Why open banking matters more than it seems

Open banking often sounds like an abstract fintech-conference concept. In practice it is fairly simple: it is the ability for a user to explicitly authorise a third-party application to access their bank data — or to initiate payments on their behalf — through a regulated API, instead of sharing their credentials or depending on the bank to build every feature in-house.

What it is, in simple terms

Before open banking, if you wanted an external application to see your bank transactions in order to, say, give you a spending analysis, the only technical way to do it — before regulation existed on the matter — was to share your banking credentials directly with that application, something no bank and no informed user should ever accept. Open banking replaces that with explicit, revocable consent, and with a standardised, regulated technical connection between the bank and the third party.

This enables two distinct things: data access (viewing transactions, balances, spending categories) and payment initiation (authorising a transfer directly from an external application, without going through the bank's online banking).

Who really benefits

The most cited benefit is for the user: more competition between applications competing to offer the best service on the same data, instead of depending on what a single bank decides to build. But the real benefit is broader: it allows smaller companies to compete with established banks without having to replicate the entire banking infrastructure from scratch, by relying on the regulated infrastructure that already exists.

For banks themselves, the calculus is more ambiguous: open banking reduces their exclusive control over the customer relationship, but it also opens the door for them to become infrastructure providers for third parties — a different business model, not necessarily a worse one.

Why adoption moves slower than the technology

The technology for connecting banks and third parties through APIs has been mature for years. What has moved more slowly is real adoption by users — and, in part, the uneven quality of some banks' technical implementations, which meet the minimum regulatory requirement without investing in making the experience actually work well.

Added to this is a trust problem that regulation alone does not solve: many users still do not understand what "authorising a third party to access my bank data" means, and without that understanding, adoption stays below what the technology would allow.

Where this is heading

The next phase of open banking — sometimes called "open finance" — extends the same principle beyond bank accounts: insurance, investments, pensions, under the same model of explicit consent and regulated APIs. The more that model is standardised across countries and sectors, the easier it will be to build financial products that genuinely work across borders, instead of being tied to a single bank's infrastructure in a single country.

Note: informational and educational content. It does not constitute legal, regulatory, tax or financial advice, nor an offer of services. Verify every obligation with qualified advisers and the competent authority.

Sources

• European Commission — Payment services (PSD2).
• Open Banking (United Kingdom) — reference standard.
• European Banking Authority (EBA) — open banking technical standards.