What do you know about Open Banking?

It’s ok if the answer is ‘nothing’, because according to research conducted by Payments NZ in 2020, only 6% of Kiwis surveyed were confident that they knew what it was. So you are not alone. In fact, you are probably in the majority.

Ok, so very few people know what Open Banking is, why should I care?

Well, if you have any interest in being better off financially, you should at least ask a few questions and do a little bit of research to make your own assessment. As it happens, we’ve been facing into that question quite bit of late and have curated some of these questions, as well as the answers we have shared with various audiences. We don’t profess to know everything, but we are more than willing to share our knowledge and experience in the hopes that it will help you be better off.

So what is Open Banking?

Put simply, it is when your bank enables another financial services provider to connect to your accounts – with your consent – to help you find better financial products and services, to put you in control of your money and be better off financially. It’s like when a business gives their accountant access to their bank accounts, so the accountant can then help the business manage its books.

But I don’t have a business, how can this help me and my whānau?

That’s the thing about Open Banking, it can help almost everyone. Banks, billers, merchants and you, the everyday Kiwi. For now, we won’t explore the benefits to banks, billers and merchants, but we will in subsequent articles as this is this is the first of a series of five articles on Open Banking. But on to the matter at hand, how can Open Banking help you.

Imagine for a moment that you are trying to apply for a mortgage. The mortgage lender is going to need a bunch of information about you so they can confirm who you are, how much you earn, your financial history, etc. You find yourself trying to track down old bank statements and pay slips, filling in long and often incomprehensible forms, and then waiting weeks for an interview that can be very invasive and confronting.

Now imagine if your mortgage broker said “we could run an affordability assessment in seconds if you were willing to give us your name, date of birth, home address and mobile number, as well as consent to check all of this against your main bank account – would you be ok with that?” We suspect that some folks would be comfy with that, and some wouldn't. The important point is, it will create a service and an option that doesn't exist today, which if done well, should help getting into your own home (or remortgaging) a whole lot easier. This is the sort of thing that Open Banking enables.

It also enables the financially vulnerable to get access to personal financial manager tools, that can help them save money, or break the cycle of perpetual debt from things like payday loans. Think about it – how good would it be if your financial services app was able to make intelligent suggestions (based on your spending patterns) about how you could save money without impacting your budget? Better yet, it could happen in the background and would almost be invisible, and you would be growing your savings without even trying.

The banks have always known how valuable your banking transactions are, and in the era of Open Banking, not only will you know, but you’ll see a rise in new financial products and services that will enable you to realise that value for yourself and your whānau.

It all sounds a bit too good to be true, surely there are some risks in giving third parties access to my banking data?

There are. Giving anyone access to your banking data is fraught with risk, as your data may be mishandled, lost, or hacked. That is the hard truth of the digital world we live in, and as more and more of your life becomes digitised, the risk vectors will grow.

But also keep in mind that the banks have kept customer data safe for over a hundred years, and they go through rigorous governance processes to ensure that the risks are either zeroed out or mitigated. And when you couple that with the fact that bank security systems are typically cutting-edge technology, you figure out pretty quickly that banks work very hard and allocate significant resources to protect their customers.

It's worth mentioning that any third parties looking to connect to a bank must go through these same governance and security processes to ensure that they do not introduce any new risks to the bank and its customers.

When does Open Banking become a reality in New Zealand?

Payments NZ (an industry group) has managed to gain broad agreement with the banks that their Open Banking APIs should be available from May this year. At which point, third party providers (like BlinkPay) will be able to connect to your bank account, with your consent, if they have a bilateral agreement in place with your bank. Once they are connected, then you can access and take advantage of their new products and services that are built upon state-of-the-art APIs.

Hold on, what’s an API?

An API (Application Programming Interface) is a piece of software that connects computers and computer programmes. Think of it like a waiter in a restaurant, whose job it is to collect your order from your table (i.e. your smartphone app or desktop computer), deliver it to the kitchen (i.e. the backend computer system), the kitchen then fulfils the meal order and then the API delivers the order back to your table.

What are the Open Banking APIs?

Payments NZ has agreed with the banks that there will be two APIs available initially. The first will enable access to Bank Account Information (including retrieving accounts, balances and transactions), and the second will enable Payment Initiation, where a customer can consent to, and initiate a payment from their bank account from a third-party platform.

Why would I consent to initiating a payment from a third-party platform?

Most of us do this sort of thing already. Every time a shopper is on a website and they go through the shopping cart experience to payment, they are usually initiating a payment from a third-party platform. Whether it be via a debit or credit card, or a Buy Now Pay Later scheme, each of these digital payments are being initiated from a third-party platform.

Some payment providers ask for your online banking credentials to initiate the payment, which is not something we recommend because in doing so, you could unwittingly break your banks terms and conditions and could be held liable for any losses.

And how will I know when Open Banking is available?

Payments NZ will be doing a comms programme to help people understand what all the fuss is about. But beyond that, you’ll start to see new payment options popping up in your shopping cart experience that will be talking about things like ‘pay with your bank’, or ‘pay directly from your bank account’ and variations thereof.

You’ll start to see new smartphone apps that ask to ‘connect to your main account’ as part of merchant onboarding processes. You’ll see a rise in payment-apps that seek to make payments quick and easy, that also provide tools that enable you to better understand what is happening with your money each week/fortnight/month.

How might I find out what products and services are available via Open Banking?

FinTechNZ has lots of articles and resources as well as a regular email that summarises what is going on in New Zealand and abroad. If you have a specific need that you are looking for help with, then please feel free to contact us.

Tune in next week when we examine the impact of Open Banking on New Zealand banks, and in particular, how they might embrace the opportunities of Open Banking to help their customers.