What does 'Open Banking' and PSD2 mean to me?

Open Banking

What is it?

Put simply, Open Banking regulations have forced banks to allow FINTECH companies, access to both your current balance and historical financial information, provided you have given your express permission.

 

What could it do for me?

If you give a business permission to access your data held by a bank, the FINTECH can ‘suck up’ your historical spending data as long as it is used for a purpose they have explained and to which you agree. For example, you could allow budgeting software to analyse your spending habits to help you manage your money, or you could bring all of your accounts into a single ‘money dashboard’ - this is called an aggregation service and can be helpful if you have more than one account with different banks.

 

What are the risks?

Giving permission to a regulated or trusted business is unlikely to have any real risks but be careful about what they intend to use your data for. You could get inundated with product or money suggestions rather than get a better service. Read the ‘use of your data’ section of the company’s website and make sure they are not selling it on or doing stuff you’re not happy with. Read the section on data protection to understand what your rights are if you don’t like what they intend to do or want to stop sharing data.

Remember too that even once you have given your permission – you can withdraw that access to your data or a company’s storing or processing of your data at any time.

 

The Payments Services Directive 2 (PSD2).

What is it?

PSD2 is a series of regulations which allow FINTECH companies to make financial transactions for you to and from your chosen accounts and seek increase competition to make payments faster, easier and cheaper.

 

What could it do for me?

There are loads of applications but the simplest would be to allow you to select which of your current or savings accounts you wished to make a payment or it will allow you to make easy transfers or payments between accounts in different banks.

Like an electronic wallet, it can also manage all of your transactions through specific accounts – say, all your internet payments on one card but your food shopping on another. Some of the more sophisticated FINTECH systems could help you maximise the interest you earn on your balances: for example, software could automatically move your money to higher interest savings accounts or ensure that your money was not all held in a poor account. They should also be able to allow you to get cheaper payments services or use payments methods other than the traditional card systems – think Apple Pay but with any of your gadgets or accounts.

 

What are the risks?

Authentication of the payments process and that it is not a fraudster making the payment is very important. Theoretically, if someone could access a provider pretending to be you then you could find your accounts empty or payments you did not authorise appearing on your statement. Ultimately, the banks carry the financial risk but there is an increased risk of fraud as you are not dealing with the bank directly and of course there is the complication of the increased disruption and hassle you may face if you suffer from a fraud attack.

 

My Finances are really simple – what does all this matter?

Even if you currently only have one bank and only a savings and current account – all this stuff shouldn’t just pass you by. For example; avoiding accidental unauthorised overdrafts when you have funds in your deposit account is clearly a cost you would want to avoid (as well as the potential black mark on your credit score). As your circumstances change you may want to look at shopping around for better deals; some FINTECH systems will allow you to choose or set automatically the cheapest or most advantageous payment method on a purchase.

 

NEXT blog we look at - What does this mean for The Services Family Ltd? And what will it mean for our prospective customers?

We’ll cover why these changes make a difference to our business and how TSFL will build its community offering to help you better understand your financial options and how to get the best financial support and deals.


If you would like to help shape our services and improve a customer's experience in banking, please provide your thoughts in an email.