Technology keeps advancing and it can be hard to keep up. One industry making big leaps with the digital age is the finance industry. From banks and building societies, to creditors and financial services organisations, products and services are being digitalised to keep up with the ever-changing demands of the new age.
For some, this is a welcomed change because digital banking makes everything quicker, saves you time and sometimes money, as well as making day to day banking accessible and easy for almost everyone. However, for others, digital banking is a daunting concept – especially if you’ve been a victim of fraud – because you just don’t know how safe it is and what is even out there in the digital space. But unlike outer space, there are regulations in place and authorities which keep a close eye on the activities of regulated businesses to make sure every firm is acting in the interest of consumers. This means making sure their processes, innovations and actions help customers rather than take advantage of them.
What is Open Banking?
Open banking is a new service that has only recently become incredibly popular among banks and financial services organisations. Open banking allows firms to view your financial and transactional data in order to make better informed decisions on the types of services and products they could offer you. For example, when you buy a new car, you might explain to the salesperson that you need a car big enough for a family of four and a dog. This helps the salesperson to select a range of cars that will suit your needs, rather than just showing you everything in the showroom and hoping you know what you’re looking for – or worse, advising you on an inappropriate model. It’s a similar principle with open banking but the data being shared is considered a little more sensitive.
Consent to Open Banking
You have to consent to open banking – firms can’t just look you up and find this information as and when they please. But it’s good to remember that open banking is designed to help you. The better banks know your financial habits and how you manage your money, the better they can ensure they offer you the right products and provide appropriate support.
How does open banking work?
If you do consent to open banking, the firm that you gave your consent to can view your bank account. It will never know your login information (and you will never have to provide this either so be wary of scammers requesting your bank login information) and your bank transactions are accessed through a very secure and tightly regulated platform so only firms who have been granted access for a specific purpose can see your data.
Benefits and Disadvantages of Open Banking
Benefits include:
- Tailored financial products
- Better advice from banks and building societies in regard to managing your money
- Speedy and responsible loan application decisions
Disadvantages:
- Removes the personal relationship between customers and firms as everything is handled digitally and automatically
- High levels of mistrust stemming from consumer fear about sharing financial data
- Reduction in accessibility for older generations who get left behind
Is open banking safe against fraud?
Despite the consumer based concerns about sharing financial data via online banking, it is as safe as any other banking method when it comes to fraud. Obviously, there are things you can do to better protect yourself against potential identity and financial fraud, but open banking is not particularly susceptible to fraud.
How does open banking benefit me?
We’ve touched on the advantages of using open banking above – mainly that you will find more appropriate services and products being offered or granted to you. For example, if you apply for a short term loan, the lender may use open banking to view your transactional data for the last few months. This will help them get a better picture of your income and expenditure and how you manage your finances. This means they can either approve or decline your application, and their decision will be based on your actual transactions, rather than just a credit score or the information you’ve entered in your application form.
While more thorough checks may mean you get declined from time to time where previously you’d been approved, this isn’t necessarily a bad thing. It will actually help you in the long run as you won’t be repaying credit services that you couldn’t really afford. If you are being declined frequently for loan applications, it might be worth asking the lender for the reason you’ve been declined, and then looking at how you can improve your creditworthiness and affordability.
Should I use open banking?
Open banking isn’t a service we, as consumers, can directly access and operate, but it is a function designed to help us. So if you apply for an overdraft or a credit card and the bank asks you to complete an open banking check, it’s not a direct attack on your personal character – it’s not that they don’t trust you, it’s just that they are trying to make sure that it’s affordable. If you don’t use it, some lenders may not be able to proceed with the application. It’s entirely up to you, and you should never feel pressured to consent to anything you don’t feel comfortable with or don’t fully understand, but you can be safe in the knowledge that regulated and authorised companies use open banking to help you and mitigate the risk of you facing financial difficulty.
Open banking is a new venture in the digital world of finance and it can be daunting, but open banking is safe and it can help banks, building societies and creditors to tailor their services and loan products to suit your needs.
