OPEN Banking could add more than £1bn annually to the UK economy and support up to 17,000 jobs, new research claims.
The new data-sharing initiative, which mirrors the EU’s Payment Services Directive II, mandates high street banks to share anonymised customer data with third parties, including peer-to-peer lenders.
The Centre for Economics and Business Research (Cebr) ,which undertook the research, found that by improving information available to banks, they can charge customers interest rates that represent more accurate risk profiles. The think tank argues that this reduces the ‘credit spread’ and frees up money for more productive use in the economy.
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Cebr said that every one per cent reduction in the credit spread on mortgages leads to a £153m increase in GDP, with Open Banking set to result in a seven per cent reduction, equating to £1.069bn.
“By improving the transparency of current account data, Open Banking means more third-parties will have access to customer data, which can lead to a reduction in the risk premium currently charged on interest rates linked to products such as mortgages, due to a clearer understanding of a person’s underlying credit risk,” said Cristian Niculescu-Marcu, head of micro-economics at Cebr.
“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.”
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Crucially, customers must provide their explicit consent before their data can be shared with other organisations and this may prove to be an obstacle, as research from Accenture found. It showed that 69 per cent of people may not consent to share their banking data with third-parties, demonstrating the entire industry must work hard to earn consumer trust.
“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,” said Glenn Manoff, senior vice president at online review platform Trustpilot.
“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.
“Whether you’re a multinational bank or a fintech start-up, open, honest and transparent customer feedback will be critical to competing and winning the trust of customers in this new competitive environment.”