Open banking is transforming the financial landscape by enabling secure, permission-based data sharing between banks and third-party applications. Regulations like PSD2 effectively ended traditional banks’ monopoly over customer data.
Yet behind this innovation are open banking providers — tech companies that create and manage the secure connections that allow data to flow safely and efficiently. For consumers and businesses, these providers deliver faster payments, improved financial tools, and more personalised experiences.
Let’s explore what open banking providers do, the benefits they bring, and why they are essential in today’s financial ecosystem.
What Is an Open Banking Provider?
An open banking provider acts as a bridge, enabling businesses to leverage open banking payments and data products.
The data sharing in open banking is executed via application programming interfaces (APIs).
They allow banks to share customer data with providers, but only with customer consent. This enables customers to access a range of financial tools, from budgeting and investing apps to payment solutions, directly connected to their bank accounts.
How Open Banking Providers Work
The core of open banking lies in API technology, which standardises the process of connecting financial accounts to third-party applications. Open banking providers develop and maintain these APIs, ensuring data flows safely, meeting regulatory requirements, and enforcing strict security standards.
These providers’ primary functions include:
- Data Connectivity: APIs securely link banks with third-party services, allowing account and transaction data to be shared.
- Payment Initiation: Providers enable direct payments from bank accounts, which reduces reliance on traditional payment methods and their associated fees.
- Enhanced Security: Open banking providers implement multi-layered security measures, including encryption and two-factor authentication, protecting both businesses and customers.
Key Benefits of Open Banking Providers
Open banking providers bring a range of benefits to businesses, from cost efficiency to improved user experience. Let’s take a look at the key advantages of using such provider.
Reduced Transaction Fees
Traditional card payment methods often involve high transaction fees. Open banking reduces these costs by enabling direct account-to-account payments, which bypass expensive card networks and intermediaries.
For businesses with high transaction volumes, this can lead to significant savings, and for consumers, it means paying less in fees for their transactions.
This quality of open banking payments also means there is no chargeback mechanism in place.
Faster Payment Processing
With open banking, payments are faster, often processed in real-time or on the same day. For consumers, this means immediate access to funds, and for businesses, it improves cash flow and shortens settlement times.
Faster payments are especially beneficial in industries like e-commerce, where quick processing can reduce shopping cart abandonment and improve customer satisfaction.
Improved Customer Experience
Open banking simplifies financial interactions by reducing friction. Customers pay using their bank accounts or share financial information for insights with just a few clicks. They can also withdraw consent for data sharing anytime.
This seamless experience has made open banking increasingly popular in mobile apps, where speed and ease of use are essential.
Better Financial Insights
Open banking also provides customers and businesses with actionable insights. Consumers can track spending, create budgets, and monitor financial goals through third-party apps connected to their bank accounts.
For businesses, user insights (with customer consent) allow for tailored experiences and strategies, for example, personalised lending options or targeted marketing campaigns for high-value clients.
Strong Security and Compliance
Security is a top priority in open banking, and providers must comply with stringent regulations, such as PSD2 in Europe.
Open banking providers are responsible for ensuring customer data is safe, using measures like encryption, strong customer authentication, and regular security audits. Therefore, the providers help businesses avoid costly regulatory issues and build customer trust.
Core Services of Open Banking Providers
Open banking providers typically offer a range of services for businesses. Yet, generally there are four distinctive services that are typically offered.
Account Aggregation
Account aggregation is one of the foundational services in open banking. Providers enable users to see all their financial data—across checking, savings, and credit accounts—in one place. This consolidated view is beneficial in business reporting and accounting.
Payment Initiation
A standout feature of open banking is the ability to initiate direct bank payments. By connecting directly to bank accounts, providers enable customers to pay from their accounts without using credit or debit cards. These so-called pay-by-bank payments are faster and often cheaper, making them an attractive option for online purchases.
Identity Verification and Secure Authentication
Identity verification is another core service provided by open banking providers. By connecting to a bank account, they can confirm a user’s identity quickly and securely without requiring additional paperwork. This can be valuable for businesses needing to verify customers quickly.
User Insights
Through user insights, providers can give businesses detailed views of customer spending habits, transaction histories, and financial behaviour patterns. This allows companies to tailor their tactics more effectively and identify areas for growth.
For instance, open banking insights can help a retailer understand peak shopping periods or typical spending amounts, which can improve marketing strategies. Insights derived from transaction patterns can also assist in credit risk assessment and personalised product recommendations.
Future of Open Banking Providers
Open banking is evolving quickly, and as regulations expand, the capabilities of providers will grow as well.
An exciting development in this space is open finance, which expands on open banking by allowing even more types of financial data to be shared across sectors, from insurance to investments and pensions. This shift could open doors to new products, deeper insights, and enhanced customer experiences.
Final Thoughts
Open banking providers are crucial in today’s digital financial world, empowering businesses to offer faster payments, tailored insights, and an improved customer experience—all while ensuring regulatory compliance and security.
For consumers, open banking means more control over finances, lower fees, and easier access to services that fit their lives. As open banking continues to grow, its providers will play a vital role in shaping a future where finance is faster, safer, and more connected than ever.
