Open banking refers to a system of allowing access and control of consumer banking and financial accounts through third-party applications.
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Learn more about the basics of open banking in this article.
Open banking can allow third-party providers to access a person's bank account information. Such access is generally only possible after someone expressly gives their consent to a financial institution, such as a bank, building society, fintech company, or regulated payment services provider.
With open banking, individuals can:
Approximately 11% of British consumers were active open banking users in 20231. Here are some examples of open banking in practice:
The UK Open Banking Standard 'opens' the following data to be shared among participating banks, building societies, fintech companies, and third-party providers. Data can only be shared when a person agrees to data sharing and open banking.
This may include basic account information, such as the account holder's name, account number, and sort code.
Open banking may also enable third-party providers to initiate payments through connecting to a customer account held at a bank.
There are several potential benefits of open banking. Here are some examples:
There may also be risks to open banking. Keep these potential concerns in mind:
There are stringent regulations and rules regarding what, when, where, and how often consumer data can be shared. Protect yourself from fraud by only allowing trusted financial providers to access data. Also, review access levels regularly and only share the required level of information needed.
The regulatory frameworks that govern open banking include the UK’s Payment Services Regulations and the UK Open Banking Standard. Here is a brief overview of both frameworks.
Open banking may point to a growing awareness of changing finance habits, needs, and preferences. Learn how PayPal works to protect data.
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