When it comes to banking regulations, rarely is a new regulation as beneficial for the customer as the new open banking regulations in the UK.
But it is important that you understand exactly what open banking is and how it can work for you. There are a lot of different aspects that you need to take a look at, including how your data is shared and what happens if you continue to use applications and tools that are not part of the new open banking regulations.
We will be covering all of that in this article. This will give you the best chance possible of being able to use open banking to your advantage and understand all of the different facets of it.
Understanding Open Banking
The first thing is to understand exactly what open banking is.
Open banking is a new set of regulations that are intended to make banking more transparent for the consumer and protect their information better.
These UK banking regulations are widespread throughout the entire banking industry, and have been initiated by the Competitions and Markets Authority or CMA. This oversight organization pushed for all UK regulated banks to allow you to share your financial data with authorized providers of finance apps or other financial institutions with your permission.
The whole idea behind this is to allow more competition and therefore more innovation to come to the financial services industry. The goal is to give you better products to manage your money while protecting your information.
You probably already know that there are lots of budgeting apps out there that you can use to track your finances, but you may also know that most of the time you have to enter all of your financial information in manually. But with open banking, there will be lots of new, authorized providers that will allow you to analyze your spending and evaluate new product like a credit card with unbiased information as well as displaying all of your financial information from multiple bank accounts or even multiple banks in one place.
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How Your Data is Shared
Understanding if and how your data is shared is a big part of open banking. First, understand that you do not have to share your data unless you want to. The new regulations say the banks have to share your data if you want it to be shared, but you have to give that permission in order for them to share. Applications or other financial institutions will not be able to look at your financial information unless you specifically say that that particular individual or party can.
Each provider will ask you for your consent to be able to access your financial info. Your bank will process the request and share your details if you have given your permission. If you decide later leaving not want that provider to have your information, you can revoke your permission easily at any time.
You can also continue banking the way that you have been without seeing any significant changes. Some people do not use budgeting apps at all and instead prefer to track the information themselves using a spreadsheet. Others do not feel comfortable with anyone having their financial information. Whatever the case, you do not need to participate in open banking unless you want to.
Read: How do Banks Work?
Which Accounts Open Banking Regulations Apply to?
You will be able to share data for any payment account you have. This means that current checking accounts, savings accounts, credit cards, prepaid cards and a few others. Not all savings accounts will be included, and there are a few financial products which are not yet added to the list, but for the most part you will be able to use it on just about any account you have as long as it is a current account. However, it must be an account that can be accessed online and you have to provide your online banking information to the third-party provider so that they can have access to your data.
Understanding the New Model of Data Sharing
You should understand the new model of data sharing with these banking regulations. You already know that you have to be careful when it comes to sharing your data. You don’t just want to share with anyone. In fact, you want to share it with what is called an authorized provider. Y
our bank offers you a great deal of protection against fraud and other problems, but only when you share your data with an authorized company. These authorized providers are regulated by the Financial Conduct Authority, or FCA, as well as some other European regulators. They will be entered into what is called the open banking directory.
There are a couple of different types of services that are offered by authorized providers under open banking. Each of them will require a different authorization. Let’s take a look at them one by one so you can see what you will be providing when you authorize that particular service.
Authorized Providers
The first type of service is called account information services. This allows for in authorized provider to see all of your account information from all of the different banks the use in one place. This allows the third-party authorized provider to offer useful features such as help with budgeting and recommendations for products.
This may include things like price comparison websites, budgeting apps for your mobile device, apps that help you save for a particular goal for anything that analyzes your financials. This will be the most common type of service that you will be authorizing through the new open banking policies.
The second type of service that you will be providing authorization for is payment initiation services. Payment initiation services are rather broad in scope because there are lots of different payment methods out there.
You might authorize a monthly payment of a certain amount to go towards your credit card bill each month for example. Utilities are another common example of this. Your payment is taken out of your bank account each month until you have removed this authorization.
You may also have authorization for fast tracking payments such as with online retailers like Amazon. This allows you to make a payment with your bank account or debit card without having to enter in the information and authorize it every single time. This is good for subscription services such as the pantry items that Amazon provides.
Read: How to Switch your Bank Account
The Changes That Are Coming
You should also be aware that the shift is going to take some time. There are several providers out there currently which already use your financial data.
There are a number of budgeting apps for example as well as application to help you save money on everyday purchases. There are all kinds of financial tools on the market, and not all of them are going to be authorized providers yet.
However, that doesn’t necessarily mean you should stop using them. For one thing, authorized providers are being added very quickly. In addition, the big banks are also providing their own services that allow you to see all of your accounts in one place. HSBC and Barclays are just two examples of this. So the changes are coming, but they may be a little bit slower than expected.
How to Know if a Provider is Authorized
In order to find out if a provider is authorized or not, you can check the FCA register to find out if they are listed on it. There is also the open banking directory. Both of these are lists that are updated regularly, but may not contain the very latest information.
If there is a service that you want to use, then he should deftly keep checking back because it could be added to the list at any time. However, you can also go on the financial products or applications website and they are supposed to tell you there if they are an authorized provider and then provide the registration number.
It will definitely take time for all the new providers to gain authorization and a transition period the you will have to wait for. However, everything should be up and running by the end of 2019.
Using Unauthorized Providers
You can still use unauthorized providers if you choose. You may not be as protected if you use an authorized provider, but that doesn’t mean that you won’t be at least somewhat protected. If you’re happy with a provider that you are using, and they are currently in unauthorized provider, then you can feel free to keep using them in the hopes that they will be added to the list at some later date.
However, you should try to find out what sort of security measures they have in place if they are not authorized and make sure that you do your research and carefully evaluate any third party application or service to ensure that they are going to protect your financial information.
Basically, you will be facing the same risks that you did before these new regulations were put in place. In other words, you will not be any more at risk to use the application then you were just a few months ago. If you are comfortable with that, then you need to worry too much about whether or not the provider is authorized.
If you are not sure about a provider, then you should ask them for more information such as who regulates them and what security measures they employ to protect your information. In some cases, applications will already be following certain regulations that protect your money regardless.
Why Use Open Banking?
So, why should you use open banking? The fact is, it is completely up to you whether or not you want to use open bankomg. It definitely has some major advantages over helping you to manage your money better and protect your financial information.
When you use authorized providers, then your money is safer than it would be great the standard protections offered by the third-party providers before the regulations came along. These are additional safeguards that are in place and regulations that make these authorized providers work harder to protect your financial information. This isn’t a replacement for anything nor is it a change to any major policy that was already in place.
If you want to continue using third-party applications without having to worry about whether they are authorized provider or being concerned with open banking whatsoever, then you can continue along with the same protection that you had for the past few months or years that you’ve been using these third-party products.
You are still very safe, but there is no doubt that by choosing only authorized providers that offer additional protection you and your financial information will be even safer. You should definitely do your own research and decide whether or not open banking is something you would like to take advantage of. As these new regulations settle, you also probably see a few minor changes with the applications that you are to use.
Bottom Line: Is Your Data Safe?
The bottom line is whether your data is safer with open banking that it is with the previous model. The answer is definitely yes. When it comes to protecting your financial information, the open banking regulations that the authorized providers are going to be using are far ahead of the previous protections offered to your financial services.
If you only provide information to authorized service providers, it will be only them that are able to access your data with very small chance that it is going to be leaked elsewhere.
All providers have to comply with data protection rules including the latest GDPR regulation.
Although there are no guarantees, it is safe to say that open banking regulations are a significant step forward when it comes to protecting your financial data and making sure that you are able to use applications and service providers effectively without compromising yourself.
