The General Data Protection Regulation (GDPR) isn’t the only contemporary conversation about consent; Open Banking is a new initiative that shares a few similarities with GDPR, but what exactly is Open Banking? Is it good news for consumers? And how might it affect accountants? Today we discuss just that.
Open Banking: What Is It?
Like the GDPR’s aim to give people back a semblance of control over their data, Open Banking transfers financial data ownership back to the account owner. Before the government implemented the new Open Banking rules, financial details (like how often you are overdrawn) were controlled by the account provider; now, consumers will be able to provide other companies with access to this information.
Open Banking regulations came into effect in January 2018, although you’d be forgiven for not having heard about it: the Competition and Markets Authority’s announcement didn’t exactly make waves when they launched the initiative. The regulation underpinning Open Banking is the sexily-named Second Payment Services Directive and, like GDPR, it arrived on these shores via Brussels (home of the European Parliament)
Nine banks in the UK are obliged to comply with the Open Banking regulations: Barclays, Lloyds, Santander, Danske, HSBC, RBS, Bank of Ireland, Nationwide and AIBG.
Open Banking: Why Is It?
The short answer is to improve competition. The big banks are a bit dusty and in need of a shakeup, with “just 3% of people switch[ing] accounts,” according to one report. Under the new rules, consumers can allow other banks to see their banking data, which the banks will then likely use to present customers with a competitive offer for switching your account. Likewise, mortgage providers can access accounts for assessment, which could result in a more (or potentially less) competitive rate.
There are also benefits that could be beneficial for day-to-day use; under the rules, third parties are also permitted to access data. Apps that manage multiple accounts from one platform will likely become the norm, while integrated payments look set to streamline the payment process by removing the need for login.
Sounds Good! Who Wants My Banking Data?
Before consumers begin sharing their banking data, it’s worth spending a bit of time assessing who exactly will have access to it; this is especially relevant for third-party apps where the company behind the app is somewhat unclear. In light of the Cambridge Analytica scandal, it’s worth questioning whether there’s an ulterior motive for a company providing such services. Being that this is a relatively new process, consumers are urged to share with caution, although third parties involved in Open Banking are regulated.
Consumer Information Is Great, But What About Open Banking for Business?
For now, big businesses cannot make use of the consumer-side Open Banking products, although this is set to be introduced over the next year or so. Small businesses, however, can take full advantage of Open Banking.
Adam Tavener, chairman of Alternative Business Funding, told AAT Comment:
“An SME will be able to instantly compare all the available banking and alternative finance products in one place. If the business then decides to proceed with a request for finance, all of its relevant credit data will be instantly visible to all the funders that they have selected, meaning that they can compare both price and suitability immediately, and both bank and non-bank finance in the same place.”
I’m an Accountant and I Know Little to Nothing About Open Banking; How Will It Affect Me?
Firstly, personal and business clients will likely want expert advice from their accountant on what Open Banking means for them. It’s important to thoroughly research the implications for various people in preparation for such a conversation; the Official Open Banking website would be a good place to start.
Likewise, for customers who understand how to use the tech and are interested in switching accounts, for example, accountants will likely act as a second opinion before they commit to a change. Switching bank account will become easier, but understanding the long-term implications of changing a current account is likely to remain just as difficult to decipher for the average consumer.
Thanks to Open Banking, it’s also possible that apps will be developed to streamline many of the day-to-day accounting tasks small businesses have to undertake. For those accounting firms with an entrepreneurial spirit, this could be an opportunity to invest in producing a solution for the market. Partnering with a tech company to understand how your firm can utilise the new Open Banking regulations may open new income streams, so it’s worth considering.
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