What is open banking?
It’s a term most of us have heard of, but few really know what it means. Though you’ve probably seen stacks of open banking services advertised without even realising it.
For the uninitiated, open banking is the sharing of transactional data with third-parties outside of an individual’s personal bank. Under new rules that came into force in January, consumers can securely share data to money management service providers to help them better organise their users finances.
The most common of these have appeared in the form of apps – think Mint, Emma and Money Dashboard. There are a plethora of ways that companies are using this new-found freedom, including stock investments, incoming vs outgoing management, pension control and personal spend allocation.
Is it safe?
As you might expect, open banking is a controversial topic. Some are hailing it as a revolution, whilst others are concerned about the dangers posed by sharing data.
But despite such unchartered territory for banking, it’s fair to say that open banking is safe. To explain this in more detail, we need to first tell you how open banking works.
The process of transmitting personal data from the bank to a third-party service provider takes place through an API. In a nutshell, an API is a function that enables company A to access the data in the software or operating system of company B. For example, whenever you use an online travel service to choose a flight, you’ll see an array of information from a range of airlines. All this information is pulled through using an API.
In the case of online banking, your transactional data will be fed back to you through the same process. There is absolutely no need to hand over your login details.
How do I know if a provider is approved?
All banks involved in this process have to comply with brand new Open Banking Regulations that ensure your account information is secure. Above all, open banking applications cannot access your information without your permission and you can opt-out at any time.
Service providers offering open banking services must be authorised on the Financial Conduct Authority Register or the Open Banking Directory. An easier way of finding this out is to look for a registration number on their website or app.
It’s worth bearing in mind that there will be a relatively long period of time in which to get every provider authorised, so if you’re still unsure, ask the provider in question.
DFC is a leading revenue management solutions provider, delivering bespoke Direct Debit solutions that drive growth and retention. To find out more about their products and services, head to https://www.debitfinance.co.uk/solutions.