What is open banking?

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Open banking is a practice that allows financial institutions to share customer data with third-party service providers via APIs (Application Programming Interfaces), once the customer provides consent.

By leveraging customer information from banks in a secure and standardized manner, the financial service providers score an opportunity to innovate suitable APIs for customers to support their needs.

For customers, open banking provides access to a wide range of financial services that help them view their business financials in one dashboard. For example, customers can bring all their accounts in one interface so that they have complete visibility of their finances.

Open banking APIs allow financial institutions like banks to cater to the changing needs of existing customers (and prospective customers), while engaging with them in a secure and agile manner.

There are mainly three types of data that can be viewed by enabling open banking:

  • Account holder’s basic details

  • Product information

  • Payment information

The account holder’s details will include name, type of account, the currency in which transactions are taking place, the date the account was opened, and other inward and outward transactions.

When a finance product allows open banking, a customer can view all important bank details in a standard format to understand what services the bank may offer that would be suitable for their business.

With open banking in place, a customer can initiate multiple payments via software, apps, or any other platforms rather than following a step-by-step process of manually entering credentials on a banking website.

How does open banking work?

Since open banking operations rely on APIs, a customer must provide access (usually through an online consent form with the complete terms and conditions) to the third-party payment service providers so they can access the customer’s financial data. Once the providers gain access to your profile, they will aggregate whatever data they need to analyze and build a customer profile.

Let’s look at an example to understand this better. Let’s assume you run a small business selling used cars. Assuming there is an inflow of cars, there will be a set of financial management activities you’ll perform like saving, spending to modify the car parts, budgeting to purchase new items, applying for business loans, and investing other monetary resources in the right place to keep the cash flow going.

Traditionally, you would visit your bank to get advice from your banker to manage your quote-to-cash efficiently. With your cash management being split across different bank accounts, you may need to manually note different loans, interests, ongoing payments, and more.

Nowadays, accessibility on the go is a priority and adopting digital advancements can help you manage your finances from the palm of your hand. Open banking is one practice that can elevate the whole finance experience by allowing you to see your bank account details (like statements and transactions) instantly and perform different banking operations in one click.

The third-party service providers, when given access to your account information, can provide relevant services. Using our example, if you have a savings account named “Luxury Cars” in which you save a specific amount every month, they could suggest a loan tailored to your income and saving capabilities.

Using open banking, you can build applications for better payment, get budgeting tips, set up better borrowing terms, enable price comparison features, access real-time updates, enable savings notifications, and more.

Benefits of open banking

For consumers and businesses alike, open banking can be a convenient option that saves you money, allows for personalization, and caters to enhanced decision making.

Here are a few benefits: 

  1. Open banking has dissolved the strict relationship between banking institutions and consumers. Banks are no longer the de facto keepers of consumer information, which eventually shifts the power to consumers (who have direct control over their finances).

  1. Earlier, there was no way for small and medium-sized businesses to access customer information because of the dependency on financial institutions and consumers. However, with open banking, new players can access the same data, allowing them to create affordable alternatives to existing financial services.

  1. Financial institutions or traditional banks that are a part of the fintech revolution have gone on to introduce applications and online banking solutions to improve customer retention.

  1. All your information is centralized. Access to financial information like bank account details, credit card information, and details about investments, loans and pensions can lead to informed decision making.

  1. With banking data open and in a standard format, many manual tasks will be automated, thus saving labor hours and time which translates to a reduction in costs.

  1. Digital banking integrates with your finance software, encouraging you to proactively use the analytics features to maintain your business’s financial wellbeing.

Challenges in open banking

We as humans tend to become resistant to change, especially when it comes to sharing private information publicly. Open banking is facing a similar challenge where business owners are reluctant to share information due to lack of trust and the fear of security breaches.

Digitization due to open banking has also nullified the need for a personal banker. By removing this human element, banks may face customer retention problems. Banks will no longer be scrutinized based on their level of customer relations, but will be judged based on the strength of their products and services.

Risks involved in open banking

The safety and privacy of personal information and financial data is a priority for both consumers and financial institutions. However, in the case of any digital service, there is always a potential for data breaches. APIs with poor security are prone to hacking and other threats. Therefore, the APIs must have robust authorization and authentication capabilities.

To lower the risks involved, a proper API should contain single-system managements to manage traffic for all gateways and other embedded micro-gateways, set access policies for different customers, and comply with security standards like OAuth2.0, HTTPS, HMAC, and XML. Several countries across the globe are setting strict regulations in the banking industry to mitigate the possible security risks, too.


Risks aside, open banking is the future of the banking industry. Adapting to this change can ease your banking experience by helping you manage your business financials efficiently. With Zoho Books, you can integrate your banking module with several aggregators. It will fetch banking feeds and reconcile records to provide full visibility of your business financials so you can make more informed decisions.

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