What Is Open Banking?
There are some tech and financial trends that remain seminal across the globe, including the rise of open banking.
In fact, the number of open bank users worldwide is forecast to grow at an average annual rate of nearly 50% between 2020 and 2024, with the European market leading this impressive charge. As of 2020, some 24.7 million people across the globe used open banking services, while this number is expected to peak at 132.2 million four years later.
But what exactly is open banking, and is your data safe within this type of financial system? Let’s find out!
What is Open Banking and How Does it Work?
The term ‘open banking’ refers to a series of reforms in terms of how banks deal with your financial data and information, with this concept called for by the competition watchdog (the Competition and Markets Authority).
This was introduced alongside a regulation known as ‘the second Payment Services Directive’ (PSD2), which came into force on 13th January 2018.
Altogether, these entities have combined to ensure that all UK-regulated banks are required to let you share your financial data (including spending habits and regular payment) with authorised providers of budgeting apps and other institutions, so long as you provide your express permission.
The idea of open banking is to create more competition in the marketplace and introduce increasingly innovative financial services, ensuring that customers have access to better tools and products to help them manage their money.
But how does open banking work? Well, from a technology perspective, it relies on so-called “APIs” (application programming interfaces), which create a structure in which one program can offer services to another.
Put another way, it enables software packages to interact with one another, creating a scenario where different banks and lenders can speak to each other and organise the transfer of selected data as and when required.
Is Your Data Safe With Open Banking?
The question that remains, of course, is can you consider your data to be safe with open banking?
Before we answer this, however, it’s important to remember that you don’t have to share your data through an open banking platform if you don’t want to, with this fundamental to the function of the service and the safeguarding of datasets.
Currently, the rules dictate that while banks have to allow your data to be shared, this is only on the provision that you have previously given them express permission to do so. You can also grant permission to specific service providers, enabling you to retain full control of your information at all times.
In this respect, your personal and financial data is secured through open banking, with individual providers required to ask for your consent to access your information when you sign up to one of their services.
What’s more, you can withdraw your permission at any time, at which point providers will have to cease accessing your data.
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