Open banking is a secure financial framework that allows you to share your transaction history and initiate payments through authorised third-party applications. By moving away from traditional closed systems, this technology gives you greater control over your financial data and connects your accounts directly with modern applications.
What is open banking?
Open banking is a secure system that allows you to share your payment account transactional data and initiate transactions through authorised third-party providers. By July 2025, the UK reached a major milestone of 15.16 million active unique users, showing that nearly 1 in 3 UK adults use open banking-powered financial tools (according to Open Banking Limited). This shift is transforming how both consumers and businesses manage their everyday finances.
Open banking meaning and definition
The core open banking meaning focuses on customer control over financial data. Under the Payment Services Regulations 2017 (which brought the EU's psd2 open banking rules into UK national law), banks must provide secure access to your account details.
The basic open banking definition includes three primary roles:
- ASPSP (Account Servicing Payment Service Provider): The bank or building society hosting your payment account.
- AISP (Account Information Service Provider): A regulated provider with read-only access to transactional data, balances, and direct debit details to consolidate your accounts in one dashboard.
- PISP (Payment Initiation Service Provider): A regulated provider authorised to securely start a direct bank transfer on your behalf, acting as a faster alternative to cards.
How does open banking work?
Instead of copying and pasting bank statements or sharing passwords, the process relies on direct, automated communication. You simply grant consent within an app, verify your identity with your bank, and the data flows instantly.
The role of APIs in open banking
The technical engine behind how does open banking work is the Application Programming Interface (API). An API is a secure software bridge that allows two different computer systems to talk directly to each other.
Instead of typing your password into a third-party app, the app sends a secure, tokenised request to your bank's API. This infrastructure handled 24 billion secure API calls in 2025, maintaining system uptimes of above 99.50% (according to Open Banking Limited).
What is the UK open banking standard?
The open banking uk system was kickstarted by the Competition and Markets Authority (CMA) following a 2016 retail banking investigation. The CMA ordered the nine largest UK banks (the CMA9, including Barclays, HSBC, Lloyds, and NatWest) to build and fund unified API standards.
While the CMA9 originally built the framework, almost every major traditional and digital bank in the UK now fully supports open banking. This includes household names such as Santander, Nationwide, Monzo, Starling, and Revolut, meaning you can easily connect virtually any active payment account in the country.
Today, the UK system is shifting onto a permanent statutory footing. The Data (Use and Access) Act 2025 officially designates open banking as the UK's first active Smart Data scheme, transitioning regulatory oversight to joint supervision by the FCA and the Payment Systems Regulator (PSR) through the Joint Regulatory Oversight Committee (JROC).
Is open banking safe?
Yes, open banking is built on highly secure, military-grade standards. A common misconception is that open banking makes your financial history public or allows banks to sell your data. The framework is strictly opt-in and operates under the UK General Data Protection Regulation (UK GDPR).
How your financial data is protected
When you connect an app, you never share your online banking passwords or PINs. Instead, open banking uses secure, tokenised authorisation flows.
Your login process is protected by Strong Customer Authentication (SCA), a regulatory standard that requires multi-factor authentication. You verify your identity directly with your bank (using a fingerprint, facial recognition, or a secure mobile code) before any connection is made. The third-party application never sees or stores your login credentials.
Regulated providers and third-party access
Only companies registered and authorised by the FCA can participate in the ecosystem. If an unauthorised company attempts to access your bank, the bank's secure APIs will reject the request automatically.
You also retain complete control over your permissions:
- Instant revocation: You can cancel an app's permission immediately through your banking app or the provider's settings.
- The 90-day re-consent rule: Users only need to complete a full bank login during setup. Every 90 days, you simply click a yes/no prompt inside the third-party app to keep data flowing.
- Fraud protection: Under the Payment Services Regulations, your bank must reimburse you for unauthorised transactions if you are defrauded while using an FCA-regulated provider.
Disadvantages and risks of open banking
While the core technology is highly secure, you should still be aware of potential risks and limitations:
- Social engineering and phishing: Because payments occur instantly, fraudsters may try to trick you into authorised push payment scams. They might pose as your bank or a trusted business and persuade you to approve a transaction within your banking app. Remember, once you authorise a payment via open banking, the money moves immediately.
- Dependency on third-party security: Although banks use secure systems, you rely on the third-party apps you connect to keep your data safe. If an app has weak security protocols, your shared data could still be exposed.
- Lack of uniform support: Open banking does not cover all financial products equally. While it works seamlessly with current accounts, many savings accounts, credit lines, and investment portfolios are not yet fully integrated into the system.
What are the benefits of open banking?
To understand the core open banking benefits, it helps to see how they resolve administrative headaches:
- Real-time financial visibility: You can link accounts from multiple banks into a single dashboard to view your total cash flow instantly, making budget planning much simpler.
- Frictionless payments: It enables immediate account-to-account payments, allowing you to pay invoices or settle bills without typing in long card numbers.
- Faster credit approvals: Lenders can instantly verify your actual income and expenses through read-only access, helping you secure mortgages or loans without printing physical bank statements.
- Automated bookkeeping: For business owners, connecting bank feeds directly to financial platforms eliminates manual data entry and makes bookkeeping effortless.
Open banking examples and use cases
Open banking has expanded rapidly from a niche technology into a core part of everyday financial life. By the end of December 2025, active open banking connections in the UK grew to 16.5 million, representing a 36% year-on-year increase (according to Open Banking Limited).
Open banking payments explained
An open banking payment acts as an account-to-account push payment. This transaction routes money directly from the payer's account to the merchant's account via the UK's faster payment system rail, bypassing card networks.
In 2025, the UK processed 351 million open banking transactions, representing a 57% year-on-year increase. A prime example is HM Revenue and Customs (HMRC), which integrated a "Pay by Bank" option. Between February 2024 and January 2025, HMRC collected over £12 billion using this open banking rail, significantly reducing manual data entry errors.
Other payment capabilities include:
- Variable Recurring Payments (VRP): An API standard that allows a customer to authorise ongoing, automated payments within agreed limits, removing the need to authenticate every individual transaction.
- Sweeping: A mandatory form of VRP used for automating "me-to-me" transfers, such as moving spare change automatically from a current account to a savings account. Sweeping transactions grew by 98% in 2025.
Account information services
Beyond payments, open banking enables smart data sharing that can improve your credit score or streamline tenant vetting:
- Rent reporting: Services like CreditLadder securely verify monthly rent payments using read-only APIs and report this history to major credit reference agencies, helping tenants build credit profiles.
- Automated tenant checks: Canopy uses secure APIs to instantly verify renter income and transaction histories, replacing slow, manual paper vetting processes.