This article by Andy Coulson, for the regular What’s e-new? column in members’ newsletter The Edit, looks at open banking, and how it can help with keeping track of personal and self-employed finances, and tax obligations.
Open banking is an innovation that aims to open up what has until now been a very conservative industry – banking. The UK regulation enabling this, the Payment Services Directive, came into law in 2018, but we are now seeing more services that use open banking becoming available. Originally the intention was to open up competition, particularly in personal banking, but it has led to some entrepreneurial companies offering new services to us based on how we spend our money.
A style guide for money?
The idea is to create an application programming interface (API) – which is a way of describing how two pieces of software communicate, kind of a combined dictionary and style guide – for the financial industry. This enables new companies to get involved with the finance industry, for example by creating an app that can bring together all your financial information in one place, so you can see multiple bank accounts and credit cards together. The API is run by a not-for-profit company called Open Banking Ltd and is regulated by the Competitions and Markets Authority and Information Commissioner’s Office.
Keeping it safe and secure
Most people’s first thought when they hear about this might be to run a mile, as security immediately springs to mind. The key to open banking is that the account holder has to give explicit approval (or not) to any data sharing. The sharing is done in such a way that your bank and you are the only places where your password is accessed. This means that the system should be at least as safe as your regular online banking. As a further check, all the providers of open banking services have to be regulated by the Competitions and Markets Authority, and there is a list of regulated providers here: openbanking.org.uk/customers/regulated-providers/. Set against this is the fact that more organisations have potential access to your data, so the potential points at which hackers could access things increases. So far security in the banking industry has been good, as it must be to keep our trust, so I personally don’t think this makes me significantly more vulnerable to hacking.
The best way to look at the advantages of the system are through some examples. I’ve picked three – Money Dashboard, Coconut and PledJar – that illustrate the range of services that are now on offer.
Money Dashboard is an example of a personal financial dashboard – an app or program that allows you to bring your finances together in one place, analyse your spending, and set and monitor goals. It uses open banking to connect the bank accounts, savings accounts and credit cards that you choose (over 40 are currently supported) to the app and share your transactions with it.
The app then allows you to look in detail at your finances. It will show you all of your regular outgoings in one place, so you can see your direct debits and standing orders, and based on that project through to your next payday, allowing you to see whether you have enough to get through. It will also try to categorise your payments, allowing you to analyse what you are spending on and informing your decisions. You can then also set budgets to help you manage those spend categories. This is all backed up with presentation features such as bar charts that make comparisons simpler.
Many banks are building similar features into their apps, and are increasingly enabling you to display transactions from other accounts in one place. There are other apps, for example Yolt, Spendee, OpenMoney, Moneyhub and Cake, that will do something similar. I would expect some of these to be bought out by traditional banks and incorporated into their apps over time, but I think this type of offering will be one of the most common applications.
Like Money Dashboard, Coconut is a dashboard type of app. What sets it apart is that it is focused on the self-employed. It helps you to monitor your business performance by estimating tax, enabling you to set aside money for taxes, PAYE and savings; it also helps you to recognise your expenses and get your finances in better shape for your accountant, and send your invoices.
Coconut sells itself as a simple system for organising your business finances and simplifying tax returns. It doesn’t market itself as a bookkeeping system, but it has a lot in common with one. Open banking links also support a number of the online accounting systems such as QuickBooks, FreeAgent, Quickfile and Xero to add bank reconciliation and other features to a more traditional accounting package.
PledJar markets itself as the digital alternative to collecting tins. It works by rounding up transactions to the nearest pound and then donating the difference to a charity of your choice. PledJar allows you to connect to a number of charities and, should you wish, make additional one-off donations. It will also allow you to register for Gift Aid through the app, so that that is applied to all your donations across several charities.
While PledJar is aimed at charity giving, it is illustrative of a type of application – one that helps you to save by using the idea of rounding up transactions. Beanstalk is another app that takes this approach to help you save for the future.
There are a range of other applications too. There are many that focus on comparison of financial products – suggesting loans, savings products or credit cards based on how you earn and use your money. There are also several products that aim to make payments simpler and cheaper. Apps like Wise (formerly TransferWise) target specific areas such as foreign transactions. Credit score management is a further field this reaches into – whether this is an app like CreditLadder that helps tenants to improve their Experian score, or some of the comparison products that give you a better indication of what financial products might be most suitable.
The big banks are starting to incorporate this type of technology into their offerings, but some are adopting it quicker than others. It will be interesting to see how this develops over the next few years.
About Andy Coulson
The Chartered Institute of Editing and Proofreading (CIEP) is a non-profit body promoting excellence in English language editing. We set and demonstrate editorial standards, and we are a community, training hub and support network for editorial professionals – the people who work to make text accurate, clear and fit for purpose.
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Posted by Abi Saffrey, CIEP blog coordinator.
The views expressed here do not necessarily reflect those of the CIEP.