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Banks should implement an Open Banking Standard to allow banking data to be used for product and services comparison, according to the Open Banking Working Group (OBWG).
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The group suggested in a report that an open application programming interface (API) should be developed under an Open Banking Standard to allow external companies creating services such as comparison websites to use bank and customer data.
Customers – both individuals and businesses – should be able to opt in to allow data about their transactions to be used for these external services, helping people more easily explore better ways of saving, investing or borrowing money.
“Banking as a service has long sat at the heart of our economy. In our digitally enabled world, the need to seamlessly and efficiently connect different economic agents who are buying and selling goods and services is critical,” said Matt Hammerstein, co-chair of the OBWG and head of client and customer experience for personal and corporate banking at Barclays.
“The Open Banking Standard is a framework for making banking data work better – for customers, for businesses and for the economy as a whole.”
The report stated this could increase competition in the banking sector, as well as speed up the implementation of banking data regulations across the EU, helping the UK become a leader in developing an infrastructure for data sharing across the financial services industry.
Is financial services open to innovation?
Economic secretary Harriett Baldwin said this could encourage innovation in the financial services sector, something that large traditional financial services firms often struggle with due to legacy IT systems.
“I am determined to ensure that our financial services remain at the forefront of technological innovation,” she said.
Harriet Baldwin, economic secretary
“That’s why I asked the Open Banking Working Group to explore how an open standard for APIs, or an Open Banking Standard, could be designed to increase competition in Britain’s banking sector, give customers more control over their finances and provide fintech companies with a globally unrivalled opportunity for innovation in the UK,” added Baldwin.
The UK, and in particular London’s Silicon Roundabout, is known as a hub for financial services technology startups. Consumers are quickly adopting products and services from these companies, putting traditional banks at risk.
An Open Banking Implementation Entity has been created to carry out further research into the Open Banking Standard and the necessary framework over the next five years.
The report suggested a minimum viable product for the open banking API should be developed, based on currently open data, by the end of 2016.
Security must be addressed for Open Banking Standard to work
But security is a huge concern to banks, and the report stated this would only work if data is properly secured and if the way in which is it shared is actively governed by the proposed Open Banking Standard.
The launch of the proposed Open Banking Standard follows government plans to make account switching easier for customers and promote more competition and innovation in the UK banking sector.
The report stated the Open Banking Standard would help guide bank customers on privacy protection and the security of their data, and help put consumers and businesses in control of their data.
They could then use it to compare products and services specifically tailored to them based on how they interact with their current bank, which would save them money.
It has already been found that a lack of digital skills preventing customers from shopping for and comparing deals online can cost them up to £744 a year.
Although the creation of open banking data would help digitally savvy customers save more money, financial transaction data is currently very hard to share as both the banks and their customers must give permission for it to be used by third parties, and even then it may not be in a format that can be processed by external IT systems.