This is Why Open Banking Data Could Be a Game-Changer

In an election year, the political significance of a budget announcement is inevitably heightened, with the government and opposition parties battling for the valuable support of undecided voters.    

While the red box George Osborne paraded in front of the news media last month was certainly not short on potentially vote-winning promises, it also contained a number of important details that were lost in the ensuing flood of coverage in print and online.

Amongst these was the announcement that HM Treasury intends “to deliver an open API standard in UK banking” by the end of 2015.

Clearly, as policies go, this is unlikely to sway voters in one direction or another when it comes to polling day, yet it may prove to be a defining moment for the financial services industry in the United Kingdom.

Put simply, the use of APIs (application programming interfaces) will allow customers to share their bank data with third-party software applications, empowering them to make more informed financial decisions.

As an example of what this might mean in practice, the availability of bank data ought to pave the way for the creation of price comparison services similar to those which already exist in the insurance industry, allowing customers to assess which current-account provider is offering the best deal relative to their specific needs.

APIs would also enable developers to produce applications that help customers monitor their spending more effectively whilst eliminating the need for lengthy and convoluted spreadsheets.

Needless to say, the measure has the potential to revolutionise the way we bank in the UK, empowering consumers and driving innovation in the financial sector.

From the point of view of big banks like Lloyds, RBS and Santander, the introduction of an open API standard may appear to hold the threat of increased competition.

Indeed, this is precisely the outcome that the government is seeking to achieve, stating in its consultation report that open data “enables challenger banks and alternative finance providers to enter into the market and compete effectively, and design products for underserved areas of the market”.

And yet, it would be a mistake for banks to view this announcement as anything other than a tremendous opportunity to forge partnerships with nascent fintech companies, harnessing innovation to improve customer experience and build brand loyalty.

Even if the promise to deliver an open API standard may not seem like a vote-winner, there is broad consensus on the left and the right that there is political capital to be gained in measures which wrest power from financial institutions and place it in the hands of ordinary people.

Whoever holds the keys to 10 Downing Street on 8 May, the face of banking in the United Kingdom is set to change in ways that, for now, we can only imagine.