07 Dec Open Banking – The New Kid on the Block
An Open banking has been with us by one name, but you may not have heard of it yet.
Unless you’ve recently been in the market for a loan or have difficulty proving your income. It is also possible that to get better grip on your finances, you may think to download one of the excellent personal finance apps where Open Banking has extensive features.
So what is Open Banking Exactly?
Open Banking refers to the permissions given to third parties to access your bank account to provide a service to you.
Since January 2018, banks have had a regulatory requirement to allow third parties access to your bank account with your express permission.
This can be considered as a personal finance app to help you manage your money in a better way. Open Bankingas well can help another financial institution looking to lend you money.
This can help the lender in case he/she is looking to further verify your income in place of payslips or accounts which may be missing or incomplete.
By looking directly at what goes on in your account on a month-by-month basis, lenders, in particular, have a far better and clearer perspective on a potential borrower’s financial comings and goings.
This is excellent news if you’re on a zero-hours contract or have only been self-employed for a few months or a year.
Payslips and accounts are fine, but they represent a snapshot from the past, and in no way reflect a person’s ability to manage money and repay commitments on time.
Your bank account will give a clear picture to anyone looking at it with complete honesty.
If you’re using 2 or more separate bank accounts, this will give a clear picture to the decision-makers about what you do and spend in one month.
But Is It Safe?
This may sound good so far, but how do we know if it’s safe? How do we trust that people we give access to will not run off with our money?
Open Banking comes with bank-level security, and the only people who get your password and bank login details are your bank or building society, not the app provider or prospective lender.
Anyone who wants to partake in Open Banking must be regulated by the Financial Conduct Authority (Britain’s finance regulator) or their European equivalent.
You are in charge of deciding who gets the access, for how long, and the level of access.
If any fraudulent payments are made using Open Banking, your bank covers you in the first place, followed by the Financial Ombudsman and our data protection laws.
How Do I Cancel Open Banking?
Easy – inform your bank to revoke access to the website, app, or loan provider. They will further inform the app provider or site about it.
Any Other Advantages or Disadvantages?
One of the ideas behind Open Banking was to increase competition and innovation in financial services, and it has certainly done that.
It helps the users to better manage their money without having to record every last payment you’ve made to every single shop, restaurant, pub, or business you visit over your day.
This makes applying for a loan or credit card more manageable and hassle-free once someone can analyse what you spend your money on month by month.
All this must be done online, so if you don’t have online banking, you won’t benefit from Open Banking.
But, Open Banking only applies to current accounts, credit cards, savings accounts, and prepaid cards.
Always, ensure that your Open Banking provider is FCA authorized. If they are not, you are not covered. Always check the FCA Register before you choose your open banking provider.
When the majority of the population starts giving access to their most private fare to third party apps and websites, naturally privacy concerns are a significant issue in some quarters.
However, as we’ve stated here, the ball is firmly in the consumer’s court. You grant the access, and you take it away.
At the beginning of 2020, over 1 million people had used or were using Open Banking.
Due to the pandemic, two lockdowns later, with restricted trips to the banks in person, this figure has most likely flown high.
Open Banking appears to be a well thought idea with strong security provisions.
This further makes this innovation a positive experience for the vast majority of customers.
As long as you check the FCA register, Badger Loans is sure you will have a positive experience too.