What is Open Banking?

Business Banking

Open banking is a secure way to share your financial information with third-party providers. Instead of a bank solely controlling your data, you own it and get the freedom to choose where it goes and how it’s used.

It lets you consolidate your finances, and take advantage of faster, better, and more personalised services. With strong data protection measures like encryption, open banking is safe, too.

Just like other banking innovations like online payments and AI, open banking has the potential to transform the industry as we know it. Read on to learn more.

What Is Open Banking?

Open banking is a practice that lets third-party providers (generally fintech companies, banks, and retailers) access customer banking data to provide personalised and streamlined services to customers. It gives you more control over your data and allows you to securely share it as you see fit.

Some of the data that open banking provides access to include:

  • Your personal information
  • Account balances
  • Transaction details
  • Info about the bank products you have/use

Traditionally, banking data was kept within the closed systems of an individual bank, and the options for sharing were limited at best. Open banking involves sharing this data and giving customers more freedom to choose which financial tools and apps they use.

This levels the playing field for smaller fintech providers, as they finally have access to data that used to be held solely by your bank.

How Does Open Banking Work?

Open banking works through the use of application programming interfaces (APIs). This technology facilitates a connection between two pieces of software and allows them to share data and communicate.

In the context of open banking, APIs allow your bank to directly and securely share financial information and data with third-party providers.

Here’s a quick breakdown of how open banking works:

  • You discover an app that you want to use to manage your finances, track your spending, etc.
  • When getting started with the app, it asks you to link your bank account to provide access to your financial data.
  • You authorise your bank to securely share the information through open banking.

It’s very quick and easy for you, but behind the scenes, your bank and the fintech app you’ve chosen are using APIs, and these interfaces facilitate the data sharing.

Various kinds of APIs are used for different purposes. Some only allow third-party providers to see your balances and transactions, while others can initiate payments on your behalf or move money through different accounts automatically.

Open Banking Use Cases

Here’s a closer look at some of the many use cases for open banking.

Verifying Your Identity

Open banking can help with identity verification by streamlining the process and making it easier for all parties. Instead of an individual having to manually enter/share all of their information to verify their identity, a third party can retrieve the necessary information from their bank in seconds.

Aggregating Your Accounts

Many people have more than one bank or credit account that they use regularly. And with nearly three-quarters of the UK population using a mobile device to manage their finances, that means a lot of switching from one app/account to another.

Open banking apps help solve this issue by consolidating your accounts in one place, making it easier and faster to manage your money. Some examples of such apps include Emma, Plum, and Snoop.

Speeding up Credit Applications

Applying for credit has traditionally been a notoriously slow process. However, open banking can speed it up by giving lenders instant access to a borrower’s credit history, income, and other things to help determine creditworthiness. However, most lenders will still want to check your credit score on credit bureaus to help make lending decisions, too.

Managing Your Subscriptions

The average UK resident spends nearly £500 annually on subscription services, and trying to manage all of your subscription payments can be a hassle. Instead of having to manually renew and/or cancel your subscriptions in different apps or platforms, you can use an app with open banking, such as Little Birdie, to keep everything in one location. This also helps you see if you’re still paying for a subscription that you’ve stopped using.

Looking Ahead

Open banking is still in its infancy, and plenty more use cases are likely to materialise in the future. This could include using AI to offer more customised services and offers, streamlining the mortgage lending process, getting personalised insurance packages, and more.

There will likely be more global regulations around open banking over time, as parts of the world that don’t currently allow it recognise the potential benefits. Open banking could also get more support in industries like retail, automotive, and healthcare, among others.

Is Open Banking Safe?

A common question asked about open banking is whether it’s safe. In general, the answer is yes. First of all, open banking relies on the use of APIs, which is a proven technology that’s been used for years in industries like tech, social media, and hospitality.

For example, if you’ve ever logged into a website by using your Facebook or Google account, that’s an API at work. Similarly, travel booking sites that instantly pull flight and hotel prices for given days/times do it through an API, too.

APIs are generally safe as they have several security features and measures in place, such as:

  • Access control to ensure only authorised users can access the API.
  • Rate limiting, which restricts the number of requests that can be made to an API within a certain period.
  • Vulnerability testing to make sure there are no weak spots in the system and if there are, catch and fix them before they are exploited.

Next, open banking providers and banks use encryption and have various security measures in place to protect data as it’s transmitted. There are also regulations and data privacy laws in place to protect consumers. Companies are regularly audited to ensure they’re abiding by these regulations and if not, they could face hefty penalties and fines.

You have full control of the apps and platforms you provide information to, as well. You’re also responsible for choosing what data these third parties can access and for how long. If you change your mind, adjusting or withdrawing consent is possible.

Risks of Open Banking

However, there are some risks to be aware of. First of all, open banking introduces additional points of failure as more companies and third parties possess your sensitive information.

With your information in more places, there’s a higher chance of one of them falling victim to a hack or data breach. This also means hacks that do occur have the potential to be more severe. In the past, many third parties only had basic information like your email and name.

Now, with many having your financial data too, a data breach that at one point would have been a minor annoyance could become a bigger issue.

How to Mitigate Risks

Thankfully, there are ways to mitigate these risks. First, make sure to select the providers you work with carefully. Do your due diligence to ensure the companies you share data with have proper security measures in place.

Make an effort to implement as many of your own security measures as possible, too. This includes using two-factor authentication and/or biometrics to add an extra layer of security to your accounts.

You should also choose strong passwords, not use the same one for multiple accounts, and change them often.


Open banking lets your bank share your financial data with third-party providers through APIs. It puts the power in your hands as a consumer, as you have the freedom to choose the banking tools you want to use.

Open banking can help you with financial management, identity verification, account consolidation, and more. It’s a relatively new practice, so expect additional use cases to materialise over time.

While there are potential risks, open banking is considered safe and several security measures and regulations are in place to protect your information.


Why Is Open Banking Useful?
Open banking enables you to streamline your personal finance management and promotes more competition in the banking industry. It also gives users full control of their financial data and a better understanding of their money.
What Are the Risks of Open Banking?
Some of the risks of open banking include more possible points of failure, increased severity of hacks and data breaches, and potential misuse of customer data. However, while risks exist, there are plenty of ways to mitigate them.
Which Banks in the UK Offer Open Banking?
Several of the largest banks in the UK support open banking including Nationwide, Barclays, HSBC, Lloyds Banking Group, and many others. The number is always growing as open becomes more and more popular, as well.
Written by:
Kale has over five years of experience writing on a broad range of business-related topics, including business technology, software, automation, human resources, employee engagement, and finance. He also holds a BSc in Sociology with a Minor in E-commerce and a certificate in Business Administration. Kale's easy-to-digest, research-driven articles stem from his passion for sharing knowledge with readers, and his bylined work has been published on Yahoo, BestMoney and a selection of SaaS sites.