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What is Open Banking?

Read about what Open Banking is, and how it is enabling tech integrations that are shaping the UK's lending landscape.
What is Open Banking?

Updated on 04/02/2021

Imagine opening an app, either on your phone or via a web browser, that can visualise all of the data from your current accounts, savings accounts, and credit cards in one helpful format. That’s a reality that’s made possible by Open Banking, which is an initiative introduced by the UK government to help give individuals control over their data.

The initiative was one of a series of reforms implemented by the Competition and Markets Authority (CMA) in 2018, and it was introduced to shake-up the banking industry by making banks work harder for their customers and increase competition amongst financial services companies, while allowing customers to take advantage of innovative new financial services.

Through Open Banking, the nine largest UK banks are required to make certain users’ data shareable via a secure and standardised protocol. This means that an independent developer (perhaps a small fintech company) could build a single API that connects to your banking data (only if permission is granted by you), before providing you with a product that helps you manage your finances. This enables more competition within financial services, which ultimately serves consumers.

In this article, we’ll cover:

How does the data-sharing element of Open Banking work?


Essentially, Open Banking is a secure technology that allows individual customers and owners of SMEs to access and share their transaction data via their banks. It’s a protocol, or set of rules written into code, that is now used as the standard way of storing and sharing consumer data by the nine major UK banks.

Standardising the way in which data is shared means that you can choose to share your transaction data with third-party service providers, as opposed to only the bank having access to your data. Third-party providers can then create an Application Programming Interface (API), which is a computing interface that draws the data that your bank is sharing, then processes it in a way that’s consistent with the service you’ve chosen to use.

We’ll touch on some examples of the services that make use of Open Banking later, but first – why would you want to access your (or your business’) transaction data? Isn’t that what you get in a bank statement?

Not quite. Consumers and businesses can share large volumes of data via Open Banking - think years and years of transaction data that would be difficult for any of us to interpret or digest simply from looking at it. That’s where tech integrations become useful, and where security becomes key.

Open Banking regulation & PSD2


The benefits of Open Banking that we’ve touched on in this article are not just recognised by third party providers or banks. The rollout of Open Banking is supported and propagated by the UK Government – which states that Open Banking will mean access to ‘personalised financial advice, precisely tailored to your particular circumstances, delivered securely and confidentially’.

It is, therefore, heavily regulated by a number of governing bodies. This includes:

  • The Competitions & Markets Authority (CMA) – who work to ensure the marketplace is working for everyone.
  • The Payment Services Directive (PSD2) – which is an EU directive administered by the European Commission to regulate payment services & payment service providers throughout the EU and E.E.A, and implemented into UK law by the Payment Services Regulations.
  • GDPR laws – which provide clear rules as to how data should be stored, used, and shared.

These regulations ultimately mean that consumers are entitled to full control over their data.

Through Open Banking, you (as a consumer or business) can share your data with regulated third party service providers, which may help you get access to new products, improve your use of existing financial services, or allow you to compare different finance products using your business’ real-world data – which could help you make more informed decisions on how to manage your cash.

How does Open Banking work for small businesses?


For a small business owner, your Open Banking journey could start by granting a regulated third-party application provider permission to access transaction data from your business’ current account.

After a few setup steps, such as consenting to share data via your bank’s website and setting up an account on your third-party service provider’s platform, you could eventually reach a stage where your current account data is pulled through to your new service provider’s platform via Open Banking protocols.

So, what now? Depending on the service you’re using, there are some potentially useful benefits. Let’s take a look at some examples.

Open Banking apps


Open Banking apps can come in a variety of different formats and serve different purposes. They could be mobile apps, internet browser apps, or a mixture of both. Before we dive into some examples, it’s worth noting that you should only ever share your business’ data with regulated app providers that are FCA authorised or registered to ensure that your data is protected.

Accountancy applications


A smart accountancy application could potentially help you manage your business’ cash flow by crunching huge amounts of transaction data and presenting that data in either a visual format (such as graphs and charts), or via a series of insights (i.e. financial recommendations) that can help you make better spending decisions.

An accountancy app using Open Banking, for example, could help you send invoices and track your cash flow without the need for any paperwork. Or it could help you spot trends in your monthly working capital expenditures that better prepare you for coping with recurring seasonal demands experienced by your business each year.

Ultimately, accountancy apps could help with:

  • Gaining visibility over the total amount of money you’re spending.
  • Segmenting your business’ spend to help you understand where exactly it’s going (for example, a certain percentage on paying staff, suppliers, etc).
  • Revealing trends and patterns in your business’ financial activity that you could analyse against your business’ performance.

Business finance comparison services


A comparison app could use your transaction data to help you find business finance options that your business is eligible for. Data-driven decision-making could allow you to make faster decisions and may unlock insights for you that you may not find through manual searches.

Alternatively, if your business is currently on a debt repayment plan – there’s potential for a third-party app to help you find either cheaper repayment plans, or plans that offer your business better terms, which could help your financial circumstances while cutting out the admin work.

Business loan approval


It isn’t just finding and comparing financial products that can be aided by Open Banking, though, there’s also application processes to consider.

If your business is applying for a loan from an online lender, you may find that an Open Banking integration allows the lender to make quicker decisions on whether to approve you for a loan by plugging directly into your transaction history – rather than you having to spend valuable time on potentially lengthy and manual application processes.

Why does Open Banking matter?


In a world where people are utilising different finance options (such as credit cards, e-wallets, and smart watches), managing your finances through one bank account may mean that you need to use multiple sources of information . That’s where Open Banking could help. Open Banking could allow you as a consumer to manage all your household bills, keep track of your daily finances, all through a single digital platform.

This also applies to business accounts, and so businesses could find themselves not only managing everything in one place, but also gain access to new financial services products that help them spend and save money more intelligently.

Open Banking was built around the values of trust and security, and it centres on the belief that your data should belong to you rather than your bank. In a sense, it’s encouraging innovations within financial services that could ultimately benefit consumers and SME owners alike.

By giving you the power to share your data, Open Banking encourages growth in the financial services market. It does this by lowering the barrier to entry for different financial services, given that you may choose to share data with, for example, a new fintech service that you think could help your business. This more ‘open’ marketplace where data from your bank is accessible via open APIs could allow for a more open financial services industry, in which innovative new start-ups have a chance of competing with more established financial institutions, offering more competitive solutions that are more tailored to customer needs.

Could Open Banking help shape the future of fintech?


Absolutely. Businesses and consumers manage money via a range of different services. It’s not just current accounts, but credit cards, e-wallets, and the like- so we could well see more and more tech integrations being made that help third-party providers get a better understanding of a business or consumers’ financial profile moving forward.

More data could mean better decision making, and more personalised financial services solutions that ultimately could help businesses better manage their finances. Your data can only be shared with your consent.

For fintech’s, there’s an API standard to develop your financial product around to gain access to Open Banking protocols used by around 90% of the UK’s banks – which means we may see more innovative financial services entering the market, or exciting upgrades to existing services, as we move forwards.

Open Banking considerations


As an SME in the UK, it’s worth noting that you don’t have to share any bank login details with a third-party provider to make your data accessible.

It’s always your choice whether your share your data as it’s mandatory that banks make it easy for you to revoke data-sharing permissions. You’re also entitled to visibility over which applications can see your data and for what time period that data is made available. You never have to share your data if you don’t want to.

Lastly, it's important to ensure that the service providers you choose to engage with are reputable and regulated, as your data could be at risk from cyber-attacks if not stored and handled properly. So, it’s wise to ensure that the service providers you interact with are registered with the Financial Conduct Authority to ensure your data is kept in safe hands.

With a basic understanding of Open Banking and an awareness of the checks you should make before using a service, you could find yourself ready to start exploring the exciting range of financial services made available to yourself or your business by Open Banking protocols.



This has been prepared by Esme Loans Limited for informational purposes only and should not be treated as advice or a recommendation. There may be other considerations relevant to you and your business so you should undertake your own independent research.

Esme Loans Limited makes no representation, warranty, undertaking or assurance (express or implied) with respect to the adequacy, accuracy, completeness, or reasonableness of the information provided.

Esme Loans Limited accepts no liability for any direct, indirect, or consequential losses (in contract, tort or otherwise) arising from the use of the information contained herein. However, this shall not restrict, exclude, or limit any duty or liability to any person under any applicable laws or regulations of any jurisdiction which may not be lawfully disclaimed.

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