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Open Banking a year (or so) on

Couple using the Zopa app at home

There’s a problem in Britain’s banking market. Fintech businesses and the new ‘challenger banks’ hold many of the ideas, but the long-established major banks hold the power. Because of this, improvements in the way that we can access and manage our finances have been slower than many experts predicted.

The UK’s Open Banking initiative is designed to correct this. It’s the brainchild of the Competition and Markets Authority, which wants to make the sector more competitive. The idea is to pass power to innovative tech businesses to create a new wave of customer-centric banking services.

Open Banking launched in January 13 2018, when nine major banks in the UK were mandated to provide application programming interfaces (APIs) for current accounts to any third-party providers that request them. Using these APIs, third-party companies can retrieve a customer’s financial information directly from their bank (if given consent to do so). According to Didier Baclin, Zopa’s Head of Bank Build, “the initiative is about opening up competition in the banking sector, but it’s also about giving people better control over their financial data, and in turn over their money.”  

Coming soon at Zopa

New services are emerging that help you to keep tabs on your spending habits by looking at your current account, and every few days, sets aside an amount of money that the service thinks you can spare and save. The hope is that services like these can positively change people’s experiences with their financial data, helping them to be more pro-active with their finances and feel better about money management.

For investors, there is also great potential. Imagine being able to aggregate and manage a diverse investment portfolio in one portal, with all the information at your fingertips. This could include real time updates on stock prices or financial news, allowing you to react quickly to events if necessary.

Zopa is already taking advantage of the new environment. Instead of our customers having to upload bank statements to manually verify their income as part of the loan application process, they can now save time by allowing us to access their transaction information straight from their bank. We’re keen to experiment with other Open Banking services too. We’ve built a feature allowing users to connect multiple different accounts in our mobile app, and are going to test it with a group of our loans customers in the next few weeks. We’re very excited to see what the response will be, and how users understand this new technology. Inside Zopa, we’re also testing different ideas and prototypes to see how we can use Open Banking to make debt management easier for our borrowers, and to improve the experience for investors.

Open banking will soon mean you can access all of your accounts instantly, anywhere

Lift-off in 2019

Open Banking is still in the early stages, but 2019 should be a transformative year. In September it will be given a boost by the EU’s Second Payment Services Directive, usually known as PSD2. Although the UK will probably have left the EU by then, it will abide by these rules, which are very much in the spirit of the UK government’s own Open Banking initiative. Under PSD2, Open Banking will extend to every bank and cover credit cards, charge cards and some deposit accounts.

Some people in the industry are also talking about eventually extending Open Banking to include other financial information not covered by PSD2, such as pension details. The more information that can be put together, the more useful Open Banking will be.

Another important element of Open Banking will also come into play this year. Banks will have to allow third parties to initiate payments. This will make things more convenient and flexible for customers, who will be able to use just one app to make payments or transfers from multiple accounts.

Having an overview of your finances in one place – and the ability to make transactions will help consumers better manage their money. For example, if you find yourself overdrawn on one account, for example, at the touch of a button you will be able to send funds from another account and avoid a fee. To make it even easier, in 2019, there will also be a focus on helping customers to access Open Banking from their smartphones, using biometrics to verify their identity, such as scanning a unique identifier like a fingerprint.

“Of course there’s still work to be done, but we expect 2019 to be a significant year,” says Baclin, “upcoming initiatives such as app-to-app authentication and the ability to initiate payments will improve the connecting experience and further accelerate consumer adoption.” 

Are security concerns unfounded?

One reason why many people haven’t embraced Open Banking so far is because of concerns about security. The public is becoming more conscious about the need for cyber security, which is positive. But the Competition and Markets Authority has put measures in place to protect users. Firstly, third-party providers will only be able to access your financial information if you give them permission. Secondly, Open Banking should be safe as long as you stick with firms regulated by the Financial Conduct Authority (FCA). If there’s a security problem with a third-party provider supervised by the FCA and you end up losing money, the bank has to reimburse you.

At Zopa, cybersecurity is something that is very close to our heart, given that customers trust us with very important personal and financial data. We invest heavily in this area and have our own information security team working hand in hand with our software developers to constantly improve our systems and practices as technology moves on. We also work with a range of third party firms to continuously test our infrastructure and applications and make sure they are resilient.

Making Open Banking as frictionless and user-friendly as possible is the key to making it a success. Although the banks haven’t yet perfected the design of their API systems, or the way they authenticate requests to access customer information, a lot of positive progress is being made. It will be exciting to see the innovation that emerges in 2019. There are already 80 third-party providers registered with the FCA, with another 100 being processed.

Although Open Banking has been a little slow in its first year, we think much more will happen this year. We like to think of it as a powerful jet plane: slow to get off the ground, but sooner or later it will be flying high. With Open Banking, the sky’s the limit.