What is the definition of Open Banking B2B?

Open banking can be defined as a common model in which banking data is shared between two or more independent parties through APIs to provide advanced capabilities to customers and service providers.


Open banking is also known as “open bank data.” The definition of Open banking B2B is a new feature that allows banks to share financial information electronically, securely, and only under conditions that customers authorize, to banks and non-bank financial institutions through the use of application programming interfaces (APIs). Open banking allows the networking of accounts and data across institutions for use by consumers, financial institutions, and third-party service providers. Open banking is becoming a major source of innovation that is reshaping the whole banking sector.


Application programming interfaces (APIs) allow Third Party Providers (TPPs) to access financial data directly, which promotes the development of new and innovative services. Under open banking, banks allow access to customers’ personal and financial data and control of financial transactions to third-parties, such as online financial service providers, vendors, as well as for customers to more easily manage their own finances.


By means of APIs, third-party service providers can use the customer’s open data, and data about the other parties in a transaction to offer a range of financial service options, utilizing data in all participating financial institutions for dealing with new transactions and account changes on the customer’s behalf.


Open Banking Definition

The definition of Open banking is the practice of sharing financial information electronically, securely, and under conditions of customer approval. Application programming interfaces (APIs) allow Third Party Providers (TPPs) to access financial information efficiently, which results in better experience for consumers.


Open banking allows financial services customers to securely share their financial data with other financial institutions. The APIs can introduce advanced tools such as artificial intelligence (AI) to analyse consumers’ transaction data and to identify the best financial products and services for them, such as a different credit card with a lower interest rate or a savings account that would earn a higher interest rate than the current account offers.


For banks, the use of networked accounts helps lenders get a more accurate picture of a consumer’s financial situation and risk level in order to offer more profitable loan terms. It could also help consumers get a more accurate picture of their own finances before undertaking transactions. Open banking can also help small businesses save time through online accounting and helps better monitor customer accounts and identify security breaches sooner.


Banks can take advantage of this new technology to strengthen customer relationships and customer retention by better helping customers to manage their finances instead of simply facilitating transactions.


Open banking regulation in Europe

Open banking B2B is already a significant component of European banking regulation. Under the European Commission’s Second Payment Services Directive (PSD2), banks must allow third-parties to initiate payments on behalf of their customers.


In the European Union, responsibility for supervision and also for registering and authorizing open banking service providers rests with each member country, through their National Competent Authorities (NCAs), They publish registers that will be used by Qualified Trust Service Providers (QTSPs) to make decisions on issuing certificates, and by financial institutions to check whether other parties are authorised.


Open banking regulation in UK

In the U.K., regulations issued by the Financial Conduct Authority (FCA) already require the major commercial banks to cooperate with authorized TPPs. At the moment, only the UK’s nine largest banks and building societies are required to make data available through open banking. About 50 other smaller banks and building societies have chosen to take part in open banking regulation.


The FCA regulations specify two types of service providers:

  • Account Information Services Provider (AISP) lets the account holder see all the account information from different bank accounts in one place online or in a mobile app. AISPs can include budgeting apps and price comparison websites offering budgeting help and product recommendations.
  • Payment Initiation Service Provider (PISP) lets account holders pay companies directly from their bank account rather than using a third-party debit or credit card such as Visa or MasterCard.

Both PISPs and AISPs need explicit consent to provide these services.


Open banking market size and open banking statistics

As of January 2020, there were 202 regulated providers in Europe who are engaged in open banking B2B, including about 60 in the UK alone. They provide financial apps that help manage finances and also consumer credit firms who use open banking to access account information for affordability checks and verification.


Open banking examples

In 2018, Banco Bilbao Vizcaya Argentaria launched its BaaS platform, Open Platform, in the USA. Open Platform utilizes APIs that allow third parties to offer customers financial products without needing to provide a full suite of banking services.
HSBC launched its Connected Money app in May 2018 in response to the UK’s open banking regulations in their attempt to place more control of financial data into the hands of consumers.


Connected Money allows customers to view various bank accounts as well as loans, mortgages, and credit cards, all in one place.
Barclays claims to be the first UK bank to enable account aggregation inside its mobile banking app. Its open banking feature even allows customers to view their account with other banks within Barclays’ mobile app.
PayPal and Valyuz are both products that exemplify how open banking serves the demands of modern banking.


What is an open banking API?

An API is a way for two computer applications to talk to each other over a network, using a common language they both understand. Open banking allows third parties to develop better personal finance management applications, by means of a banking API. An API is a set of codes and protocols that determine how different software components should interact – they essentially allow different computer applications to communicate with one another.


How do APIs work in banking?

APIs are essential to open banking services.
APIs are used to connect banking systems through payment networks as well as to display customers’ information on a bank’s website and via mobile apps. Through open banking, APIs are now being used to issue commands to third party providers.


APIs are also necessary for the functionality of Banking-as-a-Service (BaaS) – a key component of open banking. BaaS is an end-to-end process that connects fintechs and other third parties to banks’ systems directly through the use of APIs. It helps to build up banks’ offerings on top of financial providers’ regulated infrastructure.

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