New open banking protocols could pave the way for widespread changes in the mortgage market, experts say.
This new legislation came into effect on January 13. It requires nine major banks to share customer data with FCA-approved third parties, provided customers have agreed to this.
To help, banks need to develop standard programming interfaces. However, technical challenges have meant six major banks have failed to meet the implementation deadline. These include HSBC, Barclays, RBS and Nationwide BS.
The Competition and Markets Authority hopes these changes – when they are fully implemented – will encourage innovation in the banking sector.
Open Banking protocols allow tech companies to develop apps and online services that analyse spending habits and recommend alternatives, be it current accounts, mortgages, household bills or day-to-day shopping deals.
These reforms will work alongside European-wide regulations, known as the second Payment Services Directive (PSD2).
Online mortgage broker Trussle’s chief executive Isaan Malhi says: “These changes are designed to allow customers to take back control of their financial data. This should enable them to make better financial decisions.”
This, he says, could have significant consequences for the mortgage industry.
For example, he says third party apps will have the ability to plug into a customer’s bank account and alert them when their mortgage drops into a lower LTV band.
These online services could recommend products to customers and facilitate a switch as well as showing how much they could save by remortgaging.
Malhi adds: “These changes will force banks to step up their game in terms of price, service and the data tools they offer.” He says this will create opportunities for challenger services in the mortgage market.
Foundation Home Loans marketing director Jeff Knight says that this will also create challenges for the broker market.
“Open banking will force all of the major retail financial services providers to adopt a standard set of programming interfaces for their systems to be publicly available.
“If the big lenders use this to make their systems and application process much slicker, they may use their clout to try and generate more business directly, cutting brokers out of the mix.
“That is why it is so important for brokers to stay in touch with clients and remind them of what you are good at – giving advice in a complex financial market.”
Malhi says these online service have the potential to threaten some broker models. He says: “Brokers will need to demonstrate that they can add value. For me the emphasis will be on advice.
“Most brokers offer an advice service, plus a fulfillment service. Brokers need to justify the value of this advice if digitisation makes it easier for customers to complete the fulfillment part of these transactions themselves.”
However, the Open Banking may also enable brokers to deliver a quicker and more efficient service for clients. Knight says: “We could see smoother interfaces between technology platforms, brokers and lenders.”
This has the potential to reduce unnecessary paperwork, which could leader to faster and more accurate lending decisions, Malhi says.
“At the moment clients need to verify information with salary slips, bank statement and other bills. Open Banking should allow lenders or other third parties to plug into customers’ financial data directly.”
London & Country’s associate director of communications, David Hollingworth says there could be longer term benefits, but he says significant changes are unlikely to happen any time soon.
“Brokers are dealing with up to 90 different lenders. Not all of them are going to adopt these standards at the same time, and many will still require different pieces of information. In addition, many consumers may be reluctant to give third parties access to their financial data.”
A spokesman for UK Finance says that any changes are likely to be “evolutionary rather than revolutionary”. She adds: “Open Banking is likely to bring changes for both lenders and customers; in terms of their relationship going forward and how customers shop around for mortgages.”