As technology advances, so does the number of finance and banking options available to consumers looking to save, borrow and invest. You may have heard of an initiative called ‘open banking’. But do you know what it is? What are the benefits and the risks of opting into open banking?
For those that are unsure, or want to know a little more, we’ve gathered together the key points for you. Scroll down to find out what open banking is, how you could benefit and how it affects you.
What is open banking?
Open banking, in its simplest terms, is the practice of sharing financial information electronically, allowing regulated UK banks and financial services providers access to your financial data, such as spending habits, direct debits and credit card statements – but only if you give permission to do so.
The idea behind the initiative is to encourage competition and innovation within the financial services industry. The end result being better products and services for the consumer.
Access to your data provides the opportunity for lenders to recommend products such as credit cards or loans that will save you money.
It also gives you the option to sign up to a service displaying all of your financial accounts in one place, to give a clear overview of your borrowing and spending.
What are the benefits of open banking?
Open Banking provides choice. Removing the limitations of one account with a single provider and opening up a variety of options in terms of services, products and offers.
Customers also benefit from the improvements that occur as a result of legacy and challenger banks increasing the range and value of their products to stay competitive.
Aside from this, the finance sector is also putting a lot of effort into improving the user experience. Especially in terms of digitalisation, which is where Fintech companies, like AskIf, are ahead of the game and traditional lenders are playing catch up.
Competition only serves to benefit the consumer, as businesses up their game in a bid to win their custom.
What are the risks associated with open banking?
For all the benefits, there are of course risks. It is the responsibility of governing bodies, banks, fintechs and other finance providers to ensure suitable protection and procedures are in place to protect consumers. The industry is working hard to find ways to improve security levels, so that the risks associated with open banking don’t begin to outweigh the positives.
You’re in control.
It’s wise to point out at this point that there are risks involved when providing your personal data to any type of business or service, financial or otherwise.
However, as long as you stick with authorised providers, the benefits far outweigh the potential risks. Providers are only able to access the information relevant to the service you have signed up to and all must comply with data protection rules, including GDPR regulations – which state that service providers must tell you exactly what data will be used, how it will be used and how long for.
Remember the choice is yours.