What is Open Banking?

What is Open Banking?

Open Banking enables approved third party providers (TPPs) to access financial information and provide payment initiation through secure Open Banking API connections directly with banks. TPPs must have consent of the individual or business before being able to access the data or initiate a payment.

Open Banking represents a global movement to actively encourage easy data sharing between banks and non-banks over modern, secure channels: Banks are required to open up their data channels to TPPs and share customer data with them when requested by end users. Importantly, consumers will know who has access to thier data, what the access level is, and have the ability to easily allow or deny access to their financial data.

The Open Banking Implementation Entity is the UK-specific collaborative that’s charged with setting standards for PSD2 compliant technology at banks, so service providers (other banks and TPPs) can consume financial data as quickly, consistently and accurately as possible. As one of the world’s first instances of a government-sponsored rollout, the standards and processes it has established are proving influential globally.

What is PSD2, and what has it got to do with open banking?

PSD2 (the Payment Service Directive 2) is an EU-wide directive that - quite simply - demands the European payments and banking sector becomes more of a level playing field. It is the regulatory trigger for open banking, and - technically speaking - the introduction of term you’ve heard like Open Banking API, PSD2 API or PSD2 compliant-API. It came into force in January 2018.

PSD2 mandates that banks make user financial data available should users wish to access it through alternative service providers. This could be for the purposes of initiating a payment, aggregating their finances through a mobile app (a popular use case of open banking with which you’re probably familiar) or instantly giving account access to insurers or lenders to make affordability decisions. In many ways, PSD2 is synonymous with open banking.

PSD2 introduced two new regulatory entities - the Account Information Service Provider (AISP) and Payment Initiation Service Provider (PISP) - both of which represented legal permissions required by businesses to access open banking data. National regulators in Europe are in charge of handling the application process for such permissions. For example in the UK it’s the FCA, in France the ACPR, Germany has BaFin and so on.

Why does Open Banking matter?

Open banking means that financial institutions no longer have a monopoly over financial products and card providers no longer have free reign in the payments space. This does not mean banks cannot gain from Open Banking, in fact, greater access to personal and business financial data across APIs, with added security and a ban on screen scraping, is a huge step and presents opportunities for everyone!

Individuals and businesses can now operate in a more competitive financial environment, where you can make the most of your financial decisions with whomever and however you please.

Quick example: Business

Say you want a bridging finance loan - fast. Before Open Banking, you’d need to manually provide a host of information about your company’s financial health to the loan provider.

This would involve scanning and sending documentation, waiting on a credit check via a third party and potentially face-to-face meetings before a decision was made. All this before setting up a repayment schedule for the loan itself with your business card details, or a separate bank standing order.

Thanks to PSD2 and open banking, in a few clicks you can give the loan provider access to your business bank account, complete with credit and debit history, identity information and payment initiation functionality so you can be checked, verified, accepted and automatically have repayments set up in in one smooth action. A decision in seconds.

Open Finance is the next phase of Open Banking which builds on these foundations to allows businesses to benefit from a wider range of financial data sharing.

Quick example: Personal

Keeping on top of finances can be difficult. It used to involve logging into an online bank account once a month, seeing a stream of transactions and subsequently taking a guess at your financial situation.

You might have another bank account at another institution - perhaps a new light account with a challenger bank too - making it impossible to easily track your spending and savings.

Popular ‘aggregator’ apps utilise open banking in its purest form - giving users access to all their money in one place, with built-in features to help track spending. What’s more, access to this data means service providers responsible for these apps can conduct smart marketing, auto-reconciliation and other preemptive analysis to tailor future services to the individual.

For developers, such products can be effortless to build. Check out our blog to see how Yapily built a friendly little payments app in 48 hours.

The tech bit

Open Banking represents the evolution from a technical and security standpoint, too. PSD2 introduces mandatory Strong Customer Authentication (SCA), meaning individuals and businesses can only access their data through secure online gateways. What’s more, data and payment requests are to be made over Application Programming Interfaces (APIs), a real-time, accurate alternative to the old days. You can test open banking yourself with the Yapily API here to see what open banking connectivity looks like.

Simplistically, APIs are the machine to machine communication channels, used to access user data present in banks. PSD2 compliant-APIs represent official, modern, secure and efficient alternatives to older technology, and - crucially - do not involve the sharing of user bank credentials.

In reality, building bank API integrations is a big task, what happens when you have users around the world? You don’t have a choice in the matter; you need to integrate fast.


Open Finance is transforming financial services and spreading across further financial products and services. We explore some of the immediate use cases where open finance could make a difference right now.
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Build personalised financial experiences for your customers with Yapily. One platform. Limitless possibilities.

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