What Is Open Banking?

Learn what open banking is, how it works and the types of apps that use it, as well as see what the new Consumer Financial Protection Bureau’s (CFPB) open banking rule could mean for regular folks.

What is open banking?

If you’ve ever connected your bank account to an app like Venmo, Cash App or YNAB, you’ve interacted with open banking.

Open banking is essentially a financial service model that lets third-party service providers access consumer data from traditional banking systems through application programming interfaces (APIs).

In other words, open banking allows different financial apps and institutions to talk to each other, so you don’t have to manage everything manually.

Financial aggregation apps, in particular, rely heavily on open banking services like Plaid and MX to pull all your accounts into one dashboard. This way, you won’t have to log into five different places or manually track your balances.

How does open banking work?

Open banking runs on technology called APIs. An API is basically a secure digital bridge that lets two systems communicate without giving one full access to the other.

The purpose of an API is to tell one system what information it can request and how to safely deliver it. Open banking APIs use security measures like encryption, two-factor authentication and access controls to keep customer data safe and limit the data that third-party providers can access.

You’ve probably seen this in action when an app asks you to connect your bank. Behind the scenes, open banking services like Plaid, MX and Finicity are facilitating that connection so multiple accounts can live inside one app. This is why you can see all your accounts in one dashboard without manually checking each bank’s website.

Many budgeting tools and peer-to-peer (P2P) apps, like Cash App, rely on open banking to pull in consumer financial data.

Are there different types of open banking apps?

Yes. Since so many apps rely on real-time financial data, open banking has grown across nearly every category.

Some of the most common types of open banking apps include:

• Budgeting apps like Monarch and YNAB
• Peer-to-peer apps like Cash App
• Financial planning apps like Origin
• Investment and brokerage apps like Robinhood
• Business cash-flow and accounting apps like QuickBooks and Wave

Compare apps that use open banking

There are a lot of apps that utilize open banking, some of which you’ve likely used before:

• Venmo. Uses Plaid to verify bank accounts and enable transfers.
• Cash App. Also uses Plaid to link bank accounts.
• YNAB. Connects through multiple data aggregators, including Plaid, to sync transactions.
• Monarch. Uses Plaid and MX to pull in financial information across different banks.
• Origin. Uses Plaid to aggregate budgeting, retirement and benefits data in one place.

Are there any risks with open banking?

The biggest concern with open banking is data exposure.

If a connected app experiences a breach, your financial information could be at risk. And because open banking ties multiple accounts together, one vulnerable point can affect everything. There’s also the risk of unintentionally sharing more data than you meant to, especially if an app’s access permissions or security features aren’t very strong.

You can lower these risks by turning on two-factor authentication, paying attention to the data you’re allowing an app to access and disconnecting any apps you no longer use.

What is the CFPB open banking rule?

The CFPB open banking rule, or the CFPB 1033 rule, was introduced in October 2024 to give consumers more control over their financial data. Essentially, the aim is to create more transparency around how data is shared and more protection against misuse.

The rule requires financial institutions to let consumers access and securely transfer their data to authorized third-party apps at no cost. Under this new rule, any third-party app can request data from a bank if the consumer authorizes the request. No accreditation is required.

Bottom line

Open banking brings your financial life together in one place and makes it a lot easier to see what you own, what you’re spending and where your money is going. If you’re curious about other tools that can help you organize your finances, check out our banking tips and resources.

Frequently asked questions

• Does open banking mean anyone can access my bank account?

  No. Open banking only shares the information you personally authorize and only through secure and encrypted channels.

• Can I disconnect an app from my bank later?

  Yes. You can revoke access in the app itself or through your bank's settings.

• Does every bank support open banking?

  Most major US banks do, but some community banks and credit unions may not. Be sure to check before opening an account.

To make sure you get accurate and helpful information, this guide has been edited by Bethany Hickey as part of our fact-checking process.

Written by

Jamela Adam

Contributor

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Jamela Adam is a personal finance writer with over three years of experience. Her work has been published in major publications, including Yahoo Finance, Forbes Advisor, U.S. News, Business Insider, GOBankingRates, CNN Underscored, and Chime. Jamela previously worked as a content marketing specialist and helped devise content strategies for major brands in the financial services space. She is also a Certified Financial Education Instructor (CFEI). See full bio