What is open banking?
Open banking is the practice of sharing banks' financial information about their account holders with third-party providers (TPP).
The promise of open banking allows TPP to help a bank's customers save and borrow money more easily. Technological advances in data sharing have increased the value of a bank account beyond traditional basic services such as providing a secure place to keep your money, allowing you to make regular monthly payments, and enabling you to qualify for a loan. Data sharing of customer account information now allows customers access to a network of third-party providers whose services can complement and even enhance their existing bank services.
The sharing of financial information through open banking must be done electronically and securely. Furthermore, the customer must approve the specific conditions under which the disclosures can occur. With those approvals in hand, TPPs will use application programming interfaces (APIs) to access your financial information directly from banks. This practice promotes the development of new applications and services that can improve your banking experience. Mint is one such application. It is a personal financial management (PFM) program that analyzes account information to track spending, helping you to meet your financial goals. APIs also can identify lower rates on credit cards and higher rates on savings accounts.
The first PFMs required third parties to provide your account's username and password, which the software would use to log in to your account. This approach required the PFM to wait until the bank had updated your account information on its website before it could glean the data it required for its application. Provided you have given prior approval to account disclosures, an API will allow a third party to use a PFM to directly access information such as your account balances or transaction details without your provision of login information.
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