What is Open Banking?
Put simply, Open Banking is all about data. Every time an individual or a business opens a bank account and uses it for transactions of any kind, data on how much was spent and who received the cash is generated. Multiply that across numerous accounts and service providers and you can quickly see that the amount of data generated, even by one person, is significant.
But data is valuable too, which is why Open Banking was designed by the Competition and Markets Authority to reform the rules around personal data in finance and give consumers more control of what they can do with their data pool. Its goal was to make it easier for a person using financial services – such as a bank customer, or a holder of an investment portfolio – to use the data they accumulate as part of being a node in the financial system. This could in theory be anything from what they spend their cash on to their preferred energy providers.
Using Open Banking, the consumer can give their consent to allow their bank or other provider to give their transactional information to a third party. A consumer might want to do this if they intend to use a budgeting app, for example, or maybe they want to use a price comparison website which will look to see if they’re spending their money well. A corporation, meanwhile, might want to integrate their financial data with a software package for analysis of revenue streams.
How do consumers benefit from Open Banking?
For consumers, Open Banking is a key way to open up a whole host of sophisticated budget management tools. Apps which connect their accounts to a budget management app or other tool are growing in popularity as a way of keeping track of finances. Open Banking also makes it easier for consumers to connect to price comparison sites and apps which can analyse how much they have spent on their bills and suggest alternatives which might be more cost-effective.
How can Open Banking help businesses be more competitive?
Open Banking can help business budgets too. Software packages which automatically extract data and then analyse everything from the health of the balance sheet to the chances of key revenue flows growing or contracting further down the line are perfect for strategic thinking. Open Banking makes this so much easier by enabling data to flow easily.
It’s also worth noting that Finance providers may want to engage with their marketing teams to communicate how support for Open Banking can be incorporated into your unique selling points. Bear in mind that as the use of price comparison sites rises, then Open Banking will be on your competitors’ radar as well. You should also consider running financial models which show what an Open Banking-fuelled rise in consumer choice could look like.
Ultimately, Open Banking is designed to make life easier for consumers and businesses who want to make the most of the many options out there for budget maximisation and reductions in inefficiencies. And for a business who also has an interest in the financial behaviours of their customers, Open Banking is another way to ensure you are as competitive as possible.
To find out how Access Finance software can help, visit our website.