The finance industry stands on the brink of a revolution. The open banking initiative could significantly speed up the process of applying for a financial product by allowing lenders to access statements and consumer information digitally, removing the need for borrowers to produce countless documents and reducing time and costs incurred when assessing affordability.
Those of us who have been in the industry for some time have witnessed how technology has revolutionised the market over the past two decades. However, I believe the impact of open banking will be the most significant development the industry has ever seen.
It is not just about speeding things up; it will open the entire market, boosting competition and ultimately giving borrowers complete control.
The initiative is the brainchild of the Competition & Markets Authority, after a retail banking market investigation concluded that older and larger banks did not have to compete hard enough for customers’ business, and smaller and newer banks found it difficult to grow. This meant many people were paying more than they should for their banking activities and were not benefiting from new services.
Open banking enables personal customers and small businesses to share their data securely with other banks and third parties, allowing them to compare products on the basis of their own requirements and manage their accounts without having to use their bank.
HSBC has already implemented the initiative. The bank will start testing an open banking platform with 10,000 UK customers from next month, with participants able to add accounts from up to 21 banks.
There will, of course, be issues to iron out. Governance structures will need to be set up and attention given to assessing companies that will be accessing customers’ information, to ensure they are credible. The Open Banking Working Group, which includes industry experts from banking, open data, consumer and business communities, is working to address these issues.
However, although there are risks, this is a development the industry needs and one that will change the financial services world completely.
David Edwards is commercial director at Personal Touch