Since customers can now make their financial data available to third parties such as challenger banks, this should increase competition in the marketplace according to a new study from the Centre for Economics and Business Research (Cebr) and review platform Trustpilot.
In turn, since banks will have a better picture of credit risk and be forced to compete, this will push them to reduce the risk premium currently charged on interest rates linked to products like mortgages.
Such improved lending practices will unlock more than ￡1bn in additional annual UK GDP on an annual basis, the study concludes.
“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 noted a recent survey from Accenture which found 69 per cent of people may not be willing to share their data, and added that banks must earn consumers' trust.
"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," explained Cebr's head of micro-economics Cristian Niculescu-Marcu.
The research found that 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 one per cent reduction in the credit spread on mortgages leads to a ￡153 million increase in GDP. So with Open Banking assumed to result in a seven per cent reduction in today’s credit spread, this would lead to a total ￡1.069bn in additional GDP.