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The open banking revolution has arrived

Open banking is a new digital framework that will allow third party developers to build applications that will enhance bank services, so how will it change the way we all manage our money?

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Topic: Investing

“Developers, we have a sweet story for you…”

And so started Steve Job’s pitch to software developers back in 2007. Jobs wanted to encourage the proliferation of new apps for the iPhone but was worried that creating a development platform for third parties would open his shiny new product to a world of viruses, malware and privacy attacks. So instead, he tried to convince everyone that building websites that look and feel “just like real apps” was the way to go.

Banks are facing similar concerns today with the emergence of ‘open platforms’ that will effectively allow third parties to develop services that will plug into the banks’ own systems. The apprehension is understandable but then it’s probably worth remembering that the App Store is now the most successful mobile application store in the world, hosting over 500,000 apps, and this would never have happened if Jobs had not dropped his original idea and allowed third parties to build native iPhone apps.

Similarly, the open bank platform has the potential to revolutionise the finance sector by bringing banks and fintechs together to create innovative new services and products that will change the way we manage our money.

So what does that mean for the consumer? Well for starters it should help you get better deals. Open Banking will lead to more apps that track your spending patterns and spot if you’re the kind of customer that is regularly overdrawn, or not getting enough out of your savings before politely tapping you on the shoulder and offering alternative options. This means less trawling through comparison sites, less listening to call centre hold music and ultimately less financial complacency.

Banks could effectively become like app stores, housing new alternative finance products from the world of peer-to-peer lending, investment management or invoice financing. Old worn-out IT systems (the real enemy of innovation in the traditional banking sector) will take a back seat to new cutting edge platforms from the fintech space.

This kind of data sharing via open API (Application Programming Interface) has already enriched services for Facebook, Twitter, Uber and even Obama (who recently introduced an open platform called ‘Digital Government’ in Washington) so why has it taken so long to hit the financial sector?

Well, in a word: passwords. Apps already on the market such as Squeeze, Cleo or Money Dashboard, which use data from your bank accounts to help you budget, require you to supply your bank account passwords and let’s face it, not everyone wants to give away the keys to the kingdom. So the Competition and Markets Authority (CMA) have stepped in because they think we could all save hundreds of pounds a year by switching bank accounts more suited to our spending habits.

In a report published recently, the CMA have imposed a package of measures that will mean by early 2018 all sharing of private personal data will happen securely in the background via an open API platform to ‘ensure banks work harder for customers and the benefits of new technology are fully exploited’.

In what could be one of the biggest shake-ups in the finance sector since online banking, consumers will slowly start seeing some exciting new services that will be designed specifically to help them save money, invest effectively or simply stop spending so much on alcohol and how can that ever be a bad thing?

Opinions given within this article are my own personal views. My views and opinions are effective from the date of publication but may be subject to change without notice. I have no affiliation with the companies mentioned in this piece and all research has been independent.

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