Open banking is a quite new financial service that allows financial institutions and third-party service providers to access consumers’ account data, but only with their explicit consent. Let us dig in deeper to find out what is the purpose of open banking and what data is shared in open banking.
How open banking works?
In general, in simpler terms, under open banking, financial institutions, usually banks, allow access and control of consumers’ personal and financial information to authorized financial service providers, as long as consumers permit them. Once consumers grant their permission, their account data can be made available by these authorized financial service providers to other financial institutions or third parties through an Application Programming Interface, also known as API. This API technology provides a secure and transparent way for them to share consumer‘s data.
Open banking data is all consumer‘s financial information, such as:
- user‘s account details (e.g., account name, account number, sort code, and balance);
- regular payments (e.g., standing orders, direct debits, and in payee agreements);
- account transactions, including incoming and outgoing transactions,
- account features and benefits (e.g., the type of account the consumer has, the fees, charges, benefits, services, rewards, and interest consumer‘s account offers).
However, the data consumer shares through open banking vary depending on the service that users want to receive from third-party providers. For example, if consumers are applying for a mortgage, open banking data will include name and address information to verify consumers’ identity, direct debits, and transactions to prove to the mortgage provider that the consumer is financially stable. Uses of financial data shared through open banking also can include comparing the user’s accounts and transaction history to a variety of financial service options, making new transactions and account changes on the consumer’s behalf, creating a budget, monitoring spending, or getting financial advice. Also, the consumer can choose to give access to current accounts, e-money accounts, credit cards, and others. Most importantly, when consumers connect to any financial service through an open banking API, they can see and manage what data they are permitting to be shared, how long, and for what purpose it will be used.
Is open banking safe?
Open banking is very secure. Open banking uses well-tested software and security systems as well as lets consumers themselves control their financial data. So, the consumers, as the owners of their data, are the only ones who can authorize any connection between regulated financial service providers.