2018 is finally here and so the countdown to open banking in Europe is finally over. Open banking launched in the UK on January 13 so we are now in the early stages of seeing what it’s all about.
If you largely missed the countdown to open banking then it is all about opening up information between different banking and financial organisations. It’s common for customers to have a loan with one bank, a mortgage with another, a current account with another, and possibly some credit cards or other financial services elsewhere. Connecting all these services to create an overall financial picture of the customer has never been possible because every individual company closely guards their customer data.
With open banking, every organisation is expected to publish an open API. API means Application Programming Interface and is basically a standard ‘door’ that allows access to data. The theory is that if every financial service company uses the same standard API then customers can easily connect together their various financial products, allowing oversight of everything.
The nine largest current account providers in the UK will certainly be offering this facility and smaller providers should follow soon. Some customers are concerned that the very concept of open banking means that their data will be available to anyone, but the financial institutions have been quick to point out that they will only support approved connections – so the password and security information you already need to connect to an account will also be required for any open banking connection.
What I think is really interesting about the open banking movement though is how it could potentially change how people manage their money. Companies such as Nutmeg have already shown that if you offer easy to use investment tools then customers that have never created an investment portfolio before will do it. They now have over 40,000 customers managing portfolios on smartphones.
It could be that instead of going to your bank to check your balance, you go to a third-party platform. The platform connects to your current account and not only shows the balance, but adds additional information such as how much you have spent at restaurants this month, how much you need to allocate for recurring bills, how much you have saved. These platforms could offer far greater insight into how customers use their money – beyond just looking at a statement and balance alone.
In fact, it should be possible to create automated ‘advisors’ that autonomously manage our money. Your savings account could be used to offset the interest on mortgage payments. Your current account could be actively managed so cash is always diverted into an investment fund, unless it is needed for day-to-day activities and bills.
I think that open banking will need some time to take off, possibly more than just this year alone, because bank customers are only slowly demanding greater insights, but one year from now I think that checking your statement will be a very different experience. What do you think? Leave a comment below or get in touch with me on LinkedIn.