Open Banking in the UK – giving power back to consumers

It was in August 2016, when the UK’s CMA had issued a ruling to the biggest banks in the country – to give direct access to their databases to licensed fintech companies – specifically the Financial data aggregation service providers, to start aggregating financial data within those institutions. The ruling that came into force at the start of 2018, and two years after Open Banking was introduced to the UK, brought about a massive stimulus for the innovation to spring up in the financial sector, forever altering the way people interact with the banking sector and their finances as a whole.

It was Experian that took upon itself the mantle of the driving force behind the expansion of the services enabled by the Open Banking, now accounting for over a quarter of the all the Open Banking API operations, where consumers give direct access to data aggregators to their financial data, through various financial applications.

Although the consumers were sluggish at adapting the innovation at first, 2019 saw a sharp rise in the use of services enabled by Open banking. To put numbers into perspective, initially, in 2018, there were around 14 million requests for sharing data through Open Banking services. Just a year later, that number skyrocketed to over 180 million, driven by the expansion of services that offer previously-unheard levels of comfort and easiness for solutions when dealing with finances.

What Open Banking has to offer

Open Banking has opened the floodgates for innovative Fintech startups to emerge, using the newly available information to power a wide range of services, to satisfy the ever-growing demand on swift, affordable and intuitive financial solutions, through a variety of devices at hand.

The way these data aggregator service providers work is, they connect to a wide network of financial institutions in the market, gaining direct access to their customers’ financial information through a variety of means.

One way to do so is through the technology called screen scraping – when the data aggregator receives your login credentials once you connect one of the fintech applications to a bank account and logs it in its database. A bot then uses these login credentials to log into your account alongside you, and analyze the screen for relevant information for it to store and send back to the data aggregator – thus the term screen scraping.

The introduction of Open Banking made the process far more accessible for such entities, however, granting direct access to Banks databases through the use of application programming interfaces (APIs), providing a much faster, more reliable and far safer alternative means for aggregating data.

The range of benefits that Open banking has brought upon is truly staggering. Take personal financial management (PFM) for example. Whilst the provision of personalized financial advice has long played an important role in the financial lives of many UK citizens, with Open Banking, PFMs have a direct source of information regarding your spending habits, investment portfolios, and cash flows, enabling them to take financial advisory to a completely new level.

Lending and borrowing

One could argue, however, that one field that may yet to see the biggest impact from this wave of innovation is in the lending-borrowing field. Traditional institutions that operate here continue to rely on applicants’ credit scores to determine their creditworthiness – this indicator is quickly becoming outdated, however. In the UK alone, there are over 6 million people who are effectively excluded from the financial system due to the nature of their financial information, greatly affecting their everyday lives and financial options. As the financial data is becoming more accessible, it opens up the opportunity to introduce new methods in the field of lending – like access to applicants’ accounts balance, saving and cash flows is becoming far easier to access and account for. What this entails is a shift in the way the lending field operates as a whole, by accounting for this data, improving the credit scores of many people, unfairly excluded from the field. This shift will mark the evolution of the world of finance, towards greater digitalization, bringing consumers and institutions far closer than ever before.

What we are witnessing today is a precursor to the upcoming period of technological advancement, which will forever alter the way we conduct our financial affairs and interact with financial institutions. The introduction of Open Banking has paved the way to further explore the exciting possibilities that open access to financial data can bring about, which promises a far greater number of innovative solutions to emerging on the market, all of them benefitting users who will have a chance to experience the best that the financial sector has to offer.

Author: Yash Hirani

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