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What is open banking?
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What is open banking?

5 min read

Open banking is a way of sharing financial data and information across banks and third-party providers. This means granting access to information that usually only the account holder and their bank can see, such as transactions and balance, to help providers personalise their experience.

Account holders must grant permission for this to happen. Once in place, it streamlines the data-sharing process and makes it easier for everyone to send or receive money.

Solutions like Payit use open banking technology to allow businesses to quickly and securely collect money from customers or send a refund directly to them – without needing to know any of their personal information.

How does open banking work?

Open banking uses application programming interfaces (APIs) to share data. These interfaces help one party’s software speak to another’s, allowing for data to be transferred safely.

One of the most common uses of open banking is online shopping. If you’re shopping online, open banking payments allow for instant transactions, so you don’t need to enter personal or financial information every time you check out. If you’ve ever seen the option to ‘pay by bank account’ when you make an online payment – that’s open banking at work.

Another way open banking is used is in money management applications. APIs allow third-party finance applications to access financial data, so they can analyse transactions, account balance and spending habits. This helps them give recommendations on how the user could save money.

Compared to traditional banking, open banking offers faster, simpler payments. It also allows safe collaboration between banks, providers and finance platforms, as the API technology makes data sharing secure.

Is open banking safe?

Open banking can’t be used without the account holder’s consent. Usually set out in a provider’s terms and conditions, customers must agree in order for businesses to access their sensitive information. Not only that, but companies can only see the specific information they’ve been given access to.

Every provider using open banking has to meet GDPR standards to prove they’re safeguarding the information they’re trusted with. Open banking is also regulated by the same Financial Conduct Authority (FCA) that protects money held in banks.

What information can businesses that use open banking see?

Open banking only allows businesses to see certain information that customers have agreed to share.

The main sources of data that open banking allows businesses to access are:

  • account details – this includes the account holder’s full name and account balance.
  • payment details – where money is regularly going, such as standing orders and Direct Debits.
  • extra account features – including certain benefits, overdraft allowances and any rewards.

What are the advantages of open banking?

Open banking provides many innovative payment solutions that businesses can benefit from. It can help streamline and automate many processes that often cost both businesses and customers time and money.

Some of the advantages include:

  • increasing customer engagement – open banking creates the opportunity for you to use your customers’ personal data to personalise their experience.
  • reducing transaction fees – as open banking doesn’t rely on card transactions, it doesn’t cost as much to use, for both businesses and customers.
  • streamlining transaction processes – both you and your customers can benefit from quicker and smoother online transactions.
  • increasing revenue – by utilising open banking, you broaden your payment options. For example, you can begin to incorporate ‘pay by account’ and digital wallet payments.
  • automating services – from collecting data to providing saving tips and processing payments, open banking could take your business one step closer to an automated future. This saves you more time to work on the things that matter – providing a better experience for your customers.

What to consider with open banking

You want to make your customers feel as secure as possible. Which is why it’s important to keep a few things in mind before you roll out open banking in your business.

If you’re planning on incorporating this new process, you want to make sure you’re using it properly. Let’s look at what you need to do:

  1. Make sure you’re authorised by the Financial Conduct Authority.
  2. Always ask your customers’ permission, and make it clear how they opt in. For example, you can do this in your terms and conditions, or during the registration process.
  3. Comply with all the necessary open banking GDPR regulation requirements, and ensure you’re accessing, using and storing all personal and financial data properly.

Open banking is an innovative way to streamline your business processes – for both your brand and your customers. Whether you’re an online retailer or money management platform, open banking has many relevant benefits that can help automate business processes.

Open Banking FAQs

Is open banking new?

Open banking in its modern form is a relatively new concept, however its official roots go all the way back to the 1980s. It began as a simple internet transfer experiment and has since grown into an incredibly efficient way to share financial data, in a matter of moments.

What banks use open banking?

Most major high street banks use open banking for online transactions. You are not automatically enrolled when you take out an account, instead you opt in. If you want to find out if your bank uses open banking, take a look at the regulated providers register.

How does Payit use open banking?

Award-winning Payit uses open banking technology to help businesses send and receive money from customers. It means customers don’t need to enter their card details, account number or anything else to pay for your services or goods. Find out more about how Payit can help your business.

Eligibility criteria and fees apply. You will need to sign up to Payit terms and conditions and hold an account with us. Fees are based on the volume and average value of e-commerce transactions. Speak to a NatWest Relationship Manager (where relevant) for further information, or request a call back.

Payit awards recognitions

  1. FF PayTech Awards 2023
    1. Top Innovation in Payments by a Bank
    2. Best Mobile Payments Initiative (in-app Payit)
  2. PAY360 Awards 2023 - Best Open Banking / Finance Initiative
  3. Payments Awards 2023 – Best Open Banking Initiative
  4. FinTech Finance Awards 2023 – Open Banking

FF Banking Tech Awards 2023 – Best Use of Tech in Payments

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