What is Open Banking?

These new regulations could help you to better budget your money.

You may have heard of a new wave of banking apps, like Chip and Plum, claiming that they can use ‘Open Banking’ to help you manage your finances or get better deals on services, but what exactly is Open Banking?

What does Open Banking mean?

Open Banking is a set of regulations that were brought into effect on the 13th of January 2018. They mean that third party providers (things like apps and websites that are not part of your regular bank’s services) can access your basic banking data. Don’t worry, this can only be done with your express permission and is fully protected by UK banking law.

Previously, third party banking apps could access your banking data, but this was not protected by UK law, so many banks didn’t make these services available to their customers. Along came the Competition and Markets Authority who said that these services should be available to people who want them, and that those people should be protected when they use them, and so Open Banking was born.

What is Open Banking used for?

Mostly, Open Banking apps and websites claim to be there to help you budget or to show you the best deals tailored to your finances. Whilst their budgeting tools have revolutionised the way many people manage their finances, be a little wary of any tailored recommendations for switching banking services, as these are often paid-for advertisements and any deal should be double checked on a website like finder.com!

What do Open Banking apps do?

Open Banking apps and websites use your spending data to highlight the areas that you spend the most money, and the places you might be able to save.

Say you buy a coffee everyday at Starbucks thinking ‘it’s only £3’, but then an Open Banking app shows you how much that is a month, and suddenly you’re not going to Starbucks anymore. Money saved! (If only it was that easy…)

They can also add up and average out your spending on bills and food, so you can see how much is actually left for leisure activities. Because this can be done across multiple accounts, you’ll get much more precise amounts than the average Joe’s guestimation.

How do Open Banking apps make money?

Obviously, these apps also need to make money, and they mostly do this by advertising. Open Banking apps usually use your spending data to target advertisements for banking services that you might be interested in. Theoretically, this means the adverts you get will be for things you might actually want, and the data is processed by the app rather than sold to those advertising, but some people still prefer to keep their data as far away as possible from advertisers.

Some Open Banking services, rather than being a budgeting tool, are there to show you the best deals available to you by securely using your banking data. It’s worthwhile to remember that this is how these providers make money, and there are no assurances that these services are impartial, so you may just be getting targeted adverts and not tailored deals.

What data do Open Banking apps use?

Open Banking apps only have access to your banking data, such as transactions and direct debits (basically, whatever appears on your statements), and not anything personal that your bank might know about your financial or living situation.

The regulations also state that Open Banking apps have to use APIs to access your data (see the section on APIs below), and this is the most secure way of sharing your data and ensures that only the data you give permission for can be shared.

How do you make sure you are safe when you share your data?

As with any new innovation there are scammers ready to scam. All Open Banking apps are regulated, but you might find some websites and apps that claim to be Open Banking services, when they are not at all. The most important thing is to remember is that no Open Banking providers will ever ask for any passwords from your banking or other accounts.

To be extra sure, there is a register of FSA regulated services , and you should check if the service you’re thinking of using is listed on that. If it’s not, that doesn’t mean it is necessarily a big old scam, but you should definitely look further into their security measures, as you won’t be as protected as on regulated services.

It’s also a good idea to look for reviews online (preferably written on well-known websites or by trusted reviewers) of any service you are thinking of using. This won’t only make sure you know if the service is a scam, but also mean you’ll find the best Open Banking option for you.

What if you don’t want to make use of Open Banking?

Open Banking is a strictly ‘opt-in’ service and will only change the way your data is shared if you give express permission for the change. That means that, if all these new-fangled data doohickies aren’t at all your cup of tea, you don’t need to do anything and nothing will change.

What are APIs?

APIs are what is used to let you securely share data between sites or apps on the internet. They are what is used by things like Deliveroo when it accesses your location through Google Maps.

They mean that one company can access specific data that another company has, without you sharing your passwords with anyone. Before anything like this can happen you will be asked for your permission and you should always check exactly what you are giving permission for.

This is much more secure than the previous way that budgeting apps used to get data, which was by obtaining your passwords and logging-on to your online banking in a “read only” format (a pretty dangerous practice that’s since been banned).

Finder survey: What aspects of a current account matter most to Brits when choosing a one?

Easy-to-use digital app29.26%
Bank branches25%
Customer service23.26%
In-credit interest rate18.31%
Overdraft interest rate18.22%
Provider reputation17.54%
Deposits are FSCS protected14.92%
Switching bonus14.83%
Don't know12.69%
Useful spending analysis tools6.88%
I would not choose a current account2.33%
Source: Finder survey by Censuswide of Brits, December 2023
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Charlie Barton was a publisher at Finder. He specialised in banking and investments products, including banking apps, current accounts, share-dealing platforms and stocks and shares ISAs. Charlie has a first-class degree from the London School of Economics, and in his spare time enjoys long walks on the beach. See full bio

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