Open Banking
A system allowing third-party financial service providers to access bank data via APIs, with customer consent.
What is Open Banking?
Open banking is a financial services practice and regulatory framework that allows third-party developers to access customer financial data from banks via Application Programming Interfaces (APIs), with the explicit consent of the account holder. This enables fintech apps, budgeting tools, loan applications, and payment processors to access account balances, transaction history, and initiate payments directly from bank accounts. Open banking is mandated by regulation in the UK (PSD2) and EU, and is developing through voluntary frameworks in the US. It enables innovation — such as aggregated financial dashboards, instant credit underwriting, and cheaper payment initiation — while raising data privacy and security questions.
Example
Plaid, a US fintech company, provides open banking infrastructure that connects thousands of apps (Venmo, Robinhood, Betterment) to users' bank accounts. When a user links their Chase bank account to Betterment, Plaid's API securely verifies the account and enables data-sharing — replacing the error-prone practice of users manually entering bank credentials into third-party apps.