New personal data banking plans put millions at risk of financial difficulty, experts warns

First we had open banking, when banks and financial institutions were able to share data – ostensibly for the benefit of their customers.

It’s the reason that your app for one bank will now let you also view the accounts you hold with their competition, not least so it can target you with relevant products and services.

In fact, the whole idea was to shake up the banking world by injecting competition into an environment where a few leviathans held all the cards.

Now more than two years old, and with around three million users, few consumers understand what it means for the security of their personal information, including that regulated financial services providers have to explicitly ask to share our data, and that we are well within our rights to say no.

The legislation does not allow companies to browse our bank statements without permission.

Many of us also don’t realise that our data and financial affairs are only protected by our bank if we allow authorised companies access to it. Those companies are listed on the financial regulator, the Financial Conduct Authority’s (FCA) website and even then, they are only allowed to use your data for two reasons. Firstly, to view your account information from a variety of sources in one place (to offer things like budgeting ideas or suggest useful financial products) and secondly to make payments easier.

Now, despite most of us still struggling to get to grips with open banking and how our information is used and shared, another change is on the way – open finance. It is designed to give us greater control over more of our financial data, ranging from savings balances to mortgage and insurance information and everything in between.

In other words, we will be able to give a company access to our entire financial profile with a quick click.

But little is known about the impacts of this shared information, and more than two-thirds of UK adults aren’t happy about sharing more personal data with banks and big tech companies.

Crucially, increased use of personal data in financial services could put millions of vulnerable people at risk of financial difficulty, a new study has warned.

And that includes a far greater proportion of the population than most of us realise. According to the FCA, more than 50 per cent of UK adults, nearly 28 million people, are at risk of financial vulnerability – a number that has risen during the pandemic.

Those risks include greater financial exclusion and a reduction in the control people have over their own data, leaving them more exposed to the impact of “careless automation” of monopolies like Google and Facebook, a report from the Finance Innovation Lab, a charity that lobbies for consumer-focused banking reform, warns.

“The intention behind open finance – to give people the power to make better financial decisions – is welcome because mainstream financial services don’t work well for people,” says Marloes Nicholls, head of policy and advocacy at the Finance Innovation Lab.

“It is somewhat ironic, and deeply worrying, that the government and regulator’s current approach to open finance threatens to reinforce existing power imbalances between industry and the public – albeit with the power likely shifting from banks to tech giants.

“For open finance to bring about a better finance sector, especially for those least well-served by it today, the public must be given a meaningful voice in its development.”

The charity is now calling for the government and regulators to make sure that the financial innovation is genuinely purpose-driven for the benefit of customers, and to “proactively tackle the new forms of market power that data enables”.

Vulnerable people should be part of the development of the open finance initiative, it believes, and firewalls should be created “to stop big tech combining the open finance data it accesses with other data sets, including social media data, thereby abusing their already data-rich position”.

Professor Sharon Collard, research director at the University of Bristol’s Personal Finance Research Centre adds: “As open finance starts to take shape, there is a great opportunity for government and regulators to commit to meaningful and sustained engagement with civil society organisations.

“This early engagement is imperative if open finance is to deliver benefits to a diverse range of consumers, not just those cherry-picked as the most profitable to serve.”