Learning Objectives:

  • Define open banking and explain its regulatory drivers.

  • Understand API architecture for financial services.

6.1 Defining Open Banking

Open banking is a regulatory and technological framework that allows customers to share their financial data securely with third-party providers . This is enabled by APIs that connect banks’ systems to authorised third parties .

6.2 Key Components of Open Banking

API Architecture:
APIs (Application Programming Interfaces) allow different software systems to communicate. In banking, APIs enable third-party providers to access account information and initiate payments .

Third-Party Provider Ecosystem:
Open banking distinguishes between account information providers, payment initiation providers, and other third-party roles . These TPPs use open banking APIs to offer services like personal financial management, payment initiation, and lending.

6.3 Regulatory Drivers

Open banking is driven by regulatory mandates in many jurisdictions:

  • Europe (PSD2): Mandates banks to provide access to account data to authorised third parties .

  • UK (Open Banking Standard): A voluntary standard adopted across UK banks.

  • Australia (Consumer Data Right): A similar framework for data sharing.

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