With open banking being a relatively new term, there may be a chance you’ve come across it before but not fully understood what it is or what it could mean for your business. In this article, we will be decoding some of the unknowns of open banking: how it works, if it is safe to use, and what it means for the future.

What is open banking?

Put simply, open banking is an established way for customers to employ their financial data, by sharing it securely between a financial institution and an authorised third-party provider (TPP). Allowing external providers to access the financial information of individuals and businesses means that those participating in open banking can benefit from numerous financial products and services, tailored to their specific financial needs. For example, an individual might share their data with a TPP, in order to track their spending and monitor their saving goals, via an app on their phone.

“Open banking changes the way that we can access our bank. A lot of the legacy challenges that we face […], in our day-to-day banking, have been removed. What we can finally do now is get information quickly, efficiently and easily – everything comes with consent.” – Simon Lyons, Head of Ecosystem Engagement at Open Banking Implementation Entity

How does open banking work?

Financial institutions and TPPs are able to transfer and share information thanks to Application Programming Interfaces (APIs). Essentially, an API acts as a bridge between two pieces of software, enabling data to be transfered between them. Functioning as a go-between, API technology allows a user to communicate with a web service/resource system in a way that the system can acknowledge and deliver a request. Depending on what you want to do with an API, their core capabilites are to either create, read, update, or delete data.

Is open banking safe?

By it’s very nature, API technology is designed to make the sharing and managing of data more secure. The ability for TPPs to retrieve financial information, through the use of APIs, is safeguarded by open banking standards such as the PSD2 (see below). The process also requires technology that integrates with web single sign-on and Identity and Access Management (IAM) – i.e. user authentication and consent.

Crucially, open banking is a government-led service, regulated in the UK by the Financial Conduct Authority (FCA). The list of open banking providers and processes is also constantly developed by the Open Banking Implementation Entity (OBIE), who work with the nine largest UK banks (CMA9) to determine security measures for open banking products and services.

How can I keep control of my data?

Open banking is built on the premise that individuals and businesses are given the power to employ their own data, with a view to accessing better financial services/products. In line with this, it is the individual, or business, who is completely in control of which regulated apps, websites and TPPs they use, what information these entities can access, and for how long they can have access.

Furthermore, the revised ‘Payment Services Directive’ (PSD2), established in 2018 across the UK and Europe, ensures both consumers and their data are protected whilst engaging with open banking facilities. According to PSD2, TPPs can provide either: a Payment Initiation Service (PIS), allowing TPP software to transfer and manage funds; or an Account Information Service (AIS), providing information to a user on one or more of their bank accounts. TPPs must registered and authorised by the FCA in the UK, or the equivalent NCA in Europe, in order to use open banking capabilities and provide these Payment Initiation and Account Information services.

Open banking and the future of finance

According to the OBIE, over 3 million users are actively employing open banking facilities, and since 2020, the amount of open banking payments has risen by 365%. With more users engaging in the open banking domain, TPPs and financial institutions are able to use consumer feedback, in order to innovate the technology further.

Open Banking Excellence, describe how open banking could support a democratisation of the data revolution, which is rapidly accelerating across the globe. For example, they note that SME’s could gain improved access to working capital via credit systems that use their financial data, creating a more accurate profile of an individual’s or business’ creditworthiness. So although not all countries have equal access yet, open banking does have the potential to increase financial inclusion in the future.

In summary, sharing access to financial data opens up the possibility for financial institutions, the tech industry and the consumer, to benefit from a vast array of innovative financial products and services. Significantly, this not only offers a more efficient and tailored financial experience for users but could also have a wider impact on how data is used more accurately, in order to increase the democratisation and inclusion of finances for both individuals and businesses.

More resources on open banking


1. Get a comprehensive guide to the history of open banking with Nordigen.

2. Learn more about open banking standards with openbanking.org.

3. Read about open banking around the world from Open Banking Excellence.

4. Hear from openbanking.org about some of the opportunities that open banking has to offer…


Get the gossip on our new open banking features:
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Read more of this blog post here.

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Leveraging the latest open banking innovations, we have been working hard with open banking specialist, Plaid, to develop some enhanced functionality for our customers.

Discover the latest on the new update here.