Until recently, banks held exclusive rights to the transaction history and account status of their customers. They controlled who saw the data and how it was used. Open banking ended this monopoly. It forced banking systems to open up legally and technically to licensed third parties. The data shows the scale of this change clearly. Analysts at Juniper Research predict that by 2029, global API requests will grow by over 400% and exceed 720 billion. This is a systemic change that redefines how the financial market manages user data.
What the market gains from open banking
Benefits for individual customers
Individual customers and companies gain specific, measurable benefits from open banking. For individuals, as noted in the Speednet report on Open Banking, convenience and control are the main advantages. Data aggregation services allow them to view their entire financial situation in one app. This simplifies budgeting and eliminates the need to log in to multiple banking platforms to check balances.
Processes that used to be time-consuming are now much shorter. Applying for a loan is a strong example. Instead of providing paper statements or PDFs, UK borrowers can use digital Affordability Checks. These allow lenders to download necessary income and spending data automatically to make faster decisions.
Advantages for the SME sector
Business owners in the SME sector gain effective tools as well. Integrating accounting systems like Xero or QuickBooks with bank accounts automates many processes. It handles everything from invoicing to debt collection without manual input. Furthermore, better access to aggregated data leads to sharper business decisions. It also provides easier access to funding because lenders can see real-time cash flow data rather than relying on outdated annual accounts.
Opportunities for banks and fintechs
The benefits are also visible for banks and fintechs. Banks initially viewed open banking regulations as a threat but now see them as an opportunity to create innovative products. This creates a chance to build new revenue streams through premium APIs or strategic cooperation.
For fintechs, open banking is a driving force for growth. They gain access to a wide base of bank customers without needing a full banking licence. This cooperation combines the stability and capital of banks with the innovation and speed of fintech companies.
Practical applications of Open Banking
Personal Finance Management
Personal Finance Management apps are the most common example. These tools connect to accounts at different banks to present a full financial picture. They categorize spending automatically and help users plan budgets based on real habits.
Simplified credit processes
Simplified credit processes are another key use case. Lenders can verify creditworthiness quickly by automatically downloading transaction history. This reduces fraud risk and speeds up the time to cash for the borrower.
Payments and accounting
PISP payments in e-commerce are becoming popular for enabling direct transactions from a bank account. In the UK, this is often marketed as “Pay by Bank” at checkout. It bypasses traditional card networks which makes it cheaper for merchants and faster for settlement.
Automated accounting for companies integrates software with banking systems to handle settlements automatically. Automated investment platforms also use this data to analyze a client’s finances and offer personalized advice based on their actual savings capacity.
How the API drives Open Banking
The technical engine
The API serves as the technical foundation of this concept. This interface acts as a secure digital intermediary. Banks open specific channels for these intermediaries when a client requests it. Licensed external applications can then ask the bank system for specific data or initiate a payment. This replaces the older and less secure method of screen scraping where users had to share their banking passwords.
Standardization in the UK
Different systems must speak the same language for this complex setup to work. In the UK, the Open Banking Implementation Entity (OBIE) was created to design these standards. The OBIE ensures that the APIs used by the largest banks, known as the CMA9, function consistently with third-party providers. This standardization prevents fragmentation and ensures technical reliability across the market.
The importance of consent
The client must always stand in the center of this process. Consent must be fully transparent so customers know exactly what data they share. They retain full control and can withdraw this permission at any time through their banking app or the third-party service.
Key participants in the ecosystem
Data owners and holders
The first group consists of individual and corporate clients who own the data. The second group includes the banks that hold the accounts and are required to share data. In the UK, the Competition and Markets Authority mandated the nine largest banks to lead this change. However, many smaller challenger banks have also adopted these standards.
Third Party Providers (TPPs)
The third group is made up of external providers known as TPPs. These licensed entities create new services and fall into three main categories.
Account Information Service Providers (AISP) offer access to account details for aggregation apps. They provide the read-only view that powers budgeting tools.
Payment Initiation Service Providers (PISP) offer the service of starting a transaction directly from a bank account. They push money from the user’s bank to the merchant.
Card-Based Payment Instrument Issuers (CBPII) verify if funds are available before a card transaction. They ask the bank a simple yes or no question about the balance without seeing the actual amount.
The role of UK regulation and the CMA Order
Regulatory foundation
This rapid development has a regulatory basis. While the concept started with the European PSD2 directive, the UK implementation went further through specific mandates. The Competition and Markets Authority (CMA) issued an order requiring the nine largest current account providers to open up their data.
Market objectives
This was done to increase competition and allow customers to find better deals on overdrafts and savings. The Payment Services Regulations 2017 transposed the broader rules into UK law. This unique combination of the CMA Order and the Payment Services Regulations placed the UK at the forefront of the global open banking movement. It established a clear framework where the Financial Conduct Authority (FCA) monitors compliance and protects consumers.
SCA as a strong authentication mechanism
Increasing security standards
Strong Customer Authentication is a key requirement of the regulations enforced by the FCA. This means the end of logging in or approving payments with just a password. SCA forces identity verification using at least two of three independent elements.
The three pillars of verification
These elements include knowledge like a password or PIN, possession like a phone or card reader, and biometric traits like a fingerprint or face scan. This solution increases security and makes unauthorized transactions difficult.
In the UK, the Payment Systems Regulator also plays a role alongside the FCA. They oversee the payment systems that underpin these transactions to ensure the infrastructure remains robust and fair.
Identifying challenges and real risks
Security and privacy concerns
This model generates specific challenges that the market cannot ignore. Data security and privacy remain the most important issues as the risk of cyberattacks grows. Opening APIs creates new access points that require strict encryption and regular audits.
Technical and operational hurdles
Technological challenges also exist. Ensuring full compatibility of APIs between banks is complicated. While the OBIE set high standards, technical outages or API downtime can still disrupt services for customers. This forces providers to build fallback mechanisms.
Education and liability
Education is essential because many clients are still cautious about sharing sensitive data. Clear rules regarding responsibility for disputed transactions are also necessary. The UK has developed specific mechanisms for consumer protection to address these concerns regarding fraud and liability so users understand who is responsible if something goes wrong.
Summary: A new era of data control
Open banking is more than a technological innovation. It is a strategic change that shifts power from institutions to the client. It is a real market tool that redefines convenience and control in finance. The key to this transformation is informed consent which ends the data monopoly and enables personalized services.
