Banks will have to use standardised application programming interfaces (APIs) to make it easier for customers to move their accounts to rival services, the British government has said.
In his Autumn Statement last week, Chancellor George Osborne announced that the government would launch a "call for evidence" on "how to deliver standardised APIs in the banking industry".
Banking expert Tony Anderson of Pinsent Masons, the law firm behind Out-Law.com, said that plans "reflect another lesser known role that the established banks perform in society as the holders of substantive amounts of personal data".
"Due to their size and interconnectedness," he said, "they are becoming recognised more and more as banks of information in addition to deposits."
Anderson also said that the use of standardised APIs in banking would create a much more public source of data about customers and said there would be certain parallels with a "know your customer" (KYC) data-sharing initiative that is being developed by the Society for Worldwide Interbank Financial Telecommunication (SWIFT).
Under the KYC scheme, banks are encouraged to provide information on the due diligence checks they have carried out on customers into a centralised KYC database to enable other financial institutions that need to conduct similar checks, including for the purposes of adhering to anti-money laundering regulations, to cut down on the time, effort and cost they incur when conducting those checks.
Anderson said that the method chosen to deliver standardised APIs in banking must "provide clarity on data privacy and security issues and be consistent with data protection regulation".
The chancellor's announcement came as it was revealed that price comparison website Gocompare is to launch a "midata current account tool" from 1 April next year.
Midata is a government-backed voluntary scheme aimed at getting businesses to provide consumers with access to their personal data in a "portable, electronic format" and in accordance with other 'consumer data' principles. The principles require, among other things, that midata adopters make the data available in "an open standard format" that is "reusable" and "machine-readable" in as standard form as is possible across sectors.
The government threatened to legislate to require banks, energy companies and mobile providers to provide consumers with better access to their data if the companies had not engaged sufficiently with the midata regime, but stepped back from following through on its threat in the summer.
A new report (91 pages, 4.02MB PDF) into data sharing and open data for banks commissioned by the Treasury and Cabinet Office was published alongside the Autumn Statement. The report said that giving consumers better access to data could improve competition in banking but also provide benefits to banks.
Competition could be improved because there is already an appetite for bank data among "alternative lenders, accounting software platforms, comparison and advisory services, payment services" and other operators in the market, the report written by the Open Data Institute and consultancy group Fingleton Associates said.
"Many of these organisations already create considerable value from data," the report said. "These organisations currently access data using means such as manual downloads, screen scraping, manual entry and occasionally bilateral data feeds. There is widespread consensus that these methods are hard to use, expensive, and have limited capabilities. Consequently, the desire to see banks provide external APIs was almost universal."
Banks that create external APIs could benefit because it would enable them to become more of a "platform" for other services, the report said.
"Encouraging third party integration and becoming a ‘platform’ is potentially a strategy to mitigate the threat of being ‘unbundled’," the report said. "Applying an open API standard across the whole sector would create the optimal conditions for the re-use of data. However, some organisations predicted that it would take considerable effort and co‐ordination to achieve."
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