Open banking for identity verification: How to choose a solution

In order to verify the identity of your customers and potential customers, it’s likely you’re currently using one of two conventional strategies:

Micro-deposits (also known as the ‘penny test’). This involves sending a small sum to a customer’s account (usually 1p). Once they confirm the amount you sent, you’re able to confirm that they own the account in question.
Bank statements. This involves customers supplying paper or PDF documents that include their address and account details.

However, both of these strategies for identity verification have significant drawbacks. For instance, microdeposits can sometimes take a couple of days to settle and require initiating a payment. Similarly, requesting bank statements from customers adds friction to their experience and can significantly delay the verification process.

It’s for reasons like this that banks and other financial institutions are increasingly turning to open banking for identity verification.

Open banking allows you to access customer data directly via their bank account, with their permission. All customers need to provide their consent.

In this post, we show you how open banking works, what it can be used for, and how Yapily can help you leverage it for identity verification.

Ready to try a faster, more convenient way to verify your customers? Reach out to us to speak to an open banking expert.

How can you use open banking for identity verification?

Being able to verify identity is crucial for complying with know your customer (KYC) and anti-money laundering regulations. But conventional methods can be time-consuming, expensive, and tedious.

On the other hand, open banking allows banks, lenders, fintechs, payment service providers (PSPs), and other institutions to access real-time financial data directly from customers’ bank accounts. With the customer’s permission, these third parties can see real-time information on their customers, such as their bank balances, transactions, and spending habits, as well as the bank’s address and the account holder’s name.

For any company that wants to quickly verify the identity of customers, to improve security or reduce risk, this data can provide deep, live insights. For instance, with open banking, you can:

Speed up the onboarding of businesses, sole traders, and freelancers. Open banking allows you to instantly validate businesses by using bank-verified personal details (e.g., name, address, account ownership). This way, you can speed up AML checks and secure customers faster.
Verify payee account ownership. If you’re a lender, gig platform, or another business sending funds to customers or users, you can use open banking to quickly confirm that the recipient name matches the bank account owner. This helps you to effortlessly reduce fraudulent payouts and mistakes.
Make security for high-risk actions more robust. Open banking authentication is verified by the bank and meets PSD2’s Strong Customer Authentication (SCA) requirements. This makes it far more secure than passwords or one-time codes. When used for high-risk actions—like large payments or logging in from a new device—it provides real-time, bank-level identity confirmation.
Prevent fraud when users change accounts. When a user updates their payment details or personal information, open banking can confirm that the person owns the new bank account before any changes are applied. This virtually eliminates the risk of account takeover fraud, giving platforms and users greater peace of mind.

Ultimately, open banking can be used as a replacement for document-based verification. It removes friction within the customer experience by eliminating the need for paper processes, and it cuts the risk of fake data submissions. Instead, all verification takes place within the customer’s own banking portal.

Find out more: Instant bank account verification: How to choose the right service

How to get started with open banking for identity verification

To access your customers’ data in real time, you’ll need a way to connect to various bank accounts. To make this easy and secure, open banking relies on the technology of application programming interfaces (APIs).

Every bank and financial institution that supports open banking has its own API, which allows third parties to request the data they need. The benefit of this technology is that all the other data banks hold on other customers remain invisible to third parties. This allows the consumer to grant permission to share only relevant data.

If you’re looking to leverage open banking, you need a solution to enable you to connect to these open banking APIs. To do this, you have two options:

You can build your own API that connects to each bank. This requires you to develop the technology yourself, as well as the team to build and maintain it. This requires a significant amount of time and investment.
You can work with an account information service provider (AISP). An AISP aggregates all the integrations with different APIs into a single integration. By working with a service provider, you can significantly reduce the amount of development you need to do, and you can start benefiting from open banking immediately. If you use a white-label open banking provider, you can customise the experience, without the hassle of building your own solution.

Building your own solution is probably not worth it for most businesses. It takes a lot of time and requires a lot of expertise. Instead, it’s much easier to work with an established AISP that handles all of the technical aspects of open banking for you.

How to find the right AISP for identity verification: 5 questions to ask

While working with an AISP is the best way to leverage open banking, it’s important to choose the right provider for identity verification.

Here are 5 questions to consider when choosing a platform for open banking:

What coverage do you need? One of the main considerations when choosing an AISP is its coverage: namely, the different geographical regions in which it has connections to banks. Each provider typically has strengths in different geographies, such as North America or Europe. Consider your market closely when choosing a provider to match your needs.
Do you want a white label API? A significant reason why you might be tempted to integrate with bank APIs yourself is that you have control over the user experience of open banking. If this is a priority for you, in reality, you don’t need to build these integrations yourself. Instead, choose an AISP that offers white labelling.

That said, building a white label solution can’t be done overnight. It's worth ensuring that your chosen provider also offers a hosted solution, so you can get started right away.
Are you happy with raw data, or do you want a provider to make sense of that data for you? All AISPs can give you direct access to unrefined data from your customers’ banks. However, to put that raw data to use, you’ll need to do the work of making sense of it.

The alternative is to choose an open banking provider that enriches the data for you. For instance, some AISPs can standardise merchant names and categorise transaction types for you.
Do you primarily service consumer or business use cases? Most open banking providers focus on serving B2C use cases. This is typically because it’s easier to connect with consumer accounts. If you want to use open banking ID verification for business use cases, you’ll need to find a specialist provider.

Find out more here: Open banking for business accounts: What you need to know
Do you want to offer Pay by Bank too? Alongside providing you with access to financial data, open banking can also be used to initiate payment directly from your customers’ accounts. The trouble is that, to leverage this, you’ll need to work with an open banking solution that’s authorised as a payment initiation service provider (PISP)—not just an AISP.

Luckily, many providers are both an AISP and a PISP. You’ll just need to be sure before you commit to any one provider.

Why choose Yapily Validate as an open banking provider for identity verification

At Yapily, we’re an open banking infrastructure platform with authorisation as both an AISP and a PISP. If you’re looking to leverage open banking for ID verification for customers across Europe, we can help.

With Yapily, you can connect with banks and financial institutions across Europe and the UK. Plus, we’re one of the few open banking platforms that integrates with consumer and business accounts alike.

In the rest of this guide, we want to introduce you to Yapily Validate, our product built for digital identity verification. Here are three reasons why you should work with us.

1. Access wide, rigorously tested coverage across Europe for both business and consumer accounts

At Yapily, we have some of the best open banking coverage in Europe, for both payments and data. We connect with nearly 2,000 banks and financial institutions across 19 countries, including key markets such as the UK, the Netherlands, and Germany.

Without such extensive coverage, you would still need to use inefficient and costly strategies such as microdeposits to verify some customers. Instead, with Yapily, you can reliably use open banking for identity verification for most customers across Europe.

Unlike most open banking platforms, we connect with consumer, business, and wealth accounts for each of these institutions. What’s more, we rigorously test our connections to each account type, using authentic customer accounts. It means that you can trust our coverage and scale with confidence.

2. Leverage both open banking data and payments, with our authorisation as an AIS and PIS provider

The value of an open banking provider for your specific business depends on the particular features you need. Whether you want to use open banking for identity verification alone, or you want to leverage deeper data or Pay by Bank, we can help—as we’re authorised as both an AISP and a PISP.

For instance, you can instantly verify your customers using Yapily Validate. Or you can use our Yapily Data Plus product to access enriched financial data, including transactions categorised into 100+ business and consumer categories.

Plus, you can leverage open banking for payments with Yapily too. With Yapily Payments, you can use a full range of payment types, including bulk payments, variable recurring payments, and more.

3. Get full control over your customer experience thanks to our white label API

One of the limitations of most open banking providers is that they only offer a payment flow that’s branded with their own imagery. This can be confusing for your end users, who may not recognise the brand.

At Yapily, we let you customise the verification flow in the way that’s best for you and your customers. We offer a white-label solution that you can tailor entirely to your brand and integrate with any app.

This way, you can maximise conversions by offering the best experience to your customers. What’s more, you don’t need to build or maintain the integrations yourself. Instead, you can rely on our technological and regulatory expertise so you can get the most out of open banking, without sacrificing control over your customer experience. While you’re waiting for your white label solution to be built, you can get started right away with our hosted solutions.

Case study: How inbestMe relied on Yapily for identity verification

inbestMe is a Spanish robo-advisor focused on sustainable indexed investment and financial education. The company partnered with us at Yapily in early 2022 to enhance its platform via open banking.

Thanks to Yapily Data, inbestMe could securely and quickly verify bank account details and identity, significantly lowering fraud risk and removing manual data entry. As a result, inbestMe saw accelerated growth.

For instance, inbestMe customers could instantly top up their investment accounts using Yapily Payments’ “Easy Transfer” feature, which has achieved 40–50% growth in monthly adoption since summer 2022.

The partnership also paved the way for a new savings account launched in December 2022, offering liquidity and interest aligned with interbank rates. inbestMe reported up to 50% of users adopting open banking transfers, a conversion jump from 45% to 70%, near-instant fund movement, and reduced fraud risk, strengthening their competitive edge.

Choose Yapily for identity verification with open banking

Open banking offers a secure and efficient alternative to traditional verification methods. By enabling you to instantly access real-time financial data on your customers directly from their bank accounts, you’ll make your verification processes faster, more secure, and less of a hassle for customers.

At Yapily, we offer some of the best open banking coverage in Europe, along with customisable white-label solutions and both data and payment services. Reach out to us to find out more.