Updated terms and conditions about the dangers of sharing information are the biggest changes consumers will have seen to date and that really needs to improve, said Dr. Louise Beaumont.
“Providers are trying to scare customers at present and that is a concern that we have expressed. At worst, its protectionist by its very nature,” said Beaumont.
“The point about Open Banking is that it is intended to be a far safer way to bank with secure Application Programming Interfaces (APIs).”
What is Open Banking?
The Open Banking Standard relies on data being securely shared or openly published through open APIs that would let third party apps, such as fintech companies, access users’ data through their bank accounts, with the users’ explicit consent.
However from tomorrow, banks will switch on their APIs, and testing will start – once this is deemed satisfactory consumers will be able to begin sharing data with third-parties offering customer-centric, money management tools, expected to drive a seismic shift in customer behaviour.
The six-week testing phase will confirm the Open Banking Standard is performing and many personal financial and business accounting management tools have been testing against APIs and are ready to go now, said Beaumont.
Those lenders are HSBC, Barclays, RBS, Santander and Bank of Ireland. The Competition and Markets Authority, which is driving the changes, has granted each bank extra time to comply with timescales ranging from a few weeks to a year.
Mortgage market: If not now when?
The EU legislation that drove Open Banking targets current account data first, to encourage account switching but credit cards, payment services providers and other sectors will follow, along with mortgages.
Samantha Seaton, CEO of Moneyhub, a personal finance management and adviser lead referral software, said it was “gobsmacking” the mortgage process wasn’t the first target for massive data-led innovation. The lengthy fact find should have been first to go in the era of open banking, she added.
“People in the UK are obsessed with property prices so a link from a finance management software to Zoopla or Rightmove showing price growth of their property, which is a huge part of their assets is valuable, especially if every time their property jumps an LTV band, the software sends a nudge. People click on that nudge too in my experience,” said Seaton.
Seaton suggests mortgage advisers, particularly if they are sole traders with little extra infrastructure support, should jump in to new technology in a staged way by cherry picking customers in their 30s, or on a second or next-time mortgage to “test out” new technology.
“Take the pressure off yourself and just test technology on 10 clients and iron out the wrinkles first and don’t spend loads of cash remodeling your website un-necessarily either, keeping the traditional channels open as people will always want advice,” she added.
Lloyds Banking Group is looking at launching a one-click mortgage and this is what advisers will be up against in this new world, she said.
“I worry that they will lose ground to these types of convenience sells but its not always about the big bang stuff.
“Take advances a little bit at a time. Also, many fintech firms are looking for collaborators with interesting data so that’s another route for advisers to examine,” Seaton added.
Financial services is a notoriously slow adopter of change but the injection of energy and competitive threat startups represent means change may come more quickly than expected.
The fourth FCA Sandbox report revealed First Direct and fintech Bud are working on an app which learns customer behaviour from transactional and demographic data to identify product needs from HSBC and external information sources.
Other innovators include a tool called Solidi, which is a blockchain-based payments platform that harnesses cryptocurrencies to move money faster and more cheaply, while another tool, Wrisk, is a usage-based contents insurance product with “innovative” risk-scoring. Other software tools from the Sandbox include Blockchain-based payment services, general insurance, Anti-Money Laundering controls, biometric digital ID and Know Your Customer (KYC) verification.
It’s clear the way customers apply for credit cards, loans, overdrafts, mortgages, and any form of credit agreement will be transformed.
Credit reference agency decisioning has excluded huge numbers of society, particularly the more vulnerable whose lifestyle information and financial behaviour can now be used to open doors instead.
Daniel Hegarty, CEO and founder of digital mortgage broker Habito, said mortgage illustrations and decisions in principle will reflect the likely lender decisions from the get-go – avoiding any disappointment for customers when it counts and save them money, time and stress.
“Open Banking will be a fantastic innovation for consumers. Correct data management is imperative – low levels of financial literacy, mixed with a new ease of financial information sharing, could put some at risk. Financial services firms need to continue to invest in technology and prioritise safe Open Banking implementation, for the benefit of UK consumers.”