Is open banking truly safe?

Jan 18, 2018 by

Is open banking truly safe?

Is open banking truly safe?

By Dolphin Loans and Mortgages

What is Open Banking?

Open Banking is a new system which means customers can let third party providers, other than their bank, to access their financial information. These providers can be anything from mortgage and insurance companies to shopping sites, mobile phone contracts and broadband providers.

The purpose of Open Banking, started by The Competition and Markets Authority (CMA), is to give people more control over their finances as they can choose who they give it to. Customer’s can allow these companies to view their financial circumstances and offer them deals tailored to them or help them to better plan their finances.

There has been a change in UK law which means that banks must allow businesses, regulated by the FCA, to access a customer’s personal and financial information, as long as the customer gives their permission first.

The bank can only prevent the business access, on the customer’s behalf, if they suspect that the company is fraudulent, or not regulated by the FCA.

When will Open Banking Start?

Nine of the largest UK account providers are required to provide Open Banking services. Four of the nine; Lloyds Banking Group, Nationwide, Allied Irish Bank and Danske are ready to start Opening Banking now.

Six weeks has been given to RBS, HSBC, Barclays and Bank of Ireland by the Competition and Markets Authority (CMA). Santander’s Cater Allen has been given another year to prepare.

To integrate the new system smoothly, for the first 6 weeks, the banks and companies offering Opening Banking have been asked to only make it available to a small group of selected customers.

How Will These Third-Party Providers Gain Access to our Information?

API’s: New communication technologies have been developed, Application Programming Interfaces, which are regularly used by various online tools and mobile apps to provide joined facilities, allowing software from numerous companies to ‘talk’ to each other. This way, your information will be securely passed between companies with this technology in place.

Log-In Details: Another method may be that third-party providers will request that you share your online bank log-in details directly with the company. Yes, you read that right. A separate piece of legislation, the Payment Services Directive, will allow some companies to do this.

The company can then log in to your online banking account, like they were you, to access your financial data. The only way to withdraw your permission to this company, for certain, is to change your account password and other security details.

Do you Have to Share your Information?

I am glad to say no.

The new rules state that banks must allow third-parties access to your information, but the customer must explicitly give that company their permission. There will be an option to either switch on or switch off Open Banking on your account.

Once you have given that company permission, it’s not set in stone either. You can give and withdraw your permission at any time.

What are the Potential Risks with Open Banking?

In my opinion, this does open up massive risks surrounding data privacy and security.

There are worries concerning the fact that by creating more chains of data access, it will be much harder to prove who was at fault if the customer’s information is stolen, making it harder than it already is for customers to receive compensation.

It also opens many opportunities for fraudsters to scam customers.

To name just one, fraudsters could easily mimic third-party providers, by copying their choice of contact, to trick people into handing over their data which leaves consumers at risk of their money and/or their identity being stolen.

Also, giving a company your bank log-in details with the only secure way of knowing that you have cancelled your permission is by changing your password? This is the main thing that consumers are told to never do, to never hand out your bank log-in details. Something about this just doesn’t make sense to me.

The Positives…

Although I think there is a lot at stake for people who decide to go forwards with Open Banking, I do think, for some people, this could be a way to gain much better control over their finances.

With Open Banking, it could be made easier to assess what type of bank account is best for you by analysing how you use it. For example, a lot of people can be unsure of how much their overdraft is costing them, but if a company can see your account, they may be able to provide you with a much clearer perspective and give you cheaper alternatives.

Or, for people who want to save money but are struggling to do so, sharing their data with budgeting companies/apps could help them see where and how they can save money.




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