Tech

5 common myths about Open Banking

18 Apr 2021

It's natural for business owners to worry about adopting new technologies into the day-to-day running of their business. So its unsuprising that many SMEs share the same concerns about the concept of Open Banking. Often, the benefits of Open Banking technology are overshadowed by unfounded myths. Did you know it can actually help business owners access finance faster, more efficiently and allow you to manage your money better. In the first article of our two part series, we’ll help you get to grips with what Open Banking means and dispel some of the myths around it. Keep an eye out for our next instalment, which will focus on Open Accounting.

5 common myths about Open Banking

Open Banking is when your financial data is opened up to trusted third parties with your permission. The idea behind these changes, means that there will be more competition and innovation to financial services for SMEs and personal customers alike. It is hoped these changes will lead to a greater selection of better products to help manage your money.

Open Banking has the potential to increase accessibility by enabling individuals and SMEs to compare deals and make informed decisions using a single platform. 

But is Open Banking safe and reliable? 

In March 2021 the UK's biggest lenders – known as the CMA9 - unveiled plans for an Open Banking rollout. UK Finance published a report detailing how the group intends to comply with requirements set by the Competition and Markets Authority (CMA) five years ago.

The lenders, which include Barclays, HSBC and NatWest Group, have proposed a not-for-profit company to oversee the deployment of Open Banking.

As well as allowing UK consumers, SMEs and corporates to leverage Open Banking in an efficient and safe way, the new company will enable the UK’s financial institutions to meet their Open Banking regulations and responsibilities.

Experts say that the report is a key step toward embedding Open Banking into the finance landscape, and could lead to it being extended to different financial products. 

Understandably, you might be harbouring concerns around Open Banking – especially when it comes to security. Before we debunk some of the myths surrounding Open Banking, here’s a quick recap of how it started and what it actually means. 

What is Open Banking?

Open Banking began in January 2018 and its aim is to “open up” banking data. 

Since the Open Banking reforms came into force, the UK’s nine largest banks (the CMA9, as we just mentioned) are obliged to release their data securely and in a standardised way so that it can be easily shared online between authorised organisations.

Open Banking enables finance providers to access your business’ financial information securely, and it helps SMEs gain access to better deals.

Ultimately, Open Banking will provide everyone with more choice. By stimulating collaboration, it has the potential to transform the financial services sector and make products accessible to a wider range of people and businesses. 

Lenders are already using Open Banking to understand their customers better and make more informed choices when it comes to affordability. 

It’s also facilitating faster and more transparent payments by allowing individuals and businesses to make payments from one account to another directly. 

Open Banking and security - is it safe?

Open Banking is designed to make the sharing of finance data secure

According to The Open Banking Implementation Entity, “every provider that uses Open Banking to offer products and services must be regulated by the FCA or European equivalent. At the moment, the nine biggest banks and building societies are enrolled on the Open Banking Directory, and others are coming soon.”

Let’s run through some of the most common Open Banking myths. 

Myth #1: My data can be shared without consent

This isn’t true. Financial institutions aren’t permitted to share data without your consent. In other words, they can only share your data if you opt-in. 

Before Open Banking, your bank held your data, whereas now you can choose to share it with companies that have the potential to add value to your financial circumstances. As with email marketing subscriptions, you can withdraw your consent whenever you want. 

Open Banking API

You may have come across the term “Open Banking API”. An Application Programming Interface (API) is a piece of software that acts as a mediator between two applications. The CMA9 banks use secure APIs to share their data with approved third parties.

Myth #2: My funds could be compromised

Some people have voiced concerns over the security of personal details. However, it’s likely that most Open Banking online services will be as secure as your bank’s. This means that information such as passwords and account numbers will be encrypted so that nobody can intercept the information you exchange with your Open Banking provider. 

Myth #3: I won’t be able to recoup money lost to fraud

The financial services providers that have your transaction data must be insured to protect you should any issues, like fraud, occur. Your bank has an obligation to resolve the issue and return the money to you. 

Myth #4: It’s bad for my bank

Some people worry that because Open Banking provides customers with more choice, it could have a negative impact on the institution they bank with. In reality, most banks are ‘open’ to Open Banking; in fact, it’ll probably improve the way they operate. 

With a better understanding of alternative financial products that are more tailored to the individual’s (or business’) needs, traditional banks will have to rethink some of their own financial offerings in order to compete. 

Myth #5: It’s difficult to navigate

Open Banking actually simplifies and streamlines banking processes. For instance, you can use Request for Payment technology to send a payment request to your customers’ bank account instead of relying on debit and credit cards. This makes for a more transparent process, with account balances being updated instantaneously. 

If you use online or mobile banking for your personal account you can begin exploring Open Banking now. Check out the regulated providers already enrolled in Open Banking today.

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