What is Open Banking? Everything you need to know

Open banking is a financial framework that enables third-party providers to access consumer banking data via secure APIs, provided the customer consents. This system allows customers to share their financial information with authorized apps and services beyond their primary bank, thereby fostering competition and innovation in the financial technology sector. The process relies on customer consent and robust security protocols, including multi-factor authentication and encryption, to ensure data protection. Originating from initiatives like the European Payment Services Directive 2 (PSD2), open banking aims to give customers greater control over their financial data while allowing fintechs to offer services such as budgeting tools and payment processing. The transition from closed systems to API-enabled data sharing is central to open banking, which has spurred the development of new applications and services. The role of API gateways and management is crucial for maintaining security, compliance, and performance in open banking systems. As the landscape evolves, the concept of open finance is emerging, extending the principles of open banking to a broader range of financial services.