What is Open Banking?

What is Open Banking?

Most people have heard the term Open Banking before, but many aren’t sure what it actually means, or how it is actually used in the real world.

It sounds very technical, but the concept is fairly straightforward when you break it down. Open Banking allows you to securely share certain pieces of financial information with approved providers, such as banks, credit unions, or budgeting tools.

In this article, we will be covering how open banking works, who can use it, as well as benefits and security aspects.

How Does Open Banking Work?

Open Banking only works if you, as the customer, decide you want to use it. You are typically redirected to your banks’ login page from the organisation that has asked for permission. Sometimes this is done through your mobile banking app, other times it may be done through online banking on a web browser. Your bank will show specifically what information is being requested, this could include balances, transactions or account details, you as the user can then decide whether or not to grant permission. The organisation cannot access your information unless you give them permission through your bank.

Open Banking isn't just used by banks. Similar organisations such as building societies and credit unions, as well as budgeting apps, mortgage brokers, savings apps and loan providers, use Open Banking to provide services more efficiently.

Imagine you’re applying for a loan, for example. Traditionally, the lender may ask for several months’ worth of bank statements to verify income and affordability. With Open Banking, you can choose to instead securely share this information directly from your bank account. This can speed up the application, reduce paperwork, and provide a more accurate picture of your financial situation.

What Are the Benefits of Open Banking

Easier Money Management

One of the main benefits of Open Banking is how it simplifies money management, you can log in to budgeting tools using Open Banking to pull through spending details from multiple different accounts and view them in one place. This can help you to identify areas you could potentially make cutbacks and may even help you free up some funds by cancelling services you weren’t even aware you were paying for!

Faster Applications

Open Banking can also be utilised by loan providers and lenders to get a better understanding of an applicant’s finances without the need for lots of physical paperwork. This can also help to speed up the process significantly as rather than looking through papers for transaction numbers and amounts, an Open Banking dashboard can pull together a snapshot of your income, spending and financial commitments. This information may be considered alongside factors such as your credit score when a lender assesses an application.

This information can help lenders assess affordability and make lending decisions, which may influence the products and representative APRs available to you, and all without you having to go back and organise six months’ worth of bank statements.

Is Open Banking Safe?

It’s understandable why people may be concerned about Open Banking, at a base level it seems strange for a credit union, budgeting app or loan provider to direct you to your bank account and ask you to input your login credentials, especially when online banking scams are so prevalent. But the fact is that Open Banking services can only be provided by authorised and regulated organisations.

Frequently Asked Questions About Open Banking

“Does this mean companies can see everything in my bank account forever?”

No. Plain and simple, access is limited to what you have specifically allowed the company to see, and if the use is ongoing, you can revoke permissions.

“Does Open Banking cost money?”

Not for the user, any fees associated with Open Banking are paid by the company, customers or applicants can use the service free of charge.

“Can I stop sharing my data?”

Absolutely, when a company first requests Open Banking access, you are informed specifically what information is needed, this access can be revoked if you wish. If a provider requires access to additional information, you will be asked to review and approve those permissions separately.

“Does Open Banking share my passwords?”

Definitely not, when you are asked to input your password or PIN into your online banking account, this is strictly between your device, your account and your bank, the same as if you were simply logging in to your app. Once you've authenticated with your bank, the information you've agreed to share can be accessed securely through Open Banking.

“Can Open Banking move money from my account”

Not without your permission. Open Banking providers cannot simply move money from your account whenever they choose. Any payment initiated through Open Banking requires your authorisation and approval through your bank.

Final Thoughts

While Open Banking can feel intimidating in the age of online scams, as long as you remember that it is entirely optional, and only used by trusted and regulated companies, it is absolutely safe to use. You as the user remain in control, security and consent are at the very heart of the system. When used correctly, it can be a useful tool for improving financial health and wellbeing through structured saving and responsible borrowing.