The Key Points
- Open banking is a highly regulated system that is fully backed by the Financial Conduct Authority (FCA) and the banking industry. Only companies licensed by the FCA are able to utilize the open banking system.
- Companies that use open banking never get the login details of your accounts, and only have read-only access to your data so cannot make changes.
- Whilst the open banking system is very secure, it does mean that if you give a company access to your data, then your data will be held in another place so there is always the risk of it being compromised by hacking or similar.
What Is Open Banking?
Open banking is a system whereby licensed financial technology companies can, on request from the customer, access the transaction data of that customer. This means that the licensed fintech gets the data directly from the customers bank or other financial institution, and can then use that data to provide valuable insights to the customer. Recently many innovative apps within the budgeting, saving and other spaces have utilised open banking.
Open banking was initially discussed by the European Union and they brought in legislation mandating financial institutions to comply with it in 2015. Since then the UK has been the country with the most open banking activity and now more than 300 fintech providers are using the system.
Open banking is a system that is run by the financial industry as a whole, and has a series of rules that must be adhered to by companies that want to utilize the system. Any company that wants to use open banking must be regulated by the Financial Conduct Authority, and comply with all of the technical and data security requirements.
Open banking is designed to be very secure. Before a company can get to a customer’s data, the customer must give permission. When accessing the data, the company never gets the login details, and their access to the account will be read-only.
The more companies that do have access to your transaction data, the more risk that the data held with them could potentially be compromised, by hacking for example. However, only companies licensed by the Financial Conduct Authority are able to use the open banking system, so they will all have a high level of data protection and encryption.
Is Open Banking Legit?
Open banking is a very highly regulated system, with many checks and balances in place to ensure consumers are safe. Rather than being a company that is looking to make money, open banking is a series of regulations and mandates, that are meant to give consumers more options and choice. In a financial marketplace that can sometimes be tricky to navigate, consumers can be pretty sure that if a company is using open banking to access their data, then it is a safe thing for your money.