What is open banking?


Open banking is a way of giving regulated companies, secure, limited access to your bank account, with your permission, so that they can provide services that are helpful to you. For example, budgeting advice, or recommendations for other financial products that you are eligible for.

It's just as safe as using online banking, and it's safer than paying with a credit or debit card:

  • Nobody gets access to your login details or banking passwords. 

  • You control who sees your banking information. 

  • You control their level of access to your account. 

  • Companies can't take any payments without your authorisation. In fact they can't do anything that you don't specifically permit them to do.

For businesses, open banking is a technology that can enable them to take payments and fetch data directly from a customer’s bank account, with express permission, via open banking APIs

It has ignited a new generation of financial services, enabling businesses to build products that increase engagement, reduce costs and transform the customer experience.

How can open banking be used?

A good way to think about open banking is that it makes financial services more useful for you. For example, instead of having to log in to all your bank accounts separately, you can use one app to see all your accounts in one place. And instead of having to print or upload paper bank statements to prove your earnings and financial situation to a mortgage lender, for example, you can connect your bank account to that lender – online and hassle-free.

Businesses can use open banking to accept online payments from customers, accelerate new customer onboarding and to provide value added services to customers. For a complete list, see our blog post on open banking use cases for businesses.

What can open banking do?

As a consumer, open banking allows you to grant secure access to your bank account so that information about your income and expenses can be used to provide useful services to you, such as budgeting advice, or recommendations for other financial products you're eligible for.

It can simplify money management in several ways and can also allow you to make secure payments more easily than with conventional online banking.

Although open banking is a relatively new concept, it is already changing the way people use their bank accounts, for the better.

For businesses, open banking can reduce costs, reduce risk and improve customer experience. We cover the benefits of open banking for businesses and consumers in more detail in the section below.

In the UK, more than 3 million people and businesses are already using open banking-enabled apps and services in their daily lives. At the current rate of growth, 60% of the UK population will use open banking by September 2023.

What are the benefits of open banking for consumers?

For consumers, open banking provides the following key benefits:

  1. It can simplify the way you manage your finances. Apps like Revolut, Monzo, Chip and Plum can pull together information from multiple bank accounts into one app. This could help you to budget better and save money. For example, such apps may help you to see your total financial picture and show you where you're paying too much for a utility bill, credit card or overdraft.

  2. It can allow you to make payments quickly, easily and securely. Paying by open banking is faster than making a conventional online payment, especially on mobile. There's no need to type in your card details or log into your bank account. Once you've decided what you want to buy, you simply select your bank's name from the on-screen list and securely verify your payment using fingerprint or face ID. This takes just moments and the money is transferred instantly. It's as easy as using a touchless credit card in person and it uses bank-grade security.

  3. It can provide proof of income for rental agreements, mortgages, loans and investments. Regulated companies can, with your permission, use open banking to get an overview of your income and expenses, for example so that they can make a fast decision on your loan or rental application. You can also sign up to some services and apps faster and without having to upload or print copies of payslips and bank statements.

What are the benefits of open banking for businesses?

For businesses, open banking also offers significant benefits: 

  1. It can make online accounting easier by giving your accountant safe, secure access to your financial records. Some accounting packages use 'screen scraping' to access your bank account. This isn't ideal from a security perspective. Open banking is a safer way for online accounting software to access your bank account in realtime. It can even help classify business expenses for tax and accounting purposes.

  2. It can help you access capital more easily. With your permission, potential lenders can use open banking to get an overview of your business finances so that they can make a fast decision on your loan application.

  3. It can help you take payments online: with low fees, low fraud and high conversion. Any business that transacts online can take advantage of open banking to help them take instant bank payments, without using card networks. 

  4. It can help you accelerate customer onboarding. If you need to collect financial information from your customers at sign up, such as proof of income or proof of bank account ownership for a payment, open banking can help you do that in a secure, automated way.

See our complete list of open banking use cases for businesses.

How does open banking work?

Open banking works differently in different countries but generally it involves banks or financial institutions opening up their financial data to third party providers, through open Application Programming Interfaces (APIs). The scope and format of that data varies and often depends on the specific regulations and implementation standards of a particular country. 

In the UK, open banking began in 2018 with rules requiring nine of the biggest UK banks to adopt standards for allowing secure access to customer data. This was followed by EU Regulations (PSD2) requiring all banks and payment service providers (PSPs) to open up access to their customers' financial data to authorised service providers, with their customers' consent.

Open banking information in the UK is made available in a secure, standardised way, through APIs. This makes it easier for companies to use the data to build services that are useful to consumers.

Companies that use open banking data are known as Third Party Providers (TPPs), and in the UK they must be regulated by the Financial Conduct Authority (FCA).

What are Third Party Providers (TPPs) in open banking?

A Third Party Provider is a company that has been authorised and regulated by the FCA (the Financial Conduct Authority) for open banking. Third Party Providers include:

  • AISPs (Account Information Service Providers) which are authorised to access bank account information to provide information and advice to customers.

  • PISPs (Payment Initiation Service Providers) which are authorised to make payments from a customer's bank account, with the customer's consent.

Is open banking safe?

Open banking is one of the safest ways to make a payment or share your financial data. 

As a consumer, you control:

  • what information is shared 

  • which providers you allow to access your information

  • for how long they will have that access 

  • all payments

You never have to give your password or login details to any organisation. 

Open banking providers in the UK:

  • can only access your account if you have given it your explicit consent

  • must only access the data, or initiate the payments that you have specifically consented to 

  • do not  store your banking credentials, making open banking inherently more secure than credit or debit card payments.

How is open banking regulated?

There are different regulatory frameworks for open banking around the world, but most start with the fundamental principle that consumers have a right to access their bank accounts and financial data via accredited third party providers (and banks must facilitate this access).

Most frameworks also include a regulatory or overseeing body who grants third party providers the permission to deliver open banking services. 

In Europe, under the Revised Payment Services Directive (PSD2), payment service providers must allow their customers to securely share their data with third parties. 

In each member state there is a national competent authority which oversees PSD2 and gives providers permissions to use open banking. For example:

  • The Autorité de contrôle prudentiel et de résolution (ACPR) in France

  • The Federal Financial Supervisory Authority (BaFin) in Germany

  • Banco D’Italia in Italy

There is also an overarching regulator for banking (including PSD2) in Europe, which is the European Banking Authority (EBA).

In the UK, the Payment Services Regulations (PSRs) are the UK equivalent of PSD2 and create the legal and regulatory framework for open banking. Open banking is regulated in the UK by the Financial Conduct Authority (FCA). Only companies that are authorised by the FCA can use open banking to access financial information from consenting customers.

Open banking and TrueLayer

TrueLayer is a global open banking platform. Businesses use our open banking network to securely access financial data and enable instant payments. For example, If you top up your Revolut, Nutmeg, Freetrade or Trading 212 account, you’re using TrueLayer in the background.

More than half of the open banking traffic in the UK, Ireland and Spain goes through TrueLayer and our payments convert 20% higher than other open banking providers.

TrueLayer was one of the first to be regulated in the UK to provide:

  • account information services (AIS)

  • payment initiation services (PIS) 

These open banking services allow consumers to view their accounts in one place, or pay from their bank without having to enter credit card details. TrueLayer's APIs are fully compliant with UK and European Open Banking standards. 

TrueLayer also provides electronic money services to its merchant clients and acts as a technical service provider or intermediary for regulated open banking providers. We can also help merchants who are not regulated yet to access open banking through our agent model.  

Why use an open banking intermediary?

Some third party providers choose to connect with individual banks’ APIs themselves. However, maintaining these connections can be difficult and resource intensive. That’s why some providers use an intermediary like TrueLayer – a company that specialises in connecting to all the banks itself, and provides its clients with a single API. 

Here are some of the advantages and disadvantages of connecting directly vs connecting via an intermediary like TrueLayer.

Directly connecting Connecting via intermediary
CostHigh setup and operational costs. No transaction cost.Low set up and operational cost. Small per transaction fee.
Speed to market3-12 months to get authorised. Additional time to integrate with individual bank APIs.Less than 3 months to integrate. (one standardised API)
Operational overheadHigh. Bank relations, technical maintenance, customer consents, data security – all managed in-houseLow. Bank relations, technical maintenance, customer consents, data security – managed by intermediary.
ScopeMore limited: eg in the UK this is restricted to banks who have signed up to the Open Banking API.Typically wider scope, depending on the provider. Intermediaries often integrate with more banks, have access to more data through direct partnerships and can connect you to open banking APIs in other countries.
ConversionMediumHigh. You can often achieve better conversion rates through an intermediary.

TrueLayer as an Electronic Money Institution

TrueLayer is also an Electronic Money Institution, meaning we can provide more complex solutions for our clients. For example, in addition to initiating payments from one bank to another, we can enable merchants to provide instant refunds to consumers, which isn’t possible with simple open banking payments. Find out more about our payments solution.