This month marks a year since Open Banking was introduced in the UK. Designed to enable consumers to gain greater control over their finances by making it easier to utilise digital money managing services, Open Banking requires high street banks to open up their data.

For some, it was lauded as a game-changer, promoting the expansion of tech-powered innovation and competition in the industry, but a year on, others are less optimistic.

What is Open Banking?

New regulations brought in in January last year mean that UK-based banks must now allow customers to share their transaction information (such as bank statements and spending habits) with other banks or third parties such as budgeting apps.

This only occurs if you give an authorised company to access your data, but banks must allow access when requested though the use of APIs, meaning that the vast quantities of data contained in bank accounts can be used to the customer’s advantage.

This is not only useful for budgeting apps, but streamlines the of lending, making applying for loans such as mortgages a less lengthy process by allowing lenders access to financial records.

The idea behind Open Banking is that it is a secure way to allow customers to take control of their data and choose to share it, and by doing so encourage the growth of fintech services such as budgeting apps.

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By GlobalData

Apps such as Chip, which analyses users’ current accounts and calculates how much they could afford to put into savings each month, or Bean, which allows customers to compare deals on household bills, cancel subscriptions and track payments across their accounts, rely on access to accounts.

In theory this means that Open Banking should encourage innovative products such as these to multiply across the industry, supporting startups such as digital-only and challenger banks, as well as the advancement of API technology.

Has it worked?

However, Open Banking has not had as big an impact on the world of banking as some in the fintech industry may have hoped. With 63% of smartphone owners having at least one financial app, as well as the rise in the popularity of AI-driven budgeting tools, there is a use case for greater data sharing.

However, according to a survey carried out by Which? In 2017, 92% of the public have never heard of Open Banking. Although this has somewhat increased over the course of last year, a study by Splendid Unlimited revealed that less than one in four people have heard of Open Banking, and only 9% have used Open Banking services. This suggests a knowledge gap between those who want to use technology to help manage their money, and an awareness of how Open Banking can facilitate this.

A reason for a lack of uptake may be concerns over security and privacy. The Splendid Unlimited studying highlighted the fact that 26% of those surveyed believed that it was introduced to allow companies greater access to personal data.

This suggests that a distrust of data privacy practices has translated into a reluctance to embrace greater data transparency.

Although banks now have a duty to allow other companies access when requested, they do not offer the same protection against fraud if an unauthorised company is given access. In other words, the onus is on the customer to be aware of the risks of allowing unauthorised access to their bank accounts.

However, according to Wired, APIs are required to have customer authentication, meaning they have the same level of security as online banking.

“There are still hurdles that jeopardise the system” 

Matt Cockayne, VP EMEA at Envestnet Yodlee believes that the past year has shown that Open Banking still has a way to go:

“Last year, Open Banking was introduced in the hope of improving how consumers experience banking. However, what’s become apparent in the past year is that – while the opportunities for Open Banking are enormous – there are still hurdles that jeopardise the system.”

He believes that regulatory hurdles may stand in the way of greater consumer adoption:

“One such hurdle comes from the standards on Strong Customer Authentication (SCA), which could, left unaddressed, lead not only to minor annoyances like users being required to log in each time they want to transact online, but could lead to more dangerous actions leading to heightened risk of data theft or fraud.”

However, a greater awareness of the benefits of Open Banking should help the technology move forward:

“A year on, we’re also seeing new players in the market – tech giants like Amazon and Alibaba – cashing in on Open Banking as they learn of the opportunities that financial data affords. We’ll continue to see them using their data – like that retained from customer shopping carts together with financial data – to paint a picture and gain powerful insights about consumer behaviours.”

“Open Banking has met its use case”

Hans Tesselaar, Executive Director at BIAN believes that although Open Banking may have faced some hurdles in its first year, the future looks optimistic:

“Since Open Banking was introduced, we’ve seen banks and fintechs struggling to balance technological innovation with compliance requirements. Despite this, I feel that we’re finding our way quite well, and I’m optimistic about the future.”

He believes that it will take time for traditional banking organisations, that do not have the same digital-first approach as challenger banks, to adapt to the new requirements.

As is the case with the initial rollover of any new system, the benefits are unlikely to be felt immediately. However, as the simplification of sharing banking data paves the way for new fintech products, its benefits may become more obvious over time:

“Open Banking was a hot topic in 2018 as organisations worked through what implementation looked like. But in many ways, Open Banking has met its use case – it’s opened banks up to what technology can bring to their businesses, in a careful and bespoke way. A big part of this has been around ensuring API compliance with standards like ISO.

“When developing APIs, it’s critical that vendors base their technology on a standard and therefore easily implemented into banks’ existing systems – we must remember that not every organisation will be immediately able or ready to migrate from their legacy systems. As technologists, we must navigate this in a way that not only empowers banks to operate more smoothly, but also provides a frictionless experience for the end user.

“As we continue to navigate the compliance space, I’m confident that we’ll increasingly see banks adopting API technologies that make sense for them, defining on open banking ecosystem that works for everyone.”