Open Banking
Open Banking refers to the principle that banks must make their customers' data – with the customers' consent – accessible to other companies via standardized interfaces. This enables third-party providers to build financial products and services directly on the basis of a user's real account data.
Anyone who has a bank account possesses a lot of valuable data: income, expenses, recurring payments. For a long time, this data practically belonged to the bank — only it could analyze it and develop products from it. Open Banking turns this relationship around. The principle: the bank must, upon request, pass on a customer’s data to other companies via an interface — that is, a technical access point from program to program. The customer retains control. They decide who gets access and can revoke it at any time. In Europe, this has been mandated since 2018 by an EU law called PSD2 — short for Payment Services Directive 2, an EU directive for payment services.
Why competition in the banking sector depends on it
Without Open Banking, a bank has an enormous advantage over any competitor: it already knows its customers inside and out. A startup that wants to offer cheaper loans, on the other hand, has zero insight into an applicant’s financial situation — unless the customer manually provides bank statements. That is cumbersome and error-prone. Open Banking creates a level playing field. A new company can use the same data basis as the customer’s own bank, provided the customer consents.
That may sound like a disadvantage for banks, but it doesn’t have to be. Many traditional banks use the same interfaces to offer their own customers better services — for example, an overview of all accounts at different banks in a single app. For consumers, Open Banking means in any case more choice and often lower prices, because more providers are competing for them.
How technical data access works
The technical core of Open Banking is so-called APIs — Application Programming Interfaces, i.e. standardized connection points through which two computer systems communicate with each other. The bank provides such an API. A third-party provider, such as a finance app, can register there, obtain the customer’s permission, and then automatically retrieve current account data. In doing so, the bank does not share any passwords. Instead, the system works with time-limited access tokens — comparable to a day pass instead of a master key.
What the API is allowed to pass on is precisely regulated by law. Typically, this includes account balances, transaction history, and basic account data. Whether a third-party provider is also allowed to initiate payments on behalf of the customer depends on the type of authorization it has applied for with the financial regulator. In Germany, this is BaFin, the Federal Financial Supervisory Authority. Every provider that uses Open Banking data needs such a license — this protects against misuse.
A common misconception: Open Banking does not mean that the data is public. The word “open” refers to the opening of the interfaces to authorized third-party providers — not to free access for everyone. Without the customer’s explicit consent, not a single piece of data flows.
Open Banking in products and headlines
Anyone in Germany who uses an app like Finanzguru, Outbank, or the SCHUFA service “MeineSCHUFA” is already using Open Banking. With the user’s permission, these apps read out account data and automatically categorize expenses — something that previously had to be entered by hand into a spreadsheet. Open Banking is also used today when taking out some installment loans: instead of submitting three months of bank statements, the applicant briefly grants read access, and the software checks creditworthiness within seconds.
In business news, Open Banking mainly comes up when new regulation is being discussed. Since 2023, the EU has been working on a successor regulation called PSD3 and an accompanying “Financial Data Access” framework. This is intended to extend Open Banking to further financial areas: insurance, securities accounts, retirement provision. The idea behind it is the same — whoever controls their data has more power over their own finances.
The topic is also becoming more relevant for companies outside the financial sector. Operators of large online shops could in the future use Open Banking interfaces to initiate payments directly from the buyer’s account — without a credit card as an intermediate step. Such direct payments, called “account-to-account payments,” are considered one of the most promising use cases of the coming years.