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Open Banking Apps Explained

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As Senior Lead, Global Payment Partnerships for Open Banking at GoCardless, Giles and his team manage relationships with partner banks and payment schemes. Giles has worked in the payments industry for over 12 years, developing expertise in multiple payment schemes, particularly in Bacs and Open Banking. Before joining GoCardless, Giles was the Service Line Manager at Bacs. He is currently involved with the Bacs Electronic Payment Affiliates group and the Open Banking Expert Advisory Group. ConnectSee full bio

Last editedMay 20222 min read

Open banking refers to the requirement for all UK-regulated banks and building societies to provide your data to third-party services if you instruct them to do so. Open banking apps are apps that use the open banking system. The instant payment service offered by GoCardless is an example of an open banking app.

The background to open banking

Banks and building societies have to implement very high levels of security. At the same time, modern customers are eager to have as much convenience as possible. Furthermore, the government is very keen to encourage innovation, particularly in the financial services sector.

The open banking concept developed as a way to square this circle. It mandates that all UK-regulated banks and building societies make your customer data available to third parties. The data-sharing must, however, be actively authorised by you. What’s more, you have the option to withdraw your consent at any time.

Open banking and security

Providing your financial data to third parties has clear security implications. If you feel uncomfortable with this then you can simply decline to use open banking apps. With that said, you will potentially be missing out on a lot of convenient services such as budgeting apps, instant payment apps and credit verification apps.

What’s more, if you make sure that you only authorise open banking apps from providers authorised by the FCA, you will have a high level of protection against fraud. There are two main reasons for this. Firstly, the process of getting FCA authorisation requires the providers of open banking apps to demonstrate a very high level of security.

In particular, open banking apps need to obtain customer authorisation in a way that complies with the requirements of Strong Customer Authentication. This minimises the chances of a fraudster being able to impersonate you. Also, open banking apps are only given access to transactional data, not personal data (e.g. login data).

Secondly, if you do become a victim of fraud through an open banking app issued by an authorised provider, then you’re largely protected from the consequences. Under current rules, you can be held liable for up to £35 of fraud before you inform your bank/building society and nothing afterwards.

Verifying a provider’s authorisation

The most reliable way to check whether or not an open banking provider is authorised is to check the FCA Financial Services Register. This will state whether any given provider is authorised to services relating to account information and/or payment services.

It’s highly inadvisable to rely on statements given on a company’s website. Similarly, do not trust links given on a company’s website. These are very likely to be genuine, especially if you are familiar with the company. You cannot, however, rely on this. Instead, go directly to the FCA’s website and check there.

The benefits of open banking

Most of the benefits of open banking hinge on the fact that open banking apps can operate much more quickly than the traditional banking system. For example, in the UK, taking your first direct debit payment from a new customer using the traditional system takes five working days.

Even if you have a direct debit mandate in place for the customer, it takes three. By contrast, if you use the GoCardless Instant Bank Payment service, you can literally get paid within minutes. The service is just as secure as the traditional direct debit system. It just leverages modern technology to operate much more quickly.

Similarly, budgeting apps and price-comparison apps both save users time by essentially doing their research for them. Credit-verification apps save both merchants and users time by enabling a merchant to check a potential customer’s credit status quickly, accurately and safely.

We can help

If you’re interested in finding out more about open banking apps, then get in touch with our financial experts. Find out how GoCardless can help you with ad hoc payments or recurring payments.