If you’ve had a look through various online lenders, you may have noticed the term ‘Open Banking’ pop up. While Open Banking isn’t complicated, it is still a relatively new process in the grand scheme of things and is often associated with a lot of unnecessarily confusing jargon (such as PSD2 and fintech). To clear things up, here is all the information needed to understand Open Banking in a simple, easy to understand description.
What is Open Banking?
In layman terms, Open Banking is a safe, mutually beneficial and entirely secure way for you to provide lenders with access to financial transactional information. This data allows lenders, such as Koyo Loans, to have a true and authentic view of your financial situation, rather than just a credit score. This isn’t a service or a product – it is a new set of rules for finance providers that benefits both you and them.
Open Banking was enabled through legislation in the UK during January 2018, helping to drastically change financial services for (in our opinion) the better. Essentially, the Open Banking directive ensures that banks and building societies open up banking data to help customers make better use of their financial data. This has opened up financial data in a secure form, allowing authorised companies to make use of it, and provide you with a more dependable service. All of the nine largest banks in the UK are required to take part in Open Banking:
- AIB Group UK (First Trust Bank in Northern Ireland)
- UK Bank of Ireland
- HSBC Group (as well as First Direct and M&S)
- Lloyds Banking Group (including Bank of Scotland and Halifax)
- Nationwide Building Society
- NatWest Group NatWest, Royal Bank of Scotland and Ulster Bank NI)
- Northern Bank Limited (trading as Danske Bank)
While other banks take part in Open Banking, these nine banks are collectively referred to as the CMA9 and were required to form open-source Open Banking APIs by January 2018. Check out the Open Banking website for more information about which banks make use of Open banking.
What can I do with Open Banking?
Since Open Banking was introduced in 2018, customers across the UK have had access to a variety of services that they didn’t before. For instance, Open Banking data has allowed customers to aggregate their accounts from different banks into one place, as well as receive better rates from online lenders. On top of that, Open Banking has also ensured that some apps can see your savings and present you with better deals elsewhere.
It doesn’t end there either – there is plenty of potential for Open Banking to provide even more useful services to customers all over the UK, transforming the way you move and use money.
How do online lenders use Open Banking?
Online lenders make use of Open Banking to thoroughly assess the financial status of a loan applicant. In contrast, traditional lenders are likely to conduct a credit check without any extra information. For first-time borrowers, consumers with thin credit files or those new to the country, that could be considered an unfair representation.
Here at Koyo, we make use of Open banking through a provider called TrueLayer, which are regulated by the FCA. Truelayer provides us with full access to crucial Open Banking transactional data, in order to validate and assess the financial situation of a loan applicant. While Koyo still conducts credit checks, this Open Banking data allows us to get a better picture of the real financial position when assessing an application. 24.9% APR Representative.
Is Open banking safe?
One of the most common concerns that customers have about Open Banking is whether it is safe and secure. The answer is yes – Open Banking is entirely safe. This is because of very strict regulations placed on Open Banking data providers by the Financial Conduct Authority.
The whole reason for the development of Open Banking was to put customers in charge of their data. With that in mind, if you don’t want to make use of Open Banking services, you don’t have to. If you change your mind a little later down the line, you can do that too. At the end of the day, your data is now in your hands.
Koyo Loans uses Open Banking to fairly assess your loan application. Looking for a flexible personal loan of £1,500-12,000? Our loan calculator will help you determine a realistic representative APR. Submit an application at www.koyoloans.com. 24.9% APR Representative.