What is open banking?

Published Tue 21 May 2019

Open banking allows consumers to share their account information with other services safely and securely.

It aims to make it easier to manage your money and to switch providers and save money. It can help the financially vulnerable, it’s secure, and easy to use.

Why do we need open banking?

Open banking was pushed through by the UK’s Competition and Markets Authority (CMA) and until open banking was introduced in 2018 banks were able to sit on some of the most valuable data in the world: where and how we spend our money.

Banks know how much we spend, on what, and when, but until open banking it was not easy to share that data with other people or companies.

Open banking now means you can share that information by choosing what information the apps and websites you use can access and for how long they can access it. 

For example, if you want to give a mobile money managing app all of your high street banking data, the bank must comply. IF that app then recommends you switch to another bank for a better deal, they must honour the 7-day current account switch guarantee.

The driving force behind open banking was the second Payment Services Directive (PSD2), a European directive designed to boost competition and the variety of products in the banking, credit cards, and payments space.

What is open banking?

As the name suggests, open banking is all about opening up banking data, to help consumers make the right financial choices.

For the longest time, banks have sat on some of the most valuable data in the world: the details of all our transactions. Banks know how much we spend on food and rent, where we travel, and how we spend our leisure time – but they’ve never made it easy for us to share that data, our data, with other people or companies.

Banks also hold onto other important data, such as the locations of every cash machine in the country, and the exact details of overdrafts, credit cards, loans and mortgages – financial products that impact the lives of millions of people.

Imagine if your bank was as novel and innovative as a smartphone maker that diligently creates a whole new device every year. Imagine if you expected as much from your bank account as a new iPhone or Galaxy.

Is open banking good?

Until open banking was introduced, current accounts and mortgages had hardly changed; but the mainstream adaptation of smartphone technology around 15 years ago has shown how quickly things can change.

Open banking aims to make your bank account as intuitive as a smartphone. The UK’s big banks are supporting a new, simpler way of initiating payments, allowing you to pay for products and services directly from your bank account.

This means payment gateways like PayPal or Worldpay and card processors like Visa and MasterCard can be bypassed and the savings made from not paying those providers passed along to consumers.

It opens the way to new products and services that could help customers and small to medium-sized businesses get a better deal. 

Concerns about open banking 

Most new technology has a bedding in period, where there are teething problems. 

With open banking there are potential security and privacy risks when giving other companies access to your banking data.

There are safeguards built into the system, when you want to give another app your data, you log into your online banking and confirm exactly what level of access you want to grant and for how long. Your bank then transmits the agreed data to the app. 

The third party does not ever get your login credentials, nor access to data that you haven’t explicitly released.

Companies that want to use open banking must be approved and regulated by the Financial Conduct Authority (FCA), but you should remain vigilant for scamming and phishing attempts – even if you’ve opted out or decided not to use open banking. 

How does open banking work?

You will need online or mobile banking for your personal or business current account to use open banking.

The concept of open banking is not new, and you will have been able to share information with a company other than your bank through something called screen scraping. 

Screen scraping involves capturing on-screen information, like taking a photograph of your data.

Open Banking is more secure than screen scraping because you don’t have to share your password or login details with anyone other than your bank or building society.

What does open banking look like?

It is driven by third party apps, which tend to be fintech start-ups, although some of the larger tech firms and banks have and are developing similar applications.

All third-party open banking apps need to be accredited and regulated by the Financial Conduct Authority (FCA).

There are 2 types of regulated providers – ones that bring together information from different accounts you may have, and those that help you pay companies, rather than using PayPal or Mastercard.

Examples of budgeting apps include Yolt and Money Dashboard, while examples of savings apps include Chip and Plum, payments apps include Klarna.

You can see all regulated providers on the Open Banking website.

How safe is open banking?

Open banking is safe and secure, it can help you bring all your accounts into one place, and when data is shared it only ever done so with your consent.

  • You’re never asked to share your password or login details - other than your own bank or building society. 

  • You can choose which services you use, and which providers you allow to access your information. 

  • You can choose for how long you’d like them to access your data.

You should not share your bank login details, but you should still be careful who you are sharing your details with.

What else do I get with open banking?

  • Account dashboard – this allows you to see accounts from multiple banks and building societies in one mobile app or online

  • Spending analysis – you can see exactly how much you’re spending on certain things or with specific retailers

  • Shopping around for services – for example, if you’re looking for a new energy provider on a comparison site, your spending habits will be automatically analysed and you’ll be able to find the best offers, without having to manually enter all your information

  • Financial goal tracking – so if you are saving up for something you can monitor your progress

  • Budgeting – you can see how much you’re spending and work out where you can save money

What banks offer open banking

All nine of the UK’s major high street banks HSBC, Barclays, RBS, Santander, Bank of Ireland, Allied Irish Bank, Danske, Lloyds and Nationwide offer support for open banking.

Many of the newer, or challenger banks also offer open banking.


16 December 2020