FinTech
What is open banking and how does it work?
Open banking requires banks to share customer financial data with authorized third-party providers through secure APIs, with the customer's explicit consent. It enables applications to read account balances, transaction history, and initiate payments directly from bank accounts. In Europe it's mandated by PSD2; in the US, adoption is driven by the CFPB's Section 1033 rulemaking and market initiatives.
Key Considerations
- Use aggregation providers (Plaid, TrueLayer, MX) rather than building direct bank integrations — they handle the API fragmentation
- Customer consent is granular and revocable — your app must support consent management and data deletion requests
- Account verification via open banking is replacing micro-deposits for identity and account ownership confirmation
- Payment initiation (pay-by-bank) offers lower fees than card rails (0.1–0.5% vs. 2–3%) but has lower consumer adoption
- Data freshness varies by provider and bank — some connections refresh in real-time, others have 4–24 hour delays