One international bank, hosting a reception for would-be recruits in the region recently, evangelised about its suite of “synergised” web and phone apps, but when asked afterwards about how they worked, its executives hadn’t a clue.
The fact is that our banks are not nearly as switched on technically as they would like us to think. Their understandable focus on security has often come at the expense of innovation.
That’s why we are only now getting our heads around a concept that has been part of domestic financial management in North America for a decade or more. Open Banking is the British name for it, and it clears the way for one bank or other service provider to access data held by a different financial institution.
This, as I have mentioned previously, has been tried in the past, but only by allowing a company to “scrape” the details of your accounts and present them back to you in a more understandable form. A few money management apps – some of which can analyse your spending habits and automatically divert spare cash to a savings account – work in this way but are compromised by their requirement to know your bank login details. This carries an obvious security risk and may put you in breach of your bank’s terms and conditions – which, in turn, could see them refusing to compensate you in the event of fraud.
Open Banking removes all such risks. There is now a legal requirement on banks to let their customers share their data with other companies, if they wish. The information can then be analysed and products recommended to make the money work harder. Nearly a year on, we are beginning to see what that means in practice.
Barclays customers can now use their existing mobile apps to also view their current accounts at Lloyds, Halifax, Bank of Scotland, RBS, NatWest, Nationwide or Santander, on the same screen. HSBC has a separate app that does more less the same thing, but so far on iPhones only.
HSBC is also using the system to assess applications for personal loans and credit cards. It analyses three months’ worth of data from your current account and categorises each incoming and outgoing transaction as “essential”, “discretionary” or somewhere in between. If it determines that you are not living beyond your means, it can approve your loan in two minutes flat.
On the face of it, this sounds like a gross invasion of privacy, but it happens only if you give your express permission for your details to be accessed. Realistically, you’re going to have to open your books to the bank if you want to borrow money from it; this makes the process rather more seamless. And you can see at a glance who is accessing your details and for what purpose, and turn the sharing switch off and on immediately.
It is not just the banks that the new regime is bringing out to play, though, and it could be the technology giants – firms like Google, Apple and Amazon, with innovation in their blood and now enriched by the ability to analyse our spending – which eventually take over the market in personal financial management.
For banks as we have known them, it’s a case of innovate or die. Just ask TSB.