Open banking: how does it work?

Open banking is a practice that allows banks and third-party financial service providers, such as budgeting apps and cash flow management tools for businesses, secure access to your banking and other financial data. 

Open banking in Ireland is regulated through the Payment Services Regulations 2017, which brings the second EU Payment Services Directive (PSD2) into law. Open banking and the PSD2 allows banks to share your financial data, such as your account details, regular payments, savings statements and other banking information, with authorised financial service providers, as long as you permit them.

Once you’ve granted permission, your financial data can be made available by one financial institution or a third party to another through an Application Programming Interface (API). This API open banking technology provides a secure, quick way for them to share your data. 

For example, you might connect your bank account to a budgeting app that analyses your spending. Because the budgeting app can see and interpret your spending habits, it can then recommend financial products, such as savings accounts that might help you grow your savings. Open banking can also make it easier and quicker to pay bills, send money and shop online.

Ultimately, open banking should streamline financial processes, making them quicker and more effective, helping those who take advantage of open banking to manage their finances better.

The main reason you might want to take advantage of open banking is that it could help you manage your money more effectively. If you have accounts or take advantage of the financial services from different institutions, open banking could allow you to view and access all your accounts in one place at the same time. 

Open banking might also be useful if you’re applying for a loan or credit card, as it could be used by lenders to see whether you meet their eligibility criteria by viewing your income and outgoings.  

Online payment systems are becoming increasingly complex, which, of course, is a good thing from a security point of view. Through an open banking system, retailers and service providers could receive payments directly and instantly from your bank account rather than through a payment provider such as MasterCard or Visa.

Open banking aims to provide many benefits to both consumers and lenders. For consumers, the benefits are that financial services are tailored specifically to your needs, and you can take control of your finances with up-to-date facts, figures and spending information. Meanwhile, lenders are better able to protect vulnerable consumers by putting in payment blocks, identifying harmful spending patterns and taking a point of contact for a family member or friend. Additionally, having a 360° insight into consumers’ finances allows lenders to offer more appropriate products and services.

If you’re wondering whether open banking and PSD2 are different, you’re not alone – PDS2 and opening banking are often used interchangeably. But put simply, PSD2 is not the same as open banking – rather, opening banking was a result of PSD2. PSD2 is an EU regulation intended to increase competition and innovation in the financial space, by removing the monopoly that banks currently have on their customer data, by allowing third party businesses to have access to that data too (with your permission). Open banking is a secure way for providers to access your financial information.

The main purpose of open banking is to enable consumers and small businesses to receive better deals that suit their needs on financial products and services.

A high percentage of consumers are concerned about the safety of sharing financial data. However, open banking is regulated, meaning that it’s safe to take advantage of open banking services, as long as you only give explicit authorisation for your data to be shared between regulated financial service providers. Put simply; financial service apps will only be able to access your financial data if you’ve actively consented for them to do so. 

All open banking service providers must also comply with data protection rules, including always indicating exactly what data will be used, how long it’ll be used for, and any actions they may need to take before you sign up. 

If you’re unsure or if a financial service provider doesn’t make things clear, it might be best not to share your data. As with online banking, scams do exist, and scammers may try and trick you into opening up your data. You can also check whether a provider is regulated on the Irish Open Banking Directory.

The most important thing to remember when using open banking is that you shouldn’t share your login details or passwords with anyone. Should anything go wrong with a transaction using open banking, your bank should be able to help you get a refund.

Open banking may make managing our finances quicker and easier. In fact, open banking has the potential to change the way we use banks. 

In the future, open banking should help Irish savers by giving you more ways to access and view your savings at any time, as well as making it easier to compare and switch to different types of savings accounts. It may also help track variable interest rates, allowing you to manage your accounts better and make the most of your savings.

If you want to get a taste of how open banking works in a safe, risk-free environment, you can register for a Raisin Bank Account. While we don’t offer a complete open banking experience, through our marketplace, you can apply for savings accounts from a range of banks in one place and gain full financial visibility of all your accounts. 

All you need to do to open a savings account is register for a free Raisin Bank Account, click apply and transfer your deposit. There’s no need to fill out a new application each time you apply, and EU regulations mean your money is protected by the respective Deposit Guarantee Scheme from the moment it arrives in your Raisin Account to when it transfers to a partner bank and back again.