Known as an Open Banking system, the changes will mean banks and building societies must allow regulated businesses to access customers’ financial data, if a customer has given permission.
What this means is that people will be able to grant access to their financial data to online services and applications that analyse spending and will recommend changes that will benefit the individual.
This could mean anything from finding better deals on loans and mortgages, to finding cheaper options for broadband and phone subscriptions, with the ultimate aim of helping people save money.
How will it work?
Essentially, the new measures will allow you to have your spending habits and financial information analysed by third parties, such as price comparison sites, with the aim of securing better deals on how you spend your money.
Other services that have been suggested are an alert system around fraudulent or suspicious transactions and the option to pay retailers directly rather than using PayPal or debit/credit cards. It is also thought that the new system could increase the speed of mortgage applications.
Mortgage providers and brokers will be able to access applicants’ spending history and financial data if they have agreed to take part in Open Banking. This will reduce the continuing reliance on printed bank statements and lead to quicker decisions on mortgage approvals for those buying new homes. If you haven’t signed up to Open Banking you can still find the latest mortgage deals here.
When does it start?
Technically it has already started. The UK’s largest current account providers were instructed to be ready to start the Open Banking revolution from January 13, however so far, just four are fully operational – Lloyds Banking Group, Nationwide Building Society, Allied Irish Bank and Danske.
Other high-street financial institutions have been given six weeks to prepare to provide customers’ financial details to regulated third parties and should be able to offer the service in the coming weeks for those willing to allow access to the accounts.
Of course, providing access to your bank accounts to third parties comes with risks and some institutions and experts have raised possible concerns around Open Banking.
These include Gareth Shaw, from consumer group Which? who welcomes the potential for increased choice and information for consumers, but said “regulators and industry must ensure that customers are properly protected from data breaches and scams, which is vital if consumers are to use these services with confidence and trust."
As people rely more heavily on digital services, such as online banking, the Open Banking system does offer a wide range of potential benefits if handled correctly and for those buying a new house it has the potential to create a better financial situation and speed up mortgage decisions, taking some of the uncertainty out of the process.