How open banking could transform your money habits

What is open banking?
What is open banking?
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The open banking revolution will be kicked off from Saturday, but what will it mean for people's finances?

What is open banking?

The initiative aims to give people better tools to help them make financial decisions, with apps or websites making recommendations based on someone's actual financial habits.

Organisations - with the customer's permission - will be able to read the transaction history of their account.

How does it work?

Open banking uses technology to share information securely, without you needing to reveal your passwords. It works in a similar way to the technology that allows people to sign into other online accounts using Facebook.

What sort of services could there be which could help people manage their money better?

Over time, these could include current account comparison websites, money management apps which give tips based on how you use your account, apps that monitor your account balance and give warnings or websites where all your finances are in one place.

Loan and mortgage applications could also go through more quickly because the customer has given the lender permission to see their banking information directly.

Why is the initiative being introduced?

Open banking is part of moves to shake up competition between financial firms.

In 2016, the Competition and Markets Authority (CMA) found older and larger banks do not have to compete hard enough for customers' business - and many people are paying more than they should.

The CMA said people switching bank could save £92 on average per year by moving to a provider which better suits their needs. Those who regularly go overdrawn by one or two weeks every month could save £180 per year on average, it calculated.

Do I have to take part?

No, you can use it as much or as little as you want, or not at all. People actively need to give their consent for this to happen and their details should only be used by firms for a specific purpose and time period.

What about the potential for fraud?

Firms taking part in open banking must be regulated and also appear on a directory. Firms taking part in open banking will have to meet certain security standards. As with any firm, it is wise to check who you are dealing with so that you are sure. Data should only be used for specified purposes and if someone is not happy they could decide to revoke their consent. In general, suspected scams can be reported to Action Fraud and if people are concerned they might have been scammed they should alert their bank.