What is open banking, how does it work, and why does it matter?

Open banking is a financial framework established in Europe through the EU’s PSD2 regulation, which requires banks and payment providers to share customer-authorised financial data securely with regulated third parties through APIs. Account Information Service Providers can use this access to support services such as automated bookkeeping, budgeting, and loan applications, while Payment Initiation Service Providers can initiate bank-account payments without card details, potentially improving speed and reducing card fraud. Open banking relies on customer consent, regulatory oversight from bodies such as the UK Financial Conduct Authority, data-protection laws, and bank-monitored API connections, with most major European banks required to participate. It has enabled fintech products for personal and business finance, including mobile payments, accounting integrations, forecasting tools, and connections between Airwallex accounts and providers such as Xero. Europe, particularly the UK, Germany, and Sweden, is a leading adopter, while industry groups advocate for more consistent standards to reduce fragmentation, improve competition, and make financial management more efficient.

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