Mother-in-Law’s Guide to Open Banking

Dearest Mother-in-Law,

First of all, Open Banking is not about keeping banks open later in the day or having more banks open on Sundays. Open Banking is about 2 things:

  1. Open Banking Regulation: Many countries are regulating how banking data can be used. Open Banking refers to customer ownership of their own banking data. This article will focus on Open Banking regulation.
  2. Open Banking Collaboration: Even when this regulation doesn’t exist, banks see the benefit of collaboration and the usage of APIs (which is just a technical word for being able to use stuff from other banks). This version of Open Banking is broader and I’ll try to cover it in another post at some point.

Open Banking Regulation started in the UK. The basic premise is that data has value and that data about a consumer should belong to that customer and not to the business. This concept was made into a law called the General Data Protection Regulation (GDPR). Let’s look at an example. Say you post something online today about your dog Carmella, saying she is the sweetest dog you know. Some people read it and search engines around the world keep copies of it so other people can search it. A few years from now, you get a new dog and don’t want the new dog to know your feelings about Carmella. But even though you try to delete the post, companies like Google keep a copy of it. GDPR says that because you own your data, you can have all of these websites delete your post.

“But,” you say, “my dear son-in-law, what is this have to do with banking?”

Remember when you were trying to do the taxes for your small business last year. You had three different bank accounts that all had different information from your business. You’d look at the different statements combine them. Under Open Banking, all of this information belongs to you.  So you can download this data and use computer programs to get it exactly the way you want it. You could even take all of your banking information from one bank and move it to another bank or to a financial services startup. Remember, it’s your data so it belongs to you.

Open Banking in the UK provides customers the ability to own all of their data and can view, move, duplicate, or delete that data. It also provides customers the right to instruct banks to make a payment on their behalf

Some companies, like mint.com, already use the concepts of open banking to allow you to access your data and combine it into one place. Open Banking increases the security and types of opportunities for you to use your data. It allows new Fintech companies to better compete by reducing the advantages that existing companies have by “owning” your data. It also allows new companies to create new types of products like:

  • Cash Planning: You can allow a third party company to look at your monthly payments and help you better you use your money. By modeling your monthly spend, the application could move your money to the highest yield accounts to earn you money. It would also check your balance and move money in to make sure that you avoided overdraft fees.
  • Lending for Low Credit Customers: I know that you don’t have this problem but there are many people who aren’t able to get loans due to poor credit. Open Banking allows customers to package up their data and share it with lenders who can use it to make better loans.

Why does this matter? 1) These types of regulations are spreading around the world as data privacy is seen as an individual right. 2) Open banking has spurred a conversation about interoperability between banks that I’ll cover in another post.

To learn more about open banking take a look at What is Open Banking? from the UK Government.  Also, there was a good overview of Open Banking by the UK Open Banking Head Imran Gulamhseinwala.