• Benjamin Elliott

What Is Open Banking And How Does it Work? The Low Down for Small Businesses

Updated: Oct 17

Open Banking is one of the most exciting concepts to ever enter the world of finance. As a small business, this is something that offers many new opportunities.

Open Banking creates room for finance innovation, it levels out the competitive landscape, it allows you to find new ways to streamline your business, provide a better customer experience, and access new financial products and services.

What exactly is Open Banking and how does it work? We’ll explore everything you need to know about Open Banking and how it is used in our guide below.

Benefits Of Open Banking

Open Banking can connect data from various accounts to easily share information between consumers, financial firms, and third-party service providers.

This offers all kinds of unique benefits for both consumers as well as finance companies.

Open Banking creates a more digitised financial landscape. This helps with sharing data in real-time, making financial processes and services a lot more efficient.

This means that consumers can take advantage of new technologies to streamline their financial processes. At the same time, financial firms can also access new technologies to help them optimise costs.

The introduction of Open Banking also provides many opportunities for new financial products and services. Financial institutions can innovate their service offerings, and startups and smaller banks and service providers can create products that compete directly with the major banks.

All of this creates a more convenient customer experience and a more diverse financial landscape. With data being made more freely available, there is no end to what kind of innovation and opportunities exist in the world of finance.

What is Open Banking?

Open Banking is a process in the financial realm that involves sharing data between financial institutions (banks) and third-party service providers (fintech companies).

The Open Banking system provides third-party service providers with access to customers' financial data. This includes their transactional data, banking information, and more.

The general idea is that banks and non-banking financial institutions can share this data in order to provide a wider variety of financial services and opportunities.

Open Banking works through the use of Application Programming Interfaces (APIs). Open Banking APIs are what create the Open Banking networks, and share data between the different parties.

Why Does Open Banking Exist?

Open Banking is all about innovating the financial sector. The banking industry in the UK is dominated by four major banks, called the Big Four.

Before Open Banking, the vast majority of financial activity and financial services were dominated by these banks. Now, with the introduction of Open Banking, new competitors are able to enter the financial market and offer services and products to compete with these major banks.

Open Banking allows fintech companies to create new and innovative financial products and services. This is possible thanks to these companies being able to access customers' banking data.

What Does Open Banking Do?

Open Banking shares data using API networks, instead of data centralisation. This opens up all kinds of opportunities for the banking sector and makes consumers' lives more convenient.

For example, the Open Banking API can access your transaction data and use this to recommend additional banking services or products that best match your financial situation. Thanks to Open Banking credit scoring, a more accurate financial picture is created.

Open Banking is also used through third-party tools, like Sweep, which can access your bank account information to do things like automate the entire accounts payable process or allow for payment automation.

Open Banking networked accounts also provide greater insights into a consumer's financial position. This gives lenders a better understanding of the consumer's risk level and financial position, which can improve the way loans are approved and offered.

These are just a few examples of how Open Banking can be used to innovate the financial sector and create new opportunities. With easy access to shared data, a whole new world of financial services and products opens up. This can reshape the competitive landscape of the banking industry while transforming consumers' banking experiences.

Open Banking Risks and Security

Because Open Banking allows the sharing of banking information with third-party services providers, this raises the question of security. Consumers might worry that their sensitive banking information is more vulnerable by making it more freely available.

To combat these security concerns, Open Banking is strictly regulated. Open Banking APIs in the UK are regulated by the Financial Conduct Authority (FCA). In order to access these APIs, third-party providers need to be individually assessed and audited to ensure their security measures are up to standard.

With the rise of Open Banking comes increased security procedures and innovations. This means Open Banking networks are just as secure as traditional banking networks.

Open Banking security states that users always have the choice to provide regulated apps and websites permission to use their data. Open Banking systems are also linked to your bank and built on existing security systems, so they do not necessarily open up new security threats.

The secure digital nature of Open Banking also means that you only ever share the minimal data required for different financial services. Less data being transferred can improve your financial security.


Open Banking has created an entirely new financial landscape. It’s added interoperability into the banking world, which has enabled all kinds of new financial experiences to open up.

As a small business, you can use Open Banking to access new financial products and services, streamline your financial processes, and improve the kind of banking products that you access.

Open Banking is all about innovation, and it’s allowed a static banking sector to access a whole new world of growth.

82 views0 comments