Open Banking has been around since 2018 and has since been changing the way we share our financial information.
But what exactly is it? And how does it work? Most importantly, is it safe? In this guide, we’ll answer all of these questions and more to help you better understand Open Banking and its benefits.
What is Open Banking?
Open Banking is a set of rules that require banks to let you share your financial data with authorised providers, such as money management apps or websites. By doing so, you can give these providers read-only access to your spending transactions, regular payments, and account balance.
The idea behind this is to make it easier for other organisations to use your data to personalise their products or provide suggestions on areas where you can save.
How is Open Banking Used?
Open Banking has paved the way for a variety of useful ‘money management’ websites and apps. These can use your financial data to offer you a personalised service or make recommendations on ways to save based on your spending habits.
For example, automatic savings apps analyse your current account data, such as your available balance, and calculate how much you can afford to save. The app then moves the calculated amount into a savings account automatically.
Additionally, Open Banking has made online payments more convenient and secure. Certain online retailers can now connect directly to your bank, eliminating the need to fill out your card details.
HMRC also offers a ‘pay by bank account’ Open Banking option for a number of tax bills, such as self-assessment tax returns, Capital gains, and Stamp duty.
Is Open Banking Safe?
With all the data being accessed and payments being made, it's natural to wonder if Open Banking is safe.
As long as providers are authorised and have the relevant FCA permissions, they can only access data needed for the service you’ve signed up to. This means that if you've asked a provider to look at your current account with one bank, they wouldn’t be able to look at your credit card details with that bank without your permission.
Moreover, all providers must comply with data protection rules, including UK GDPR. Before you sign up, the provider should tell you which data they will use, how long they will keep it, and what they will do with it.
How does Open Banking work?
Each provider will ask for your consent to access your information when you sign up. They will then send a request to your bank, which will process and share your details through secure technology called application programming interfaces (APIs).
APIs simply allow two providers to ‘talk’ to each other and pass on the information you’ve given permission to share, such as your bank balance and regular payments.
You can also withdraw your permission at any time. Additionally, providers are required to get renewed permission from you every 90 days, which gives you the opportunity to rethink whether you want to continue using that provider.
Open Banking Summary
In conclusion, Open Banking is generally considered to be a safe and convenient way to share your financial data with authorised providers.
With the variety of useful apps and websites available, it can help you manage your money more effectively and make online payments more secure. Remember, if you’re unsure about anything, always ask before giving access.
Build wealth your way.
Join over 500,000+ people building wealth with Chip.