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On 13 Jan 2018, Open Banking went live (Huh? I hear you say!).

Yes indeed, banking is pretty damn dull so this massive earthquake might have escaped your notice – but Open Banking – or PSD2 (Second Payment Services Directive) – is a major financial innovation. If you haven’t heard of it yet, you soon will!

The first formal investigation into Open Banking happened in 2014 and if you want to get down into the technical matters check out the Fingleton Report. If you just want an overview of the what, why and who cares then keep reading.

Open Banking, along with a host of new rules being introduced across the EU including bans on charging someone extra using a credit or debit card, is fundamentally all about how banks manage your data. It requires banks, building societies and other financial providers to let customers easily and securely share their financial data with other banks and regulated third-party providers.

At its basic level Open Banking means people – i.e. you! – can instruct their bank to share transaction history and spending patterns with other (regulated) third-party providers. This is what all the fintech tools you keep hearing about have been waiting for. Now they can securely connect to your bank accounts.

Imagine a financial control centre that pulls in all of the data from your different bank accounts and shows you an aggregated view of your money in one place. Then imagine you could see where you are overpaying and through a couple of clicks, make changes.

Welcome to Open Banking.

Consumers will have to give their bank permission to share data, at which point the consumer will be able to:

  • Enjoy more innovative and specialised applications while never sharing login details
  • Download new apps that give tips and advice about how to best use their current accounts
  • Have better oversight into their overdraft
  • Make sure third parties, like comparison websites, can analyse spending patterns and recommend products

Financial institutions will:

  • Be able to securely and rapidly enhance their digital offerings using an ecosystem of 3rd party applications and services
  • Increase levels of transparency
  • Drive fintech innovation
  • Block access if the system suspects fraud or unauthorised usage

Not everyone is embracing this new way of doing things and many are worried about whether shared data will remain secure.  People are also questioning the integrity of data privacy. Additionally, it’s not completely clear who holds ultimate responsibility if something goes wrong. Proponents argue that Open Banking ensures software and security systems comply with data security standards and protects information. Data remains encrypted and any usage of information is tracked.

Many of the doubt surround fear of the unknown and long held views of what security “looks like”.

A Which? Survey in October 2017 found that 92% of of current account holders say they haven’t heard of ‘Open Banking’ and 51% said they were fairly or very unlikely to share their financial data even if it meant that the products and services offered were more suited to them.

Open Banking has the potential to truly revolutionise our financial lives and our relationship with financial products. The long overdue plan to disrupt the banking sector is underway. Whether Open Banking is embraced by the whole population, or just hard-core tech-heads, is yet to be seen. Either way Open Banking is here to stay – only the question of “speed of adoption” remains.