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Big, bold and beneficial: Open Banking explained



Open Banking is the latest innovation that will make it easier for you to manage your personal finances.

2 min read

It’s just 20 years since banking started to expand beyond the branch and do increasingly more through the internet.

It’s even less time since smart phones revolutionised the way we manage our finances. But now, big changes are coming once more in the shape of Open Banking.

What is Open Banking?

Open Banking is an initiative by regulators and the banking industry designed to level the playing field, increase competition and foster innovation. It centres around enabling you to securely share your current account data with authorised third-party providers. Those providers can then offer you innovative products and services that simplify and reduce the cost of making the most of your money.

This should make it easier for you to manage your financial life from one place. Many of us do this already, using software like Quicken or Microsoft Money. But Open Banking has the potential to take this even further and make it even easier.

The client remains at the heart of it all as nothing can happen to your account information without your explicit permission.

“Open Banking is an initiative by regulators and the banking industry designed to level the playing field, increase competition and foster innovation.”
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Some of the new things you’ll be able to do in the months to come include:

  • seeing all the balances and transactions from your bank accounts from one online portal – provided by your bank or any other provider you choose that may offer additional services
  • arranging payments and making transfers from any of your accounts from your preferred portal – at first this will apply to payments made under the Faster Payments scheme but will eventually cover all domestic and international payments
  • getting product recommendations – for example on investment or savings products – from trusted sources based on your spending patterns
  • paying for goods and services online directly from your bank accounts without a credit or debit card

The Competition and Markets Authority (CMA) introduced the Open Banking regulations in January 2018. Under these regulations, nine banks in the UK must provide a standardised and secure means for their customers to share their information from their current account only.

Open Banking is set to evolve further with the introduction of the second Payment Services Directive (PSD2) regulations, which come into effect in September 2019. Under PSD2, the scope of Open Banking services extends to include all banks in the European Union and will also cover credit cards, charge cards and some deposit accounts, as well as current accounts.

How does it all work?

Open Banking relies on establishing a standard technology for data sharing between banks – an Application Programming Interface, or API. An API is a piece of software that allows different programmes to communicate with each other. Open Banking requires banks to make standardised APIs available that will allow the sharing of account information and the transmission of payment instructions (if customers have given permission to do so).

“Open Banking is a major initiative by regulators and the banking industry to make it easier and more cost-efficient for you to make the most of your money. ”

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Keeping it safe

Open Banking should give customers more control over their data. But it raises critical questions about privacy and security. The regulations mean that any company with access to your data will now be responsible for ensuring it is processed, stored and transferred appropriately and securely.

You can help safeguard your data by making sure you only use firms regulated by the Financial Conduct Authority. It is also worth noting that your data can’t be accessed by any third-party providers unless you give them express permission to do so. Your bank will remain a trusted partner and security will remain paramount.

The new regulations are fundamentally changing the relationship between you and your money for the better. Innovative services will continue to emerge that don’t exist today, ultimately providing a new way of doing an old thing – helping you make the most of your money.

New functionality coming to Coutts

While Coutts – as a private bank – isn’t included in the CMA’s regulations (we are covered by PSD2) we do have a proud track record of offering innovation for the benefit of our clients. From our award-winning banking app to our industry-leading voice recognition security for telephone banking, we have led the way in new technology.

That’s why we’re working on a new Open Banking powered service that will launch later this year. This will sit alongside our award-winning online banking to give our clients a seamless one-stop service for all their finances.

Five decades of innovation

Open Banking is the latest development in a long history of technological innovation. In 50 years banking has transformed from a world of counters and ledgers to the World Wide Web, mobile phones and beyond.

Key Takeaways

Open Banking is set to revolutionise how you look after your money. It’s a major initiative by regulators and the banking industry to make it easier and more cost-efficient for you to make the most of your money.

About Coutts Investments

With unstinting focus on client objectives and capital preservation, Coutts Investments provide high-touch investment expertise that centres on diversified solutions and a service-led approach to portfolio management. Our investment process is as disciplined as it is creative – ensuring tailored solutions with robust results.

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