Open Banking How It Works and What to Know
Understand open banking, how financial data can be shared with authorised providers, how open banking payments work, the role of customer consent and the security considerations to understand before using an open banking service.
What is open banking?
Open banking is a system that allows customers to securely share certain information from their bank accounts with authorised third-party providers, when they choose to give permission.
It can also enable certain services to initiate payments from a customer's bank account after the customer has provided the required consent and authentication.
The idea behind open banking is to give customers greater control over how their financial information can be used and to encourage new financial products and services that can connect with traditional bank accounts.
Why was open banking introduced?
Open banking was developed to support greater competition and innovation in financial services while giving customers more choice over how they access and use financial products.
Instead of financial information being isolated within one bank, authorised services can connect to eligible accounts when the customer chooses to grant access.
How does open banking data sharing work?
Open banking data sharing normally begins when a customer chooses to use a service that needs access to information held by their bank or another financial provider.
The customer is taken through an authorisation process where the relevant permissions and information are presented. If the customer agrees, the authorised provider can access the permitted information under the applicable arrangements.
Why does consent matter in open banking?
Consent is central to open banking because customers need to understand what they are agreeing to before a service accesses eligible financial information or initiates a supported payment.
Know what is requested
Review the information or payment permission being requested before approving access through your bank.
Understand the purpose
Consider why the service needs access and how the information may be used to provide the service.
Check the provider
Make sure you understand which provider you are dealing with before authorising access to financial information.
Review permissions
Pay attention to the permissions and duration of access described during the authorisation process.
Protect your credentials
Never give your banking password or security information directly to an unexpected person or suspicious service.
Stay in control
If you no longer want to use a particular service, understand how access can be reviewed or stopped under the relevant terms.
How do open banking payments work?
Open banking can also support payment services that allow a customer to authorise a payment from an eligible bank account through a participating service.
Start the payment
The customer chooses an open banking payment option offered by the merchant or service.
Select the bank
The customer identifies the relevant bank or account provider where the payment is to be authorised.
Authenticate
The customer completes the required authentication and reviews the payment details.
Authorise payment
Once authorised, the payment proceeds according to the relevant banking and payment arrangements.
What are the potential benefits of open banking?
Open banking can create useful connections between bank accounts and financial services. The practical value depends on the service, provider and permissions involved.
Better financial visibility
Some financial management services can bring information from supported accounts together, helping customers understand their overall financial position.
- View eligible account information in one service.
- Understand income and spending patterns.
- Reduce the need to manually enter financial information.
More connected financial services
Open banking APIs can allow authorised services to connect with participating financial institutions and build new tools around existing banking infrastructure.
- Financial management applications.
- Account information services.
- Payment initiation services.
Greater customer choice
Open banking can make it easier for customers to consider alternative financial products and services that work with eligible bank accounts.
- Compare different financial services.
- Explore new digital financial tools.
- Choose services that fit particular needs.
Potentially simpler payments
Supported open banking payment services can provide another way for customers to authorise certain payments directly through their bank.
- Payments can be authorised through the bank.
- Payment details can be reviewed before approval.
- Availability depends on the merchant and provider.
Is open banking safe?
Open banking involves financial information and therefore requires customers to understand who they are dealing with, what access is being requested and how authentication works.
Important security habits
Good digital security practices remain important when using any service that connects to your bank account.
- Use official banking websites and applications.
- Check the provider before granting access.
- Read the consent request carefully.
- Never share unexpected security codes.
- Contact your bank if something appears suspicious.
Think carefully about data access
Financial information can reveal details about income, spending and account activity. Before giving permission, understand what information the service wants and why it needs it.
- Review the provider's privacy information.
- Understand the purpose of the requested access.
- Check how long access may remain active.
- Understand how to manage access when you stop using the service.
Account information and payment services
Open banking can support different types of services. Understanding the distinction helps explain why a provider may request access to your bank account.
What should you check before using an open banking service?
Open banking can be useful, but the decision to connect a financial account should be made carefully. A few checks can help you understand what you are agreeing to.
Check the provider
Make sure you understand which company or service is requesting access to your financial information. Use trusted and official channels when starting the connection process.
Review the information being requested
Read the consent screen carefully. Consider whether the information requested makes sense for the service you are trying to use.
Understand the service's terms and privacy information
Before giving permission, review relevant terms and privacy information so you understand how your information may be handled.
Keep your banking credentials private
Use the official authentication process provided by your bank. Do not disclose passwords, one-time codes or other security information to unexpected people.
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Questions about open banking
Open banking services can differ between providers. Always check the latest information, permissions and terms before connecting a financial account.
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