It’s the second anniversary of the Open Banking legislation coming into effect. But just six months ago, almost three quarters of UK adults had still not heard of it, according to a YouGov poll. Here, Charlotte Lorimer speaks to three co-founders of fintechs that use Open Banking, to explain what it is and how it can help you manage your money.
What is Open Banking?
“Not many people know what Open Banking is,” says Loral Quinn, co-founder of social impact fintech Sustainably, one of hundreds of regulated organisations in the Open Banking ecosystem.
Open Banking aims to improve access to third party products and services by giving customers the option to share elements of their banking data. Starling Bank was designed with Open Banking in mind right from the outset. Its Marketplace, the space in the app where customers can browse and link third-party products and services to their bank account, is an example of going above and beyond regulatory requirements and really opening up banking for the better.
“It’s a job for all of us to work together to educate people,” says Michelle Pearce-Burke, co-founder and Chief Information Officer of Wealthify, an online investment platform. “From a customer point of view, I think there’s a healthy amount of scepticism: would you give other applications access to your bank account or other financial apps? There’s been so much in the press over the last 18 months about data and being protective so I think people are a little bit wary.”
How can Open Banking benefit customers?
Wealthify is one of 21 integrations available in Starling’s Marketplace. Customers can choose to share their Starling banking data with the third-party to save duplicate form filling and then pool data back into their Starling app. Partner apps exchange data with Starling through APIs, the name for the technology that enables different software packages to exchange information.
For example, if you sign up to invest with Wealthify through the Starling Marketplace, you’ll be able to see your Wealthify investment balance within the Starling app. “It’s about being more customer-centric and letting the customer access their data in their application how they like. For some people that’s separate apps,” says Michelle. “But for others that’s having one holistic point like Starling Bank where they can log in and they can see everything in one place.” As a Marketplace partner, Wealthify is part of the Starling Promise: it costs the same to sign up to Wealthify through the Marketplace as it would going direct.
Outside the Marketplace, budgeting app Emma uses Open Banking and APIs to help customers collect data from multiple bank accounts to build an accurate budget. “With Emma, you can manage your regular subscriptions and direct debits and see the balance on your overdraft and across all your bank accounts,” says Emma’s co-founder and Chief Executive Officer Edoardo Moreni.
For example, if you’re a Starling customer with both a personal and a business account, a separate savings account in another bank, plus investments with Wealthify, you could choose to collect all this data in Emma to create a budget. You can set a target spending amount for housing, bills, shopping, eating out, groceries, transport and entertainment and Emma will send you notifications when you’re getting close to your budget. It also gives you an overview of your monthly spend by category.
For those who are self-employed and work from home, this is especially helpful. Say your TV licence comes out of your personal account but your energy bill comes out of your business account in order for a portion to be set against tax. With Emma, you can collect them under one budget for bills even though they come out of two separate bank accounts.
Payments between Starling accounts or moving in or out of your Starling saving Goals are automatically excluded from your Emma budget, giving you a smart overview of what you’re spending. Emma also remembers when you recategorised a transaction, as does the Starling app.
“This year, we’re going to be refining the experience more and adding more categories. We’re also going to help people switch their broadband, energy supplier or mortgage provider,” says Edoardo.
Does Open Banking mean all banking data is shared?
If you’re nervous about sharing your data through Open Banking, keep coming back to the fact that your data belongs to you. Starling completes comprehensive due diligence of all companies before they become Marketplace partners. This includes data protection policies and information security approach.
If you give apps such as Sustainably, Wealthify or Emma permission to connect to your Starling account, that doesn’t mean they have access to all your Starling banking data. They will only see or use the data you allow them to and you can revoke access at any time.
“We’re not looking at all your data, we’re just looking at the point of sale data,” says Loral. Sustainably uses the point of sale data to round up your purchase and donate the change to your chosen charity. For example, if you spend £5.70 at the Post Office, 30p could be donated to one of 13 charities that Sustainably has partnered with. Once you reach £5, you’ll be sent an update from the charity on the impact your money is making. “It’s all about that do good, feel good feeling and trying to inspire and educate around what it is that you are actually doing, not some disparate newsletter sent three months later.”
Starling is one of 13 banks connected to Sustainably, which in turn connects to 13 charities. This means that Starling customers can choose for their purchases to be rounded up and donated to charities such as Alzheimer Scotland or MacMillan Cancer Support. In 2020, Sustainably will launch a platform for new charities to sign themselves up, thereby increasing the number of options for Sustainably customers. “We’re expecting that thousands will benefit - both charities and customers.”
Open Banking is still in its infancy and innovative products are being developed all the time. Over the next few years, as more applications are developed and customers become more familiar with the possibilities, it’s very likely that many more people will embrace the opportunities. Perhaps one day, the use of Open Banking applications will become as ubiquitous as the use of contactless.