UK banking customers can now make their financial data available to third parties, like disruptive challenger banks. According to the Cebr study, this will increase competition in the marketplace and help boost the economy.
At the same time, the larger mainstay banks will be forced to compete. This will, suggests the report, mean they have to reduce the risk of premium currently charged on interest rates linked to products like mortgages.
This improved lending practice will boost the UK economy by more than £1 billion in additional annual UK GDP on an annual basis, the study concludes.
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By charging customers interest rates that represent more accurate risk profiles, or reducing the “credit spread”, more money would be freed for use in the economy.
Cebr found that every 1% reduction in the credit spread on mortgages leads to a £153 million increase in GDP. Open banking will, it is believed, result in a 7% reduction in today’s credit spread: a total £1.069 billion in additional GDP.
“By giving customers the choice to provide their financial data to third parties, open banking is set to unleash significant innovation across UK financial services. The new standards will also increase competition and remove information barriers as a plethora of new fintech players access the data necessary to provide compelling new services,” said Truspilot’s senior vice president Glenn Manoff.
However, the research included a recent survey from Accenture, which found 69% of people may not be willing to share their data, and added that banks must earn consumers’ trust.
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“Our analysis suggests Open Banking will have a positive impact on UK GDP as additional funds become available for productive use in the wider economy, but the degree to which these economic benefits are realised is dependent on the readiness of consumers to consent to sharing data,” said Cebr’s head of micro-economics Cristian Niculescu-Marcu.
Ian Bradbury, chief technology officer, Financial Services Business at Fujitsu UK and Ireland responded to the news, and said: “Considering the impact and popularity of the likes of Metro Bank and Monzo even before the Second Payment Services Directive, Open Banking will see a fundamental change to the way people can bank, manage and spend their money in the digital world.”
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“By increasing competition, it is clear that this move will raise the bar in terms of product quality, pricing and service provision. However now we can also put a price on the benefit to the UK economy – an impressive £1bn.”
“While this paints a rosy picture for the future of British banking, our latest report revealed that a fifth of the UK public believe cybercrime and hacking are the biggest challenges facing the UK today (above global economic uncertainty and the skills gap). This could seriously undermine the efforts to open up the industry to new entrants by putting people off sharing their private information. Open Banking will highlight a more important need for the banking industry to take data privacy as seriously as the public does.”
“Half of UK financial sector leaders believe banks will not exist in their current form in a decade, our report found, which emphasises that we’re on the brink of major change. Open Banking will help build a very different financial services sector, meeting the needs of the digital consumer – but only if we are able to overcome the cybersecurity barrier.”