What you should know about Open Banking

Open Banking is a term that gets thrown around, but rarely do you get a full explanation of how you may already be using it or why it was introduced. Fronted’s co-founder & CTO Simon Vans-Colina, previously helped build the way Monzo uses Open Banking, and has talked about Open Banking around the world, making him something of an expert.

Here he answers the most common questions about Open Banking.

In a tweet, what is Open Banking?

Open Banking lets people share their banking transactional data with companies like Fronted, in a way that's more secure and convenient than sending paper bank statements.

Is Open Banking good for customers?

Open Banking is especially beneficial for people with a lack of credit history.

Many young people, or people who’ve just arrived in the country currently get offered terrible interest rates when they apply for loans, overdrafts or credit cards. Open Banking can help fix this and give people access to different financial products. For example, Open Banking can allow companies like Fronted to check that you can afford repayments on a Fronted Deposit.

To get credit history, there’s often the suggestion for people to get a credit card. However this can put people into unnecessary debt and encourage bad habits including overspending their income, trapping them in a debt cycle.Lenders like Fronted, use Open Banking to judge affordability, instead of relying purely on credit history.

How does Fronted use Open Banking

We use a Credit Reference Agency called Credit Kudos which allows lenders to make better lending decisions using Open Banking data. With your permission, Credit Kudos connects to your bank and builds a report from those details. This report highlights income, normal spend which helps us calculate whether a Fronted Deposit is right for you.

What are other examples of Open Banking?

Open Banking can be used for a variety of cool services, like Emma which helps you budget and save, or Credit Ladder which helps you build credit history by reporting your rent payments to a credit reference agency.

Is my data safer by using Open Banking?

Before Open Banking, people actually used to share their bank password with third parties, which was extremely risky. The other alternative was to send paper bank statements, which was a hassle for consumers to post or involved sending email attachments, which were easily faked leading to fraud and increased costs for everyone.

Open Banking was set into EU law to improve the security around customers accessing and sharing their banking information.

How has Open Banking changed in the three years since it was introduced?

A couple of years ago, you’d have to manually switch apps and type in multiple passwords and pins to get it to work. Now it’s usually just a matter of tapping your fingerprint or entering your pin.

Open Banking has gotten a lot easier to use with the introduction of app-to-app authentication, a lot like the ‘log in with Google’ experience. and gives you a smooth way to accessing your data. Monzo has this experience (though I am biased as I helped build it).

What future predictions are there for Open Banking?

Open Banking is the beginning of the migration from “feature bank accounts” to “smart bank accounts”.

In the 2000s, you’d buy a “feature phone” that did half a dozen things, and if you wanted your phone to do something else, there was no app-store, you had to buy a new phone. That's where we are with bank accounts now.

In the future you’ll be able to connect your bank account to all the services you use, your lender, your accountant, your budgeting app, your tax planner. It’ll all just work for you.

Want to hear more updates from Simon?

Follow him @simonvc.

Want to know more about the technology that powers Fronted?

Read our tech stack write up here.