What are the benefits of open banking?

Are you ready to put your customers in the driving seat? Open banking isn’t just a buzzword. It gives users greater control over their financial data and how it is shared. Additionally, it helps businesses offer more personalised products and services.

 

Undoubtedly, open banking is here to stay. More and more people in the UK are using it every day to verify their earnings, authenticate their ID or access better deals. In December, the OBIE announced that over 4.5 million people are now using open banking-enabled services in the UK. From personal finance to business finance, we’re only just beginning to harness the power of this technology.

 

Benefits of open banking

With open banking solutions, you can offer customers personal finance management tools. Customers can use these tools to budget better, viewing all their finances in one place. Moreover, lenders can verify a users’ affordability for a mortgage with customers’ transactional financial data. In other words, it builds a complete and accurate picture of users’ finances.

From a security perspective, open banking keeps businesses safe by verifying their identity. As a result, this reduces the risk of fraud or financial crime. It also gives customers the freedom to use innovative financial apps and services that make managing personal finances easier. Whilst the benefits of open banking are endless, here are some of the most common use cases of the technology:

  • Check ID
  • Check balance
  • Verify account details
  • Initiate payments on behalf of the customer

Additionally, businesses can offer budgeting tools or personalised spending insights for more timely products and services.

 

How can open banking help improve credit scores?

Credit reporting companies like Experian are now using open banking to help customers improve their credit scores. For instance, solutions like Experian Boost ask customers’ permission to connect to their bank account by establishing a secure connection to scan customers’ account transactions from the past year. This data is used to calculate a boost. Customers are sent to their bank’s website to log in and select which of their current account(s) they wish to connect.

 

What is a 360-degree view?

Whilst keeping on top of finances can be challenging, online banking can take the guesswork out of budgeting and credit scoring. Many customers have more than one bank account, often with a secondary ‘light account’ with a challenger bank (e.g. Monzo). Consequently, it is often difficult to track all their spending and savings. Open banking gives a 360-degree view of customers’ incoming and outgoing transactions from all their bank accounts. As a result, aggregator apps use this data to create custom dashboards with built-in features to help track spending and offer more personalised products and services.

 

What data is shared by customers?

Once they’ve consented to share their data, the following information may be shared:

  • Account name
  • Account number and sort code
  • Full name of all account holders
  • Card number for credit cards only
  • Account balance and currency
  • Direct Debits
  • Standing Orders
  • Recurring payments
  • Future-dated payments
  • Details of payee agreements set up
  • Incoming and outgoing transactions, including salary, subscriptions, and payments into savings
  • Statement details
  • Any benefits, offers, rewards, fees, charges, and interest

 

What can open banking see?

Banks hold the record of every transaction, spending and borrowing. From utility bills to mortgage and weekly spending on travel, customers’ data is valuable. However, banks cannot ‘see’ or share customers’ data without their consent.

Nonetheless, some vulnerable customers may worry if open banking will be used to exclude them from products and services. This is not the case. If anything, open banking will accelerate financial inclusion as it increases competition within Financial Services. It will also help address the financial needs of the unbanked and underbanked populations. Crucially, financial inclusion allows both individuals and businesses to access affordable, personalised products and services with transactions, payments, savings, credit, and insurance.

 

Debt management

  • The OBIE found consumers stand to save up to £2.7bn a year, which equates to £287 per person or an average of 2.5% of income.
  • Additionally, more than a million consumers every year need debt advice and the average consumer spends £900 more a year than they earn.

 

Tailored solutions for everyone

In summary, open banking benefits both businesses and customers. Companies can build a compelling money portrait of their customer with personalised insights from transactional financial data. As a result, this allows users to manage their money better and avoid unnecessary overdraft fees. Whether you’re a wealth manager, looking to grow your client’s wealth or you’re a lender looking to speed up your affordability checks, open banking offers tailored solutions to meet your business need.

 

If this has raised a few questions or you would like to explore open banking, then please do get in touch. OPEN by Eliga has the knowledge, product, team, and experience to get open banking working for you.