Open-minded. Open-handed. ‘When one door closes, another one opens,’…the word ‘open’ is…well… pretty open to interpretation.
So what about Open Banking? What are the opportunities? Are there any risks involved? Here’s a quick rundown of what you should know:
What is Open Banking and what does it do?
Open Banking gives bank customers a way to send their banking data to a company that will analyse that data and let them know if they can get a better deal on considerations like their loans or interest rates. The company is third-party, and will be honest if your current bank isn’t serving you. It will also direct you to an alternative bank that will suit you better.
Why hasn’t this been possible before?
The laws that regulate banks are complicated (having said that, what laws aren’t complicated?). They’re designed to protect customers. Sometimes those laws are not up to scratch. The Royal Commission showed us that laws weren’t ensuring that banks had to act on behalf of their customer’s best interests. This meant banks were put in a position where they could charge customers for useless insurance policies, or give them credit they couldn’t afford, amongst many other awful examples.
Open Banking is being introduced now rather than earlier because the technology and legislation is brand new. Open Banks are already up and running successfully in the UK, and ours is based on that system.
How does it work?
Open Banking will make the following information available to the third parties
- Product data; Information about each bank’s products. This can be accessed through public APIs (the software that connects apps to other apps or websites)
- Customer data; Stuff like your phone number, email address and home address
- Account data; Balances, direct debits and regular repayments – that kind of thing
- Transaction data; Anything relating to transactions on your account, like what you spent and where you were
It’s a lot! This is the information needed for Open Banking to work fairly.
Something to remember
Open Banking will offer bank customers options that in the past, they wouldn’t have known they had, or known to look for. It will also force banks to perform better to serve their customers if they want to survive.
One thing to keep in mind is that the information goes both ways. When you apply for a new loan using Open Banking, your data is then given to the bank. It’s similar to how home loan eligibility is calculated currently, but there’ll be total transparency – both ways. If you have defaulted, have any outstanding loans, that informs your outcome. This includes any debt you’ve had, and whether you paid it back and on-time.
When you pay your debts before due-date, you’re setting yourself up to have a great credit history, and you’ll benefit later on if you want to use your banking data to find better deals. Data is only going to become more important in society, so making sure your data reflects a positive story about you will be important.
For more information about your finances, such as what home loan options are available, or can your home loan be transferred to another bank contact us here.