What is open banking? It's a regulated system reshaping how money moves between banks and fintech apps. Launched in January 2018, it lets you share your bank account data or authorise payments through third-party services without handing over your password. Today, 16 million people actively use these services, with 351 million transactions annually.
For UK founders and fintech builders, understanding what is open banking is essential to building in fintech. If you're new to the space, learning what is open banking and how it works is the first step.
Definition + How It Works
Open banking is a regulated system that lets you share bank account data with authorised third-party apps through secure encrypted connections called open banking APIs UK, without sharing your password. When you connect a budgeting tool or mortgage app, you authenticate directly through your bank's secure system the third party never sees your credentials. It operates through two service types: apps that can read your data, and apps that can move money with your approval.
There are two critical service types. Account Information Services (AIS) read your account data—balances, transactions, spending patterns but cannot move money. Budgeting tools, affordability checkers, and comparison platforms all run on AIS. A savings app can analyse your balance and calculate surplus you can safely save monthly.
Payment Initiation Services (PIS) move money from your account, but only after explicit approval for each transaction. This powers faster checkout experiences, bill payments, and transfers. Instead of entering card details, you approve through your bank's app transactions settle instantly.
The security mechanism is Strong Customer Authentication (SCA) requiring at least two independent verification methods. Password plus biometric, or PIN plus SMS code. This two-factor requirement is mandatory. Open banking recorded just 0.013% fraud by transaction volume in H1 2025, compared to 0.045% across wider payments. That's substantially lower risk.
The UK Regulatory Backstory
The UK mandated open banking in 2018 following a Competition and Markets Authority investigation that found the retail banking sector lacked genuine competition. Older, larger banks weren't fighting for customers, and people had no secure way to share financial data with new competitors. To fix this, the CMA required the nine largest banks to build standardised open banking APIs UK infrastructure, fundamentally reshaping how data flows in UK finance. Understanding what is open banking's regulatory foundation helps clarify why this became mandatory.
The CMA's August 2016 report identified three key problems: customers couldn't compare products easily; switching accounts was friction-heavy; and fintech companies had no legitimate path to access customer data. The remedy was radical mandate the nine largest banks (the CMA) to build standardised open banking APIs UK infrastructure.
This mandate came with a January 13, 2018 deadline. The CMA created the Open Banking Implementation Entity (OBIE), which developed technical specifications all banks must follow. The OBIE standards now at version 3.1.10 go beyond EU PSD2 requirements. They emphasise standardised, interoperable APIs. Any third-party provider can use the same infrastructure without building custom integrations for each bank. Competition through standardisation—that's the whole point.
By September 2024, the CMA confirmed all nine banks completed the full roadmap. Open banking UK explained is now mature, stable infrastructure ready for scaling.
What Open Banking Enables
Open banking enables faster lending, instant affordability checks, and cheaper payments by letting fintechs access verified financial data with customer consent. Mortgage brokers eliminate months of paperwork, buy-now-pay-later providers run instant checks using real transaction history, and lenders report average customer savings of £2,077 versus traditional providers. These aren't theoretical benefits: 16 million active users completed 351 million transactions in 2025. For founders deciding whether to build on open banking infrastructure, knowing what is open banking can deliver is crucial.
Account-to-account payments bypass expensive card networks entirely. Variable Recurring Payments (VRPs) are the modern Direct Debit alternative letting companies take variable amounts for subscriptions where charges fluctuate monthly. His Majesty's Revenue and Customs uses these systems for tax bill payments. Automated savings apps analyse your balance and sweep surplus money monthly. Comparison tools track interest rate changes in real-time.
The adoption numbers tell the story. Open banking grew from 7 million users in 2024 to 16 million by early 2025. Payment volumes hit 351 million transactions in 2025, up 57% year-on-year. Over 100 regulated third-party providers now build services on this infrastructure. These aren't theoretical projections, they're actual adoption by real users doing real transactions.
Open Banking vs Open Finance
Open banking covers payments and current account data. Open finance extends to savings, investments, pensions, mortgages, loans, and insurance. Both use consent-based data sharing, but open finance is still being designed; it doesn't yet have the clear regulatory frameworks that open banking operates under. The UK is rolling out open finance sector-by-sector over the next several years, starting with mortgages and SME lending. What is open banking versus open finance comes down to scope: one is mature and regulated; the other is still evolving.
The distinction matters because regulation differs significantly. Open banking operates under PSD2 and the CMA Order with clear rules and enforcement. Open finance doesn't yet have that clarity; it's still being designed. The FCA launched the Smart Data Accelerator to test real-world use cases, with TechSprints on mortgages and SME finance rolling out sector-by-sector over several years.
For founders building in lending, insurance, or savings, the signal is clear: the UK is deliberately expanding these principles. Services leveraging broader financial data will become viable as open finance matures.
Risks and Security
Open banking is safer than traditional payments fraud rates were just 0.013% by transaction volume in H1 2025, compared to 0.045% across wider payments. Security relies on encryption, Strong Customer Authentication (two-factor verification), and FCA regulation. The main fraud risk isn't the technology itself, it's Authorised Push Payment fraud, where criminals socially engineer you into approving a fraudulent payment, which affects all payment methods. What is open banking's actual security record? Better than the alternatives.
In H1 2025, open banking payment fraud was just 0.013% of transactions versus 0.045% across wider payments 3.5 times lower. The primary fraud risk is Authorised Push Payment (APP) fraud when criminals socially engineer you into authorising a fraudulent payment. This isn't unique to open banking; it affects all payment methods.
In October 2024, the Payment Systems Regulator introduced mandatory reimbursement: banks must refund victims up to £85,000 unless negligence is proven. To stay safe: only use FCA-authorised apps, never share banking credentials, and verify requests come through your own bank's authentication system, not a third party's login.
FAQs
1. What is open banking in simple terms?
Open banking lets you give permission for apps to access your bank data or move money without sharing your password. You authenticate directly through your bank and control what's shared, with whom, and for how long.
2. Is open banking safe?
Yes. Fraud rates are 0.013% versus 0.045% for wider payments. The PSR's reimbursement scheme covers up to £85,000 of APP fraud. The main risk is social engineering, not technology.
3. What's the difference between open banking and open finance?
Open banking covers payments and current account data. Open finance extends to pensions, mortgages, insurance, and savings. Open banking is mature now; open finance rolls out sector-by-sector over the next few years.
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Why This Matters for Founders
Open banking UK explained represents solved infrastructure. You've got mature, standardised, competitive infrastructure to build on. The regulatory and technical foundations are stable. You're not solving the infrastructure problem that's already done. With 16 million active users and 57% year-on-year growth, there's real momentum here. The market isn't theoretical anymore, it's real people using real services. That's the opportunity.
SOURCES & DATA ATTRIBUTION:Data sourced from: Open Banking Limited (2025 Transaction Report), Financial Conduct Authority (December 2025), Competition and Markets Authority (CMA Retail Banking Market Investigation Order 2017), Payment Systems Regulator (APP Fraud Reimbursement Scheme October 2024), and OBIE Technical Standards Documentation v3.1.10.
