There’s been plenty of noise in the press recently about the introduction of ‘Open Banking’ or ‘PSD2’, but not too much information on what it will mean for consumers. Here, we give you some more detail on what it’s all about…
What is it?
For a long, long time, your banking data has been locked away in banks’ systems and databases. You might know from personal experience how hard it can be to switch banks or even open additional bank accounts – not least because all your history is in one place.
This information, like your transaction history, can be really helpful for making better decisions about your finances. But because it’s been hard to access and aggregate this data across all your different accounts, it’s been hard to get a meaningful overview of your finances.
However, a few years ago some smart people at the EU got together and agreed that the data in your bank account is actually your data, not your bank’s. And because it’s yours, it should be easier for you to do with it whatever you choose.
Enter PSD2 (the Payment Services Directive 2), which comes into force on January 13th 2018.
PSD2 introduces the obligation for payment service providers to make it easier for you to do what you want with your banking data (in totally different news, it also bans UK retailers from charging you extra fees when you use your card to pay for things, from flights to concert tickets!).
And Open Banking?
In the UK, an initiative called Open Banking comes into force at the same time. It’s in the same vein as PSD2, and was brought into life by Her Majesty’s Treasury (HMT) and the Competitions and Markets Authority (CMA) to drive more competition in the current account market. It introduces a safe and standardised way for customers to share their banking data with regulated third parties, who will be able to do much more for you with your data than your bank does.
In short, the hope is that consumers will be able to share data more securely with regulated third parties, and take more control of their money.
What does it mean for you now?
As with anything new, time will tell how many of the great ideas that exist today in this area will actually work ‘in the real world’, but at Zopa we’re working hard to create features that will make a real difference to our customers.
For our first feature, we’re launching quicker and easier income verification when you apply for a loan. At the moment, one in every three customers applying for a loan needs to manually upload bank statements to verify their income, which isn’t always the most convenient thing to do. We’ve built a way for you to verify your income by securely pulling in transaction data from your bank account instead of uploading documents.
Of course, it’s entirely your choice of whether you want to try this new feature – and if you do, we would love to hear your feedback on email@example.com!
What’s coming up next?
While the new income verification feature will be available next week, there are a range of other exciting Open Banking-enabled features which we’re working on right now. Here are just a few examples of ideas we are exploring, and we would love to hear from you on what you would like to see.
A simplified way to stay on top of all your accounts: By aggregating any accounts you have connected to Zopa, we could give you the ability to manage all your financial accounts in one place – regardless of who provides the underlying product. The benefit for you would be that you’d be able to see all aspects of your financial life in one user-friendly app instead of having to log in to lots of different banking apps.
Smart insights to help you feel in control of your finances: Using the data, that you have given us access to, we could provide you with useful insights to help you manage your money better. This could make spending, budgeting, and paying bills easier to understand. For instance, we could give you a heads-up that you’re about to go into a nasty overdraft and suggest ways to avoid it.
We have more ideas in store, but over to you. Tell us what would help you feel more in control of your money at firstname.lastname@example.org.
What about my privacy and data security?
Open Banking is about giving you control over your banking data, so none of your data will be shared without your explicit consent. And of course, wherever we introduce features which use this kind of technology, you will have the choice of whether you want to provide us with access or not. If not, no hard feelings; we get it.
On data security, PSD2 imposes a lot of requirements on companies that you might share your data with (including Zopa!): the need for proper controls and audits, dedicated processes around sensitive payment data, and much more.
Even so, we know that sharing your financial data isn’t something we should take lightly at Zopa. We take it very seriously, and have strict information security policies and procedures that we follow whenever building new products.
We also regularly run so-called ‘penetration testing’ on our systems. This is where we pay an accredited third party to try and ‘penetrate’ our systems, as a hacker might, to flag up any possible vulnerabilities. Finally, we encrypt sensitive data so, in the highly unlikely case that someone got their hands on it, it would only be gobbledegook to them.
These are just some of the things we do to keep your data safe. Stay tuned for a more in-depth technical blog about more on this.
Hopefully, this has given you an idea of what PSD2 and Open Banking is all about.
Marie Steinthaler is head of new products and Open Banking lead at Zopa.