing through the fog’ noted for the market to work effectively, consumers need to be engaged and active. But this takes time, effort and energy, a challenge that many people with mental health problems find difficult to meet.

They said:

In other words, Open Banking creates a clear motion towards customer-centricity in the UK’s financial services.

The problem could be that the consumer loses out unless there is clarity from an early stage in legislation.

This is why it’s so important for people outside of finance to be aware of Open Banking too.

As increasing competition in banking and finance is central to Open Banking, it’s vital the various elements at work do not inadvertently exclude any particular group – especially not through lack of clarity or awareness.

It is absolutely important that people understand Open Banking, how they are being put in control of their data, and how this benefits them and their financial health.

It’s an exciting and momentous time for banking. And at Starling we look forward to sharing more insights about the Open Banking initiative, in plain English, as the movement goes from theory to much-anticipated reality.