Open Banking has been around for some years and it’s likely that it’s here to stay. This new technology has benefited more than 4 million people in the UK and is expected to reach 40 million by 2024.
So what exactly is Open Banking - a technology used by more and more people, even if they’re not aware of its existence?
A bit of history
The UK introduced an Open Banking Standard in 2016 to make the financial industry work harder for the benefit of its customers. The Standard was introduced to regulate and protect customers’ data.
Since the introduction of the regulations, the UK government and the Competition and Markets Authority (CMA) have set deadlines for the largest banks (including Barclays, HSBC Group, Lloyds Banking Group and Natwest Group) to adhere to these new standards.
So what exactly is Open Banking?
Open Banking is a technology that allows customers to share their data securely between financial institutions. The data is shared via APIs (Application Programming Interfaces), which is a secure technology that requests and sends data with the customer’s consent.
Whilst data sharing is one of the most important features - and benefits - of Open Banking, another big one is payment initiation. Simply put, payment initiation means that instead of having to log into your bank account to make a payment, another company can direct you straight into your bank account to confirm or reject a payment request.
Payment initiation is not only a big time saver, but it also prevents human mistakes when it comes to typing out the recipient’s bank account details.
What’s the benefit for you?
By sharing customer data, financial institutions are able to offer more suitable and tailored products to the specific needs of individual customers.
For example, a Starling Bank customer that wishes to become a PensionBee customer, could consent to Starling sharing their data with PensionBee in order to open a pension. After an account has been created, the customer could allow PensionBee to share their pension balance with Starling so they can view it from their Starling app, alongside their bank account balance.
Sharing data in this way can also mean that customers with a short credit history could still be eligible for credit, as the lending company would be able to view their spending history using their bank account data.
Some companies, like Snoop, also offer data aggregation, where they can show all your financial data from different bank accounts and other financial products in one place. This provides a clearer picture of your financial health, and allows the company to make recommendations based on the full picture of your finances.
Payment initiation offers time saving benefits to customers as well as being more secure, meaning that there’s less chance for error in the set up of payments.
How do we use Open Banking at PensionBee?
Saving into a pension is key to meeting your retirement goal. At PensionBee, we try to make saving towards your future as simple as possible, to help our customers enjoy a happy retirement. That’s why we’ve partnered with Plaid to enable payment initiation services (PIS) for our customers.This allows customers to set up contributions into their pensions without leaving their PensionBee app (available from Apple App Store and Google Play). Rather than typing out card numbers or setting up Direct Debits, we’ve enabled a smooth, quick and safe journey that takes less than a minute.
Payment initiation was the first milestone on our Open Banking journey and we’re excited for what else is to come!
What’s next for Open Banking?
As you can see, Open Banking is all about sharing data and requesting payments in a secure and efficient way. This technology has evolved very quickly and will likely continue to do so in the coming years. It’s a legitimate question to ask ourselves what we can expect to see next.
Many companies in the financial services industry are not yet using Open Banking to its full potential. And we’ve highlighted the way this technology works and how we use it at PensionBee.
At the core of Open Banking is the value of secure data sharing. It is now on banks and other financial institutions to find creative, innovative and useful ways to utilise that data for the benefit of their customers.
Financial institutions will need to put the customer at the heart of their businesses and development in order to make Open Banking a success!
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.