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What is Open Banking? Your guide to the newest rules in finance

A big change is happening in banking. Here’s what it actually means for you.

31 July 2019Frankie Jones 4 min read

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There’s been a pretty big shift in the rules around how banks and other firms share data, but chances are you haven’t heard much about it. But you'll be hearing much more about it soon.

New Open Banking rules came into force in January 2018 but, just three months before, the consumer champion Which? found that 92% of the public hadn’t even heard of Open Banking. And it can certainly seem pretty confusing. Yet these new rules may affect how you compare financial products and they could even make it easier for you to manage your money - but only if you understand what they mean for you.

Fortunately, that’s why we’ve written this whistle-stop guide.

What exactly does Open Banking mean?

The idea is that you should be able to request your bank, building society or other financial provider to share your personal transaction and spending data with other banks and with regulated third-party providers.

Instead of your bank hoarding your data, as they’ve mostly done up until now, you’ll have a choice to share it with other companies – such as other banks, lenders or financial apps. It means you own your data, not your bank, and can share it with the companies you choose.

Hang on, I don’t want my banking to be open...

Yes, unfortunately the name of this new development is really not the most reassuring for people. We spend our lives keeping our financial information secret to keep ourselves safe from fraud, so it seems to go against everything you’ve been told before.

But in reality, Open Banking is not as open as the name suggests. No one can access your data without you giving your express permission. And it could bring some big advantages…

Why do we need Open Banking?

The thought behind Open Banking is that it will make financial services much more competitive and pave the way for lots of exciting innovations in banking.

The hope is that it will also help people manage their finances in a way that suits them. This opportunity to share data means that companies can analyse your data for you and provide targeted, personalised services that help you manage your cash in new ways. And you’ll be able to take full advantage of them.

For example, you might want to share your data with a company that will assess how you use your overdraft and tell you which account you should move to in order to save money. Or perhaps you want to use an app that brings together all your accounts in one place, allowing you greater control and management of your money.

Both of those innovations are technically possible but the company needs your data first. At the moment, apps like Cleo use something called 'screen-scraping' to get information about your spending. This relies on you handing over your login details so they can essentially pose as you in order to see your details. Open Banking is supposed to offer up a safer solution - by forcing your financial providers to agree to hand over your data directly it cuts out one more step where you could be vulnerable.

So how do I open up my banking?

Under the new rules, your bank will have to share data if you ask them to, as long as the company they’re sharing it with is regulated and listed on the Financial Services Register.

If you sign up to a service, such as a new app or website, that uses Open Banking, then they will request your permission to access your data from your banks. The company you're sharing your data with will then take care of everything.

It’s worth checking the Financial Services Register before agreeing to any data sharing, but as a rule your information should not be passed on except to regulated third parties.

But is this actually safe?

If you’re asking a regulated bank to share data via Open Banking with a regulated third party, then this should be perfectly safe.

The data will be shared via something called the ‘Open Banking Directory’, which is a secure and regulated platform for sharing data. You can withdraw consent at any time and you can limit the amount of time a firm has access to your records too.

However, there are legitimate concerns about the new rules, that are worth considering before you spread your data everywhere. One concern is that fraudsters will use the confusion to get people to share their data with them, adding to the risk of identity theft.

Another is that the more companies have access to your records, the greater the chances are that one of them will be hacked and your data stolen. Even regulated, legitimate firms can’t be completely immune to hackers. So it’s understandable that you might be feeling jumpy.

However, such attacks on major firms are still relatively rare. The regulated third-party provider that has access to your data is responsible for keeping it securely and appropriately protected, and they would be liable if they lost it.

Do I have to do this?

Nope. If you don’t give permission for your financial provider to share your data then nothing will change for you and the new rules won’t have any effect. Open Banking is about giving people greater control over their data, not forcing them to act.

There are lots of unknowns when it comes to Open Banking, and whether it will have a positive or negative impact overall, is really dependent on how it's used by banks, lenders and others.

A report authored by former government advisor, Faith Reynolds, raised some concerns over the impact on lending. Could it mean a lender could bump up the cost of borrowing if they know you tend to spend a lot? Or automatically collect your debts if there's any money in your account? These are legitimate concerns and it's down to the organisations that use open banking.

Having said that, it's very likely that there will be a surge in financial innovation as a result of this change and that could really help you. Apps already exist that help you drip-feed from your current account into your savings, that help you manage multiple accounts via an app dashboard and that budget your money so it lasts through the month, but these will get much better, more accurate and hopefully safer with Open Banking rules. There may also be some ingenious new ideas that we can't even imagine yet...

These innovations could help people stay out of the red, balance their books and save up an emergency fund, and that is just the start.

Once Open Banking is commonplace and innovative financial companies are offering seriously useful financial solutions, you might find you change your mind.

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Written by Frankie Jones


Frankie takes the often confusing world of finance and makes it clear and simple, to help you get your money sorted.