By Amanda: Open Banking in the UK

Open Banking in the UK

Technology has imparted virtually every part of our lives. From Healthcare to transportation and even in the financial systems the touch of technology cannot be overemphasized. Open banking is one of the latest ways by which technology has imparted the financial systems.

This article is going to discuss at length what open banking is and also how it affects financial operations in the UK. Before going further what really is Open banking?

What is Open Banking?

Open banking can have different meaning. We would be defining it in financial terms and also in plain lay man English.

In financial terms, open banking is part financial technology that refers to financial transparency options for bank account owners extending from public data to private data. It could also mean the use of APIs that authorize third party developers to create applications and services that work in the financial institutions. 

In plain lay man English, it means that all UK regulated banks would get to share the financial information that they have on you (Information such as spending habit, favorite online stores, credit score and payments) with authorized third parties. This information would only be shared if you give permission.

These changes in the financial system are aimed to provide more competition and innovation to financial services and systems which would in turn lead to better products been produced and better services provided. These changes are also sure to help you manage your money better.

To illustrate, you could decide to connect an app to your bank account where the app helps you to analyze the way you spend and manage your money, thereby recommending that you get a new credit card or open a new savings account that would help you save and manage your money better. The app could also help you show the total of all your different bank account in one place so that you can get a better general overview of your money.

Who brought up the idea of open banking?

Offering new products and services as well as better choices for the customers are some of the provisions that the UK government has been looking to provide to people. The UK government aims to make the new financial service providers by established large banks accomplish this aim.

To be honest, the level of competition that exists in retail banking and financial services is low compared to other sectors. An investigation that looked into the supply of retail banking services to customers with personal accounts and also to SMEs show that the level of competition has to be increased. 

Quite a number of changes were tabled with the belief that they could improve the competition and also improve the choices that customers had to make. One of the changed that was proposed was open banking.

The introduction of open banking is meant to make it easier for companies to offer diverse and innovative services, while giving their customers freedom to choose and have more control over their money and financial information. All of this is hoped to be achieved by requiring banks and building societies to make certain information accessible to other approved companies in a standardized straightforward and secure way and only ever with your explicit consent.

When talking about the open banking, you will often hear reference to PSD2. This is the second payments Services Directive which modernizes European payment regulation enabling consumers including small businesses in the EU to have greater control over their financial information.

Which of Your account does it apply to?

Open banking works with any payment account that you have. Payment accounts include current accounts, credit cards and prepaid cards.  Open banking also only works on accounts that can be accessed online. This means that your online banking needs to be connected the provider or third party app.

Who is your data shared with?

No doubt you are aware that your data in the wrong hands would mean a lot of harm for you. This is why you need to be extra careful with who has access to your data. With open banking you are protected by your bank when you share your data.

Authorized third parties are also regulated so that you do not fall victim to scammers. These parties are regulated by the Financial Conduct Authority (FCA) or some other regulator listed on the FCA’s Register or Open Banking Directory. This is to make sure that you are in the safest hands possible.

Authorized third parties usually offer two different kinds of services and different authorization is required for these two different services.1. Payment Initiation services. You get to pay companies directly from your bank account without using third party payment companies like visa or verve. Amazon and Wal-Mart are examples of companies that offer this service.2. Account Information Services. All the information regarding your account even if they are from different banks are all provided in a single place. Product and service recommendation along with budgeting are among the help that the companies offering this service provide.

How would happen if you use an unauthorized provider?

You cannot expect to get the same level of protection if you use an unauthorized third party app. In case you lose your money while using a third party that is not regulated your bank is under no obligation to pay you back or offer some form of compensation.

To make sure that you use a regulated third party then check the FCA Register. Nobody would sue you if you use an unauthorized provider, but you should also be ready to shoulder the responsibility.

If you currently use a provider that is not yet authorized, you can continue to use it and wait until later in the future when it becomes authorized. The truth is that many of the unregulated third parties now would not be authorized until around the end of 2019.

In all, you need to be extremely careful with who you share your data with. Even with an authorized third party you might still wonder if your data is save.

Is my data safe with open banking?

When you give permission, providers would access to data needed for the services that you registered for. This could be payment initiation services or account information services as stated earlier. This means that if you authorize a provider to perform a payment initiation service it would not have access to your account information.

The provider you authorize also has the obligation to inform you of the data that it intends to make use of, the purpose for collecting that data and also how long it would use the data for.

It is possible that you might have experienced fraud on your account.  With the old banking system, you would be held responsible for the fraud carried out on your account if you allow a third party to have access to your account. The new rules laid down by open banking mean that your bank must allow you to share your data with third parties and at the same time not hold you liable for fraud.

If you notice any fraudulent activity been carried out on your bank account, say for example an unauthorized debit transactionthen you need to go to your bank. The bank is responsible for refunding the money that went out of your account. The bank and not you would then have a case with the third party if the third party really is the cause of the fraud.

You would only get a refund from your bank if you use authorized third parties, that is why it is very important that you get if the third party you plan to use is regulated so that you don’t regret it later when any incidence occurs.

What to Learn from the UK open banking capability?

Since the beginning of 2018 banks in UK have welcomed open banking with open hands. Over the course of the year there are things that this open banking in the UK has taught customers and bank owners alike.

The UK can easily be regarded as the most developed country in the whole of Europe when it comes to the adoption of open banking. This we can see as many of the biggest retail banks (9 to be exact) in the UK already embrace open banking in advance of the upcoming European Union’s second Payment Services Directive (PSD2). In fact on paper 90 percent of the entire populace can easily access open banking.

The goal of open banking in the UK is to make the financial institutions more innovative and competitive. This goal is set to be achieved by authorizing third parties to securely access data of customers that is usually held by the banks and also to make some payment where necessary on behalf of these customers. 

Here is a practical example of how open banking works. Let’s say Bob is a customer who uses a merchant for the first time. Bob has to type in his card credentials each time he wants to make a payment. With open banking though, Bob does not have to do that. With open banking, Bob can authorize merchants to make the payments that he wants to make without having to share his banking credential every single time. This saves Bob’s time and also greatly reduces occurrence of credit card fraud.

As noted earlier the UK embraced the open banking system first before many of the other European giants. What though has been the advantage of doing so?

Groundbreaking Services

Yolt is currently developing open banking systems while HSBC recently launched its connected money service. These two examples illustrate just how prevalent open banking styles are becoming in the UK.

Other banking solutions that look like open banking have also been created. One of such is the account aggregation system. The bank aggregation system is one that has access to all the customer’s bank accounts regardless of the financial systems where such accounts were created. The total balance of all these accounts is also displayed in one place.

The open banking systems are not only helping the financial sector. Other sectors in the economy also benefit greatly from the use of open banking systems. Take the rental sector for example. Normally direct debits and credit card checks take longer than a week but with the use of open banking systems the time for all the transactions to take place is reduced to hours.

Quicker transactions, simpler transactions and safer transactions are some of the benefits that open banking offers to many other sectors of the economy.

More opportunities for Small Businesses

Granted, big companies are more favored by banks and other financial institutions. Small businesses do not enjoy such luxuries. With an overall turnover of almost 2 trillion Pounds, small businesses can force the hands of banks and third parties.

These banks can help these SMEs gain access to more loans based on their credit information, get invoices get paid when they are supposed to, and help plan better cash flow.


A lot media criticism has been launched at open banking because many large banks still do not promote it. This might change soon as more functionality is added to the system which would make it more useful and popular.

What if I don’t want Open banking?

It is simple. The interesting thing about open banking is that you absolutely do not have to share your data if you do not want to or uncomfortable while doing so.  Your banks are only allowed to share your data with a third party only if you give them the permission to. 

This means that each third party or provider will need to get authorization from you to access your data. It is only when you give access that your bank also would be able to share your information with the provider. You can also cancel the permission at any time that you like.

If you prefer the old methods of banking then you can continue banking that way with no one bothering you.

Questions about open banking and Banking API answered• What is an Application Programming Interface (API)?

API technology is the generally accepted means of secure data-sharing and embedding functionality in an online environment or on the internet.

The use of APIs is prevalent and this why there are more than14,000 public APIs available today. Alternative technologiesand methods are available for sharing data too, but they are more prone to errors and are way less secure than APIs.• Why are APIs important?

The market will best reach the aims of open banking and PSD2 through the utilization of open APIs. APIs basically dictate how software should interact. 

The interaction between customers, payment initiation services, account information services and their account provider as described in PSD2 is most effectively achieved by the use of an open API infrastructure. 

An API approach also allows for a customer to get the best experience while using the software. The customer has the power or authority to determine what can and cannot be shared with a third party, as the API is consent and permission-driven.• What exactly is Banking API?

Simply put, a banking API is a system of communication with an online banking system. This means that a third party can access necessary information about you that is on the banking system where you have created a bank account. With open banking and banking API, all you need to is log into your bank account from your mobile device or desktop, where from which the banking API would help you to either check your available balance or help you display your spending over a specified period of time.• What is PSD2?

The Second Payment Services Directive (PSD2) is an importantpiece of payments related legislation in Europe, with the application of the directive starting from 13 January 2018 except for some linked rules around strong customer authentication and communication which will run to a unique timetable. 

A recent update on the system has made it possible for PSD2 to mirror how payment services and banking has developed overthe previous couple of years, for example in response to advances in technology, to ensure that customers remain protected alongside their data. Some of the biggest changes are to do with new types of online services that would be accessible to customers.

.• Why are PSD2 and Open Banking important?

PSD2 is a giant step forward towards the making a Digital Single Market possible in Europe. The aim of the PSD2 is to make this single market also fit for the digital age that is here already.

The service providers that currently operate in the EU are also bound under supervision and appropriate rules which gives the customers peace of mind and a feeling of safety. Banks, other PSPs, FinTechs and customers would also be affected by these rules.

The UK finance system also expects that the changes under PSD2 and Open Banking will bring about development of products and services that allow customers to make the most use of their account and transaction data.

The additional services that PSD2 and open banking promise to offer go well beyond payments, financial services and e-commerce. The changes could help open up new markets andincite new comers into the already established market, some of whom will offer services that will assist people who are currently financially excluded. There are a whole host of opportunities that it may not be possible to fully anticipate which could hugely benefit customers.• What are the advantages?

Redundant processes and documents are totally eliminated. This is because the banking API draws your information from a safe and authorized environment.

Most of the processes get automated which mean that you have the information you need or payment made within a really short period of time. Your credit score can be calculated in a matter of seconds with high accuracy.• What are Payment Initiation Services (PIS)?

Payment initiation services (PIS) reflect the market growth in e-commerce activities and the use of internet and mobile payments. In the UK, majority of the population is well aware and familiar with the use of cards, (Be it credit cards or debit card), however payment initiation services allow customers to initiate payments directly from their bank accounts, totally bypassing the use of cards.

This no doubt helps to improve the customer’s choice, convenience and level of competition in the market.

Customers gain a lot of benefits from these payment initiation services, but the merchants are not entirely left out too. Merchants gain in form of increased certainty, the use of instant payments, a greater reach of customers and cost efficiencies; for example by allowing a merchant to integrate a payment initiation service provided into its online checkout process to enable it to offer the option of online credit transfers as an alternative to card payments. • Will things ever change?

The new law has applied in the UK and the rest of Europe since 13 January 2018. However, it is expected that there would be more rules that would be implemented or under current development in 2019, which may further change how you share your data, keep your data safe and initiate a payment. 

One such change will be a boost in the security process to log into online and mobile banking. Further changes will be communicated nearer the time.


The choice to use open banking systems is entirely up to you. Open banking promises to change the way you manage your money. It also promises to be safer and offer better protection than the traditional banking systems.

The choice as to whether you switch or not is entirely up to you. No one can make the decision for you or force you to make a switch. 

It has been just a year since open banking was adopted in the UK so it is quite impossible to accurately understand all the effects that it could have on the banking system as a whole. It has however shown signs of growth and stability.