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Everything You Need To Know About Integrations With Open Banking Providers


10 min read

You are about to build a fintech app, but you need to ensure it solves actual customer problems and stays competitive in the market.

So what do you do? The answer is to explore open banking integration for your product or service. This will give you access to vast swathes of customer data for better personalization.

In recent years, open banking regulations have made it possible and lucrative for banks to ‘open up’ and give third parties access to customer data.

As a result, tech companies, startups, and large corporations can now focus on integrating open banking services in order to provide improved and personalized financial services to their customers and other businesses. 

But that’s not all. Statista places the value of open banking transactions in 2023 (so far) at $57 billion, with an expected spike to $580 billion by 2027. 

So how can third-party financial institutions and fintech startups benefit from open banking? Join me as I explore the implementation, risks, and benefits of open banking integration. 

What Is Open Banking? 

Open banking is the process whereby digital banks and financial institutions share customers’ financial data with third-party service providers through application programming interfaces (APIs).

Think of it this way: Banking APIs act as intermediaries between the bank’s infrastructure and third parties—they provide access to user and financial data. 

This access to open banking APIs enables customers to explore other fintech services, currency exchanges, online merchants, and personalized financial services.

How Does Open Banking Work?

As the name suggests, the open banking concept involves banks “opening” access to customer data to the public, specifically sanctioned financial institutions.

Let’s say a customer has an account with Bank A — a participant in the open banking initiative. This bank now has access to all the customer’s data, including credit score, account balance, online purchasing habits, regular payments, and other metadata.

Bank A will now make this data available to a fintech startup — say StartApp — who will now obtain access to the information. However, this cannot happen without the customer’s informed consent and API authentication.

how does open banking work

So what does this mean? 

Open banking APIs can only function when the person or platform requesting the data has permission to view it. This usually comes in the form of authorization tokens such as OAuth and other personal access tokens. When the token expires, the entity loses access to the open API and has to generate a new one.

It’s pretty straightforward and secure.

Once the customer provides consent to share open banking data, StarterApp can now connect to Bank A’s APIs to aggregate and analyze information about the customer to create a profile. 

And voila! StarterApp can now tailor their service offerings to users’ needs or potential interests.

Open Banking Integration Use Cases

Now that you know how banking works, let me share some practical open banking use cases across industries.

  • Accounting: Companies can use solutions like Yapily to automate bookkeeping and general accounting to streamline data flow. Business owners can use open APIs to build account aggregators in order to view and manage all their accounts from a single dashboard.
  • Loans: Financial startups and loan management service providers can extract data from APIs to assess the creditworthiness (and credit score), net income, and overall cash flow of loan applicants. Fintech apps like Carbon examine investment portfolios and other financial information to determine loan affordability.
  • Business payments: Startups and SMEs can integrate open banking platforms to help process payments faster. These companies can also use solutions such as QuickBooks to handle invoices and payrolls within an automated or semi-automated ecosystem.
  • Buy Now Pay Later (BNPL): ECommerce stores can use open banking APIs to verify whether a customer or consumer qualifies for credit. This technology is available in apps like Klarna and Afterpay.
  • Wealth management: Businesses and startups can work better with clients when they have a 360 view of their assets across multiple banks. This will help them manage assets better and make informed business decisions. 
  • Variable recurring payments (VRPs): Financial institutions and credit card issuers can rely on open banking software like Plaid to manage recurring payments for mortgages, subscriptions, rent, insurance, and other services. The consenting users can set the payment parameters to control the timeline. 
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The Global State of Open Banking Adoption

Although open banking integration follows a generic working principle, regulations in different geopolitical zones vary significantly.

European Union (EU) and the UK

In my experience, open banking in the EU is the most regulated in the world due to stringent data privacy guidelines.

And why is that? Apart from GDPR (General Data Protection Regulation), banks offering open banking solutions are required to follow the Payment Services Directive (PSD2).

The Global State of Open Banking Adoption Source: Open Banking Map

The situation is no different in the UK banking sector. The PSD2-compliant Open Banking Implementation Entity (OBIE) has established a certification program that makes APIs available to third parties.

United States

Judging from what I’ve learned, the United States is more like the Wild West when it comes to open banking regulations. At the time of writing, I was unable to find any comprehensive directive or standardized guideline for open banking APIs. 

That notwithstanding, banking industry giants such as Bank of America have been exploring opening banking possibilities since 2018, in compliance with the Dodd-Frank Act of 2010

This act allows consumers to share their financial data with banks and third-party financial institutions, which I believe has been the catalyst for faster and more robust development in fintech in North America.

How about countries outside the EU and North America?


The Australian Competition and Consumer Commission (ACCC) has released the Consumer Data Right (CDR), making consumer consent a prerequisite for third-party access to sensitive data. 

Countries like Brazil, Nigeria, Canada, Israel, Mexico, and Bahrain have their respective open banking directives. Before exploring open banking integrations in any country, you must understand their regulations.

Benefits of Open Banking Integration

Despite being a relatively new concept, open banking payment technology has shown a lot of promise in the financial sector. 

Here are some of the advantages of open banking integration.

Increase in Competition and Innovation

Open banking has increased the competition for services between fintech companies by opening up the financial ecosystem and disrupting monopolies. 

What does this mean? For industry newcomers, this provides an opportunity to capitalize on open APIs to build high-quality products and services that can compete and remain market-viable. 

Here is an example: A startup can create an investment app that tailors asset recommendations to user interests and purchasing patterns. Since they can tap into new markets faster, they can compete head-to-head with giants like Robinhood and Trove.

In my opinion, this is the ultimate equalizer when it comes to boosting competitiveness in the fintech industry.

Better Customer Experience

Open banking integration drives competition, thereby necessitating a race to please consumers and break into untapped markets. 

How can companies satisfy more consumers?

Startups, credit card companies, and lenders can now focus on providing value to customers. They want to make the banking process (and other non-banking services) as convenient and painless as possible.

For example, the introduction of mobile payments and contactless technology such as Google Pay is a testament to the focus on better customer experience. 

You can also see this in fintech companies like Stripe and PayPal, which provide one-click payment gateways for businesses.

What do they all have in common? They all focus on improving customer satisfaction by reducing the path to any desired result.

Enhanced Security and Data Protection

How about keeping the data secure? When integrating with an open banking API, the user has to go through an authentication and authorization process (using protocols like open authorization or OAuth) to verify their identity. 

Not only that, businesses can safely develop and use payment gateways, aggregators, and other services securely, thanks to API rate limitation, tokenization, pseudonymization, and data encryption.

I firmly believe that stringent open banking regulations reduce the risk of fraud and security breaches. This means that consumer data can only enter the hands of properly vetted companies and business owners.

Financial Benefits

Fintech companies and financial service providers can rely on open banking to provide services that banks can’t offer. As a result, they can tap into unexplored markets and expand the scope of services they offer to other businesses and individual customers.

Banking as a Service (BaaS)

What if startups can access core banking services? Well, open banking has made it possible through BaaS (Banking as a Service).

Banking as a Service or white-label banking is the process where a bank gives financial and non-financial third parties access to their open banking APIs and other core banking functionalities. 

With BaaS, startups and corporations can go beyond open banking APIs and extend their services to include everyday financial operations like online payments and BNPL.

One example that comes to mind is how Uber uses Evolve BaaS for managing and financing the Uber Pro Card initiative. At the current adoption rate, the BaaS market will reach a $66 billion CAGR by 2030.

Risks of Open Banking Integration

Despite the promises of open banking, I still think it presents several issues in terms of applicability and overall prospects. 

Data and Infrastructure Security

Even with airtight open banking security and robust encryption, fintech startups and corporations still need to worry about insider threats and concerted cyberattacks. 

No matter how you slice it, I believe opening access to customers’ sensitive data puts their information at risk of falling into the wrong hands. 

It’s that simple: the more people with access to secure open-source data, the higher the probability of fraud, breaches, and other cybersecurity concerns.

As a result, scammers and hackers can get access to fintech apps, from which they can steal user information. The Medibank hack comes to mind.

When it comes to personal data, consumers might be unwilling to give consent. This presents a problem for startups who need to acquire user consent before using their data. 

So what do they do? 

In countries with non-stringent banking regulations, this might end up endangering the users and the companies themselves.

API Specifications and Standardization

Since there are no universally acceptable standardized formats for APIs, multinational corporations and international financial service providers struggle with compatibility.

So far, the only solution is that the big players control the pace as regards API specifications. 

Does this help innovation? Absolutely not! Business owners have to get past this standardization hurdle before collaborating with other companies — or even before providing their own customers with needed services.

Creation of Monopolies

With open banking slowly morphing into BaaS, the prominent players are starting to dominate the space. Banks like CitiBank and Morgan Chase now function as tech enterprises, giving them a massive advantage in consolidating and utilizing data.

How has this affected smaller players in fintech? So far, consolidation of data has led to the concentration of power in the hands of the usual suspects, stifling competition and wiping away the pricing power that smaller fintech companies can exert in the market.

Data Misuse

As power concentrates in the hands of a few monoliths, this leads to the misuse of consumer data. 

Who determines which consumer data to be shared with third parties? Who monitors if the banks actually keep their promise and respect user consent?

The answer here is clear: nobody. 

Although regulators have introduced fines and guardrails to prevent businesses in the financial sector from overstepping consumers’ boundaries, the onus still lies on these institutions to be transparent, fair, and decent.

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Best Practices for Open Banking Integration

To boost the chances of successfully integrating open banking APIs, here are some tips to follow:

  • Identify the objective of open banking integration for your organization. A strategic goal of open banking integration could be to increase revenue, boost market share, or expand to other locations. But that’s not all; non-banking institutions could also narrow down their service domains to payments, aggregation, or finance tracking, depending on their core competencies.
  • Keep security tight. Implement robust security measures, such as encryption, authentication, and authorization, to protect the data from tampering. So what should you do? Put validation mechanisms in place to verify QWAC and QSEAL certificates for users within and outside the system.
  • Stick to an API standard. European and UK fintech companies can follow the Open Banking Standard or the Berlin Group Framework under PSD2 regulations. Financial service providers in other countries should adopt universally acceptable API standards to make connecting to databases easier using a recognized open banking framework. 
  • Test and validate APIs before connecting to them. Rigorous testing will determine if the API can handle expected and unexpected requests. I recommend using tools like Postman to rigorously test and validate APIs before integration.
  • Dedicate effort and resources to regularly test and validate APIs. Consider using regulation technology software (RegTech) to monitor and stay up to date on changes in compliance standards. RegTech solutions such as New Relic and AppDynamics can also help you monitor APIs to spot strange activity in real time.
  • Build an open banking ecosystem. Don’t shy away from cooperation and partnerships with other companies and third-party institutions. Be ready to expand your network and use wide data fabrics to provide value-laden services, increase customer satisfaction, and bump up revenue.
  • Always put consumers first. Ensure the process of acquiring consent is as clear and smooth as possible. Keep customers informed about storing, analyzing, and sharing their data with third parties.

Wrapping Up

Open banking makes it possible for corporations, SMEs, and startups to collaborate with banks in order to increase their service and product offerings and satisfy customers better. When integrating an open banking API, you should follow the regulations within your geographical area.

Open banking can increase competitiveness and foster innovative ideas when properly applied. At the same time, I can skeptically admit that monopolies could also appear when large corporations push smaller ones out of the open banking space.

Ultimately, always prioritize security, privacy, and compliance when implementing fintech and open banking integrations. And standardize your APIs to stay compatible with potential partners.

Ready to work with a fintech software development company that understands open banking? Reach out to us right away to get started.

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Table of contents
What are APIs in open banking?
APIs in open banking are software solutions that connect banking systems with external applications and services. They enable secure and standardized data sharing between banks and third-party providers, facilitating a more open, interconnected financial ecosystem.
Which companies are using open banking?
Many financial and fintech companies worldwide are using open banking. Notable examples include payment services like PayPal and Stripe, budgeting apps like Mint and Yolt, and investment platforms like Robinhood. Banks themselves, such as HSBC and Barclays, that adopted open banking to enhance their services.
What are examples of open banking?
Examples of open banking include services like real-time financial data aggregation, personalized financial advice, automated budgeting tools, faster payment processing, and seamless loan application processes.
What is the difference between API banking and open banking?
The difference between API banking and open banking is that the banking API is the software that enables the provision of banking services, such as account opening, via third-party apps. At the same time, open banking is a concept that implies the sharing of sensitive customer banking data with third-party applications.
Who are third party providers in open banking?
Third party providers in open banking are external entities that offer financial services or products that require accessing consumer banking data through APIs. These include fintech companies, payment service providers, financial management applications, and other non-banking financial institutions.
What is open banking integration?
Open banking integration involves incorporating open banking APIs into the technical infrastructure of banks and third-party providers. This integration allows for seamless customer data exchange between a bank and a third-party provider enabling additional services and improved customer experience.
What does open banking mean for banks?
For banks, open banking represents a shift towards more transparency and customer-centric services. It encourages innovation, compels banks to modernize their digital offerings, and opens up new revenue streams while also increasing competition and regulatory compliance requirements.
Does open banking exist in USA?
Yes, open banking exists in the USA, but it is less regulated compared to regions like the EU or the UK, where the open banking policy originated. In the U.S., open banking is driven more by market forces and agreements between individual banks and fintech companies than by a regulatory framework like the European PSD2 directive.