26 November 2017

Financial Times: UK banks prepare to share customer data in radical shake-up

[...] Some analysts say the European regulation, called the Payment Services Directive II, could transform the retail banking sector, sparking an irrevocable shift in power away from the large banks. The UK is going a step further by creating its own version — dubbed Open Banking — to provide extra safeguards for the transference of customer data.

Imran Gulamhuseinwala, who is overseeing the UK’s implementation of Open Banking, says: “If we get it right we will for the first time anywhere in the world, put the customer in control of their data, their privacy and their finances.”

He says it “will in time automate investment and budgeting advice. It will make lending decisions far more accurate and . . . truly transparent. It will open up credit to the financially excluded.”

A big concern with the regulation among consumer groups, however, is the potential misuse or loss of customer data. They fear new fintech start-ups and other companies might not have the same safeguards as banks.

PSD2 is expected to allow a method of customer data transfer called “screen scraping”, whereby consumers hand over their passwords to third-party companies, which can log in and gain access to their financial information.

The UK version will not require customers to provide log-in details. Instead, the data are transferred using a “plug-and-socket” approach, whereby companies connect directly to the bank to access the data. They can only see specific information relevant to the service that the customer has consented to, such as their current account balance.

In order to ensure only viable third parties can access customer data through Open Banking, they must be approved by the FCA.

However research by Accenture shows two-thirds of consumers in the UK would not share their personal financial data with third-party providers.

“Screen scraping remains a fairly crude way of gathering data — and often requires you to divulge all your internet banking passwords. As such, consumers should take care to ensure that they are only using reputable, established platforms,” says James Daley, of consumer site Fairer Finance.

While he adds that Open Banking provides “a more secure way to achieve the same end”, groups that access customer data could “try to interpret it to promote their own products and services, rather than using it to provide objectively better outcomes for consumers.”

The nine largest banks in the UK current account market must comply with Open Banking by early next year. Initially, it will only apply to current accounts, although Mr Hammond this week said the regulation would cover all payment account types, from credit cards to e-wallets.

HSBC plans to launch an “aggregator” app next year, which is designed to show customers’ accounts — including those with rival banks — in one place, while offering tools to categorise spending and meet savings goals. [...]

Full article on Financial Times (subscription required)

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