The number of people using open banking in the UK is on the rise, which is little surprise given its numerous benefits. Open banking can make saving money simpler, can help customers and small businesses get better deals, and much more. Oh, and you can manage it all from your mobile or laptop - no more tedious bank queues.
Traditional banking
There are some big problems with the UK’s traditional way of banking - like people paying too much for their overdraft and not earning enough interest on their current accounts. The United Kingdom Competition and Markets Authority (CMA) wanted to do something about this, so they introduced open banking. The aim was to make banking better for the public, force innovation in Britain’s financial services sector, provoke competition, and promote transparency in the world of finance.
Bill Roberts, the head of open banking at the CMA, said that “when the CMA investigated retail banking, we found banks were not working hard enough for consumers, and so we required them to give people control of their own data.”
Your bank has access to all your financial information - from your rent to your electricity bill, how much you spend on Christmas gifts in December to how much you spend on a holiday in summer - but they don’t put it to good use. In contrast, open banking can use this information to provide new and useful financial services, all with the everyday customer in mind.
The CMA thus issued a ruling that came into force in early 2018 that required the country’s nine largest banks (HSBC, Barclays, RBS, Santander, Bank of Ireland, Allied Irish Bank, Danske, Lloyds and Nationwide) to allow licensed start-ups direct access to their data in a secure and standardised way.
The rise of open banking in the UK
A good year for many digital solutions due to the coronavirus crisis, 2020 has been the biggest year so far for open banking in the UK. According to the Open Banking Implementation Entity (OBIE), the number of people in the UK using open banking reached one million at the start of 2020. By October this figure had doubled, with two million people in the UK now using open banking.
Although the pandemic has pressed pause on many things, it certainly hasn’t impacted the rise of open banking. OBIE trustee Imran Gulamhuseinwala weighed in on the situation.
“Against a backdrop of economic uncertainty, it is exciting to see open banking user adoption remaining resilient and growing so strongly – not least because open banking at its core is about leveraging innovation and competition to rebalance the market in favour of citizens and small businesses.”
As well as an increase in the number of people in the UK using open banking, there’s also been an increase in the number of people in the UK trusting open banking. According to a recent survey carried out by strategic insight agency Opinium on behalf of innovation foundation Nesta, 36% of the 2000 people asked now feel more comfortable using money management and banking apps. In addition, 23% of those asked have started trusting online banking more since the start of the UK lockdown in March.
Why are people choosing open banking?
Commenting on the results of the survey, Nesta cited economic uncertainty as the main reason why people are turning to open banking, stating that: “With many struggling financially, the use of these apps is important to help people make the most of their money.”
For example, open banking can make the process of getting a loan quicker and easier. By assessing a borrower’s creditworthiness quickly and more accurately, open banking means that you could be approved for a loan in mere minutes. The agonising process of lenders having to wait for a wage slip or self-declarations to verify employment or income can be a thing of the past thanks to open banking.
People who own small businesses are also choosing open banking because it helps them manage their money better and get the best deals. When you’re a small business owner, you spend a lot of valuable time slaving over spreadsheets to manage your finances, but open banking can do all the hard work for you, giving you extra time to focus on the business itself. It can also help small businesses avoid late payments, which is one of the main reasons why small businesses go bankrupt.
Does this mean the end of traditional banking?
The continued growth of open banking is sure to disrupt financial services and transform our relationship with finances, revolutionising the way we bank.
Research from PwC and the Open Data Institute concluded that 72% of small and medium-sized enterprises are expected to adopt open banking by 2022, with 64% of adults expected to be using open banking by 2022. So, open banking is here to stay, and will probably soon be the norm for individuals and businesses in the UK.
What open banking could mean for you
So, what could open banking mean for you? In a nutshell, open banking offers you new ways to manage your money, with more flexibility and greater choice. From budgeting for a car to saving money on the weekly grocery shop, open banking can do all the hard work for you, taking the headache out of money management.
It also allows you to see a single view of accounts from different banks, making it easy to keep track of your money, even if it’s spread across different accounts or different banks. Open banking also facilitates personalised services. By analysing your finances, an open banking app or website can get you the best deals on whatever you’re purchasing, whether that’s car insurance or a new pair of shoes. Ultimately, open banking is a personalised financial solution that helps you save money in a way that’s manageable for you, based on your spending habits.
Open banking is there for customers. It encourages new financial products and services, which is all to the customer’s advantage. Even better, there are loads of different apps and websites offering you different services so you can cherry-pick the ones that best suit you, and your wallet.
More about Salad Money
We’re a for-profit social enterprise that uses Open Banking to be able to provide small, affordable loans to key workers, no matter what your credit score is. We’re here to solve the toxic high-cost lending problem and are monitored by an independent body, so you can rest assured that we are completely responsible and secure. Our use of open banking means we can quickly reach a decision about whether to give you a loan, making the process of applying for a loan with us simple, safe, and speedy - you’ll get an answer in minutes.
