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Open banking could add over £1bn to the UK economy and support 17,000 jobs by freeing up money, according to findings from the Centre for Economics and Business Research (Cebr).
Lenders will be able to better understand the risks associated with different borrowers and can reduce the extra costs they charge to cover their own risks as a result. This will mean more money in the economy.
The Competition and Markets Authority’s (CMA’s) rules for open banking in the UK mean banks have to be capable of providing third-party financial services suppliers access to customer data, if the customer agrees, through application programming interfaces (APIs).
Cebr’s research, commissioned by customer reviews website Trustpilot, found the banks can use this data to analyse customers’ risk profile accurately and offer them correct interest rates on mortgages, for example. Consequently, banks will charge less risk premium and customers can spend their saved money and drive the economy.
Cebr said this will amount to an extra £1.06bn in the economy and will create an extra 17,000 jobs. Cristian Niculescu-Marcu, head of micro-economics at the centre, said the extra funds will fuel the economy.
“Open Banking means more third parties will have access to customer data, which can lead to a reduction in the risk premium currently charged on interest rates linked to products such as mortgages, due to a clearer understanding of a person’s underlying credit risk,” he said.
Glenn Manoff, senior vice-president at Trustpilot, said the Open banking rules will also encourage both financial services startups and established players to improve the customer service. “By giving customers the choice to provide their financial data to third parties, Open Banking is set to unleash significant innovation across UK financial services,” he said.
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However, user consent could be a key stumbling block, as 69% of people may refuse to offer data to third parties, according to a survey from technology consultants Accenture.
Manoff said the industry “will need to work extremely hard” if it is to convince customers to feel confident in sharing their data.
“In this new world, we expect the financial services sector to see a revolution in how it deals with customers,” he said.
“Whether you’re a national bank or a fintech startup, open, honest and transparent customer feedback will be critical to competing and winning the trust of customers in this new competitive environment.”