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A man holds his mobile phone outside the Bank of England in London in 2017.

HANNAH MCKAY/Reuters

Britain will launch the world's first experiment in open banking this week with a series of reforms that the government hopes will revolutionize financial services and open the door to new entrants such as Google, Facebook, Apple and Amazon.

Britain's Open Banking Standard comes into force on Saturday, imposing sweeping changes to how banks operate and offering new opportunities for non-bank competitors. The European Union plans to introduce similar measures later this month and many other countries, including Canada, are considering following suit.

The idea behind open banking is to give consumers and businesses more control over their bank-account information, and make it easier for them to share those details with third parties. The goal of Britain's Open Banking Standard is to clear the way for financial-technology companies to use that information to create powerful apps that will provide a host of services such as managing multiple bank accounts, finding loans and handling accounting. While some of those services are currently available, they are cumbersome to use because customers can't easily share their bank-account details and have to either download the information from a bank's website or hand over their password. With open banking, account information can be instantly shared without a customer revealing their password. It also opens up more direct payment options at retailers so that, for example, shoppers could use an app on their phone at the grocery store to scan individual items as they fill their shopping cart and then press a button to pay the final bill when leaving.

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The British government is hoping that open banking can fire up competition in the financial-services sector and drive down fees. Officials note that only about 3 per cent of British consumers and 4 per cent of businesses switch banks in any one year because moving accounts is so difficult. "If we get this right, we can build a financial-services sector in this country that is more inclusive, that is personalized, and is effortless," Imran Gulamhuseinwala, the head of Britain's Open Banking initiative, said last year.

There are still plenty of challenges. The public has yet to embrace the idea and many people worry about privacy and security issues. Last year's data breach at credit-rating firm Equifax, which involved more than 140 million accounts, has spooked many consumers about open banking. But backers of the system say consumers will realize the benefits of open banking once they see new products and services. They say online security has improved thanks to greater use of biometrics, such as face and voice recognition, and new privacy rules coming into force across the EU in May will impose fines of up to 4 per cent of annual revenue on companies that have a data breach.

The crux of open banking is a fundamental shift in the ownership of customer information. Instead of banks having complete control, British customers will have the power to decide who can view their banking details. The ability to do that hinges on the use of application program interfaces, or APIs, a type of coding that allows software programs to talk to each other. It's how Uber can hook into Google Maps and how Expedia can access airline websites. With bank APIs, someone looking for a mortgage can provide immediate access to their banking transactions for a lender to review, and someone with accounts at several banks can move money around automatically to avoid overdraft fees and other charges. Phone apps will also be able to analyze a customer's banking transactions and quickly find short-term credit, a longer-term loan or a better account at another bank. Small businesses won't have to manually input data into online accounting services and instead can simply permit computer access to their daily transactions.

Some estimates suggest British banks could lose up to 24 per cent of their business because of the Open Banking Standard and that social-media giants such as Facebook and Google could move aggressively into banking. But banks have opportunities, too, and many have already launched apps and other services to take advantage of open banking and lure customers away from competitors.

The bigger challenge is to convince the public that open banking makes sense. A recent survey of 2,000 people by Accenture found that 69 per cent wouldn't share their bank-account information with third parties. And 53 per cent said they would never adopt open banking. Gavin Littlejohn, who chairs Britain's Financial Data and Technology Association, which represents financial technology companies, said he wasn't surprised that consumers were reluctant. But he pointed out that two million people in Britain already use a limited form of open banking through services such as Mint.com, an online financial-management site. "So there is clearly an appetite for these services amongst a relatively large portion of the population which, as this becomes more mainstream, and is regulated and communicated, we expect to grow," he said. "These are exciting times."

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