Open Banking APIs: Deliver Instant & Secure Fintech Services
FEB 25, 2025
Are outdated data-sharing systems preventing you from delivering secure, instant, personalized services to your customers? In the digital-first world, clients demand seamless, real-time access to banking services, while your outdated systems might hold you back from meeting those needs. What if we told you that adopting open banking models in fintech solves slow data exchange and fragmented systems?
What is Open Banking? Open banking is a system that allows third-party financial service providers to safely access banking data through APIs, enabling seamless, real-time, and personalized services for your customers.
The global open banking market was valued at approximately USD 25.14 billion in 2023 and is projected to expand at a compound annual growth rate (CAGR) of 27.4% from 2024 to 2030. A survey by Visa revealed that about 87% of U.S. consumers use open banking services to connect their financial accounts with third-party platforms.
Open Banking APIs in fintech can break down data silos, provide secure and streamlined data sharing helping your business accelerate transactions, and meet customer expectations. For instance, Monzo, a digital bank based in the UK, has integrated open banking to improve its services. Monzo provides various financial products, including current accounts, savings accounts, and lending options.
Explore the evolution of open banking API trend in fintech and how open banking APIs can help you build more innovative, efficient financial services and create meaningful customer experiences.
Evolution of open banking API trend in fintech
The desire for instant access to banking services, primarily via mobile apps, has led to innovations like real-time transaction updates and fully automated dashboards. Customers are also willing to trade personal financial data in exchange for a more customized experience. With nearly half of banking customers expecting personalized product recommendations, meeting these needs has driven the growth of open banking solutions.
While fintech companies rely on banks to facilitate services, they offer more user-friendly, efficient solutions. For example, corporate banking systems for bulk payments tend to be outdated, requiring offline processes and technical limitations. In contrast, competitive fintech players offer instant, fully automated solutions that are compatible with modern tools and require minimal manual intervention.
Governments in various countries, such as the UK and China, are pushing for increased competition and transparency in financial services. Regulations like the Payment Services Directive (PSD2) in Europe and mandates from the UK’s Competition and Markets Authority (CMA) require banks to adopt open banking APIs, ensuring that third parties can access customer data securely and regulated.
What is Open Banking API?
Open banking APIs in fintech are like digital bridges that connect financial institutions with third-party developers and help them build innovative applications and services. Open banking APIs make it possible for you to share your banking data with various services securely, but only with your permission.
So, what is open banking API in simple terms? Open banking API is a standardized tool for exchanging secure data between banks and third-party providers (TPPs). Instead of requiring customers to share their bank details with every app they use manually, the API lets apps securely access this data on the customer’s behalf, with their permission.
Open banking APIs bring more transparency and accessibility to the financial world and help you share your data safely and standardized. Customers can switch to various new financial tools, from a budgeting app for fintech to investment platforms, all while keeping control of their data.
Types of APIs in banking
In banking, APIs or Application Programming Interfaces allow different software systems to communicate with one another. These APIs can be classified in the following ways:
1) Private (Internal) APIs
Private APIs work as silent workers in the backing and are used for information exchange within the bank itself. These APIs are strictly for the bank’s use and aren't shared with external parties. Essentially, they allow banks to optimize their systems and run smoothly without involving outside entities.
2) Partner APIs
Partner APIs are used for smoother integration with business partners. For example, a bank may have a strategic partner, like another financial institution, using these APIs to communicate and share specific data. This connection is governed by a bilateral agreement, where both parties agree on sharing information.
3) Open (Public) APIs
Open (or Public) APIs share customer data and open the bank's ecosystem to third-party solution providers. For example, third-party developers can now access banking data to create new financial products or services. The goal is not just to share information but to create a standardized way for different financial institutions and players to interact.
How do Open Banking APIs work?
Open banking APIs have made it easier and more secure for third-party applications to interact with your bank data. But how do open banking APIs work? Let’s break it down step by step.
1) Bank’s Dedicated Endpoints
Banks set up unique API endpoints—like gates, that allow specific data to flow in and out. These gates are securely encrypted and can only be opened with a customer’s permission. Open banking APIs let external applications retrieve specific data from a customer’s bank account (such as balances or transaction histories) but only after proper authorization.
2) Third-Party Data Aggregators
A key part of the system is using data aggregators, as these platforms act as intermediaries between the bank and the third-party apps. Data aggregators connect with multiple banks, allowing apps to pull data from any connected financial institution. This helps apps avoid the hassle of setting up separate integrations with each bank.
3) Authorization and Authentication
The customer must permit before an app can retrieve data from a bank account, which is done via an authentication process. Here, the customer logs into their bank account and is granted access to the app through OAuth (a secure open authorization system). Once this is done, the app can interact with the customer’s data within the limits of the permissions granted.
4) The Token System
Once access is granted, the bank generates a secure token that allows the data aggregator to make ongoing connections to the customer's bank account without ever needing to store the customer's sensitive credentials. The app can access the data securely and without risking exposure to private information.
5) Data Retrieval and Usage
With the proper authorization in place, the third-party application can now use the API to retrieve specific data from the bank. This involves details like your current account balance, transaction history, or account verification numbers. For example, a budgeting app for fintech could help track your spending, or a trading platform might link to your bank account so you can fund your account.
Real-World Example: Connecting Your Bank Account to a Trading App
Let’s say you want to fund your brokerage account through an app. Here’s what happens:
a) The app connects to a data aggregator via its API.
b) The data aggregator then calls the bank’s API and asks for access to your bank account details (but only with your permission).
c) After you log in to your bank and approve the request, an encrypted token is created. This token allows the data aggregator to retrieve the necessary information from your bank securely.
d) The app then uses this information to complete your transaction or move money between accounts.
Benefits of adopting Open Banking APIs in fintech
With over 30,000 fintech companies operating today, Open Banking APIs facilitate seamless communication between various systems, allowing them to communicate without any barriers. These are some of the main benefits of adopting Open Banking APIs in fintech.
1) Improved User Experience
By integrating banking services into other platforms and applications, customers enjoy a more seamless interaction with their finances. For instance, users can access everything directly from a budgeting or financial management platform rather than switching between multiple apps to check account balances or make payments.
2) New Income Opportunities
From a business perspective, APIs have also created fresh revenue streams for banks. Financial institutions can monetize these connections by charging third-party developers or businesses to access banking data and services. This has led to new opportunities for partnerships and collaborations, providing banks with additional sources of income.
3) Enhanced Market Competition
With the help of open banking APIs, banks can now share their systems and data with third-party developers, fintech companies, and other financial institutions. Many players benefit from this as they can develop innovative financial products and services with the existing banking infrastructure.
4) Data Analysis
APIs have empowered banks with valuable AI-driven insights into customer behaviour and preferences. Banks can develop more personalized products and services that align with individual needs. This insight also helps improve risk management strategies and overall customer satisfaction, strengthening the relationship between banks and their clients.
5) Access and Market Reach
By collaborating with fintech companies, banks can extend their services to new markets, including underserved populations or businesses that traditionally lack access to conventional banking. These partnerships break down barriers, offering financial services to those who may have previously been excluded and, in doing so, promoting financial inclusion.
6) Process Automation
Through automation, open banking APIs allow banks to streamline many processes, such as loan applications, account openings, and payment processing. This automation reduces the need for manual effort, minimizes the risk of human error, and ultimately cuts down on functional costs.
Case Studies of Successful Open Banking API Implementations
From budgeting apps to e-commerce platforms, many companies successfully leverage open banking APIs to enhance user experiences, simplify financial management, and provide real-time insights. This section highlights the case studies of successful open banking API implementations across different sectors.
1) YNAB
YNAB (You Need A Budget) uses the Plaid API to link directly to users’ bank accounts, offering real-time updates on their financial activity. With detailed transaction categorization and personalized budgeting insights, YNAB helps users take control of their finances and develop healthy financial habits. Integrating with Plaid ensures that users have up-to-date information, making it easier to track spending and make budget decisions.
2) Cleo
Cleo is a personal finance app that combines open banking APIs and AI technology to provide users with personalized budgeting advice. Cleo analyzes transaction data and spending patterns and delivers real-time tips and alerts, helping users make smarter financial decisions. The seamless integration of these technologies enables Cleo to offer users a truly customized financial management experience.
3) Xero
Xero’s API and app ecosystem have proven invaluable to e-commerce accounting platforms like A2X. A2X uses Xero’s technology to automatically post e-commerce sales and fees, simplifying the reconciliation process for businesses. By integrating AI, Xero helps users feel more confident in their financial data, making the accounting process smoother and less time-consuming for e-commerce businesses.
4) JamDoughnut
JamDoughnut offers a unique way for customers to earn cashback or reward points by shopping at thousands of UK businesses. JamDoughnut's high transaction volume sets it apart, processing roughly one transaction per second. TrueLayer's API makes this impressive rate possible and powers the ‘pay by bank’ payment method. With 90% of payments processed through this API, JamDoughnut is proving the value of innovative payment solutions.
5) Monarch Money
Monarch Money is an intuitive budgeting app that integrates multiple open banking APIs, such as Plaid, Finicity, and MX, to pull financial data from various bank accounts. This allows Monarch Money to provide valuable insights into users' spending habits and offer personalized savings tips. By utilizing these open banking connections, the app ensures secure and smooth data integration while giving users the tools to reach their financial goals more effectively.
Who can use Open Banking APIs?
Whether you're a financial institution seeking to expand your service offerings, a customer looking for tailored financial solutions, or a business aiming to integrate advanced financial tools, open banking APIs can provide a safer and personalized financial experience for all.
1) Financial Institutions
By adopting open banking APIs, banks can transform from service providers to orchestrators of a broader financial ecosystem, collaborating with various fintech companies. This shift also opens the door to innovative business models, such as banking-as-a-service (BaaS), where banks can offer their infrastructure and services to other businesses through APIs. On the security front, open banking APIs incorporate advanced safety measures like Strong Customer Authentication (SCA) and encryption, reducing the likelihood of fraud.
2) Customers
By utilizing APIs to dive deep into financial data, service providers can give personalized advice and recommendations based on your unique spending habits, income patterns, and economic aspirations. Loans can be customized to fit your needs more precisely, and you can receive the guidance you need to make smarter financial decisions. Open banking promotes financial literacy by offering insights into customers' spending behaviours, helping you understand where your money goes.
3) Businesses
Open banking presents many opportunities for businesses to innovate and better serve their customers. With access to a broader range of financial data, companies can assess the creditworthiness of their customers. Open banking also helps businesses with real-time risk assessment tools by which they can monitor and address financial risks related to lending, payments, or investments. Companies can enhance customer experiences by embedding financial services directly into their existing products and platforms.
Overcoming challenges for open banking models in fintech
The open banking trend in fintech is an exciting frontier, but it's not without challenges and limitations. Let's break down the key hurdles and explore how fintech innovators are tackling these issues to make open banking a success.
1) The Problem of Standardization
Right now, each financial institution has its own API template, making integration a fragmented and complex process. Standardized APIs would make integration smoother and faster by offering a consistent framework for communication between banks and third parties.
Entities like the OBIE have made progress by offering templates that, if adopted by all banks, would level the playing field. Standards like ISO 20022 also help streamline transactions, and middleware options can bridge the gap between new APIs and legacy systems.
2) Customer Trust Issues
Consumers are understandably cautious about sharing their private financial information with third-party providers. Customers need to feel secure about who is accessing their data and have an easy way to remove access when required.
Fintechs must prioritize user-friendly interfaces that make it simple for customers to see and manage who has access to their information. Educating customers about the benefits of adopting open banking APIs in fintech can help increase adoption.
3) Data Security and Privacy risks
With more third parties accessing sensitive financial data, the potential for attacks increases. According to IBM Security, data breaches can cost companies millions, so ensuring top-notch security is non-negotiable.
Fintechs must implement strong encryption, authentication, and authorization measures to protect customer data. Regular penetration testing, constant monitoring, and quick updates are necessary to tackle cyberattacks.
4) Hurdles in System Integration
Legacy systems are often rigid and opaque, creating friction when adopting open banking principles. The data needs to be integrated flexibly to handle the growing variety and size of financial data.
To tackle this, fintechs are turning to flexible cloud-based solutions that scale as the market demands. The focus is on building modular, loosely coupled systems that are adaptable and less reliant on outdated technology.
5) Regulatory Compliance
Regulations like GDPR and PSD2 are challenging to meet since compliance standards vary by location. Communication with fintech regulatory bodies is essential to stay informed about any changes impacting compliance.
To stay compliant, fintechs need to closely monitor evolving regulations and ensure they are ready to adapt. By proactively engaging with regulators, fintechs can avoid costly mistakes and ensure they meet all requirements.
Future prospects for Open Banking in Fintech
With the rise of open banking, the impact of upcoming regulatory changes and shifting customer demands is clear. Retail banking and payment sectors are heavily influenced by regulatory changes like PSD2, as well as increasing technological demands from customers. Following are four major prospects where the market for open banking might shift.
Prospect 1: Dominance of big tech companies
In this prospect, large digital companies are pushing into retail banking, competing across significant sections of the value chain. These giants offer innovative, low-cost solutions by leveraging their immense customer reach and digital expertise. They aim to take over customer-facing activities, relegating traditional banks to utility roles. Only the most prominent banks may survive by developing highly localized solutions that the global digital players cannot replicate.
Prospect 2: Limited Impact of Open Banking
In this situation, the impact of open banking remains minimal, with consumer adoption limited by the challenge of convincing users that switching is easy and beneficial. Open banking might only see niche applications, such as more efficient customer onboarding or know-your-customer processes. Although this scenario is unlikely due to regulatory pressures and ongoing investment, it highlights the struggle to motivate consumers to embrace new services.
Prospect 3: Hold of Major Banks in the Market
This case envisions the largest banks capitalizing on open banking and PSD2 to fortify their position and recapture lost value. They build their own payment networks, integrate directly with merchants, and leverage their trust with customers to provide superior products and services. As a result, the market becomes highly consolidated, with the largest banks and fintechs emerging as the dominant players.
Prospect 4: Era of Retail-Integrated Banking
In the Retail Revolution scenario, merchants use open banking to create seamless, integrated shopping experiences. Retail banking and retail services merge, allowing merchants to leverage loyalty schemes, targeted marketing, and financial products to increase sales and customer engagement. In this world, only the largest retail banks are likely to make the investments necessary to capture the value created.
Lead the industry with AI-Powered Fintech Solutions
For businesses like yours trying to keep up with the evolving trends like open banking API in fintech, agility has become essential to stay updated with these changing tech and business environments. Your business must be able to adapt, learn, and evolve seamlessly, almost like a living organism. This is where a comprehensive and flexible range of fintech software development services comes in.
At Webelight Solutions Pvt. Ltd., we offer a comprehensive suite of fintech software development services ranging from mobile banking software and wealth management solutions to blockchain integration and AI-driven analytics, ensuring your financial institution stays competitive and future-ready. Want to see the impact of our work? Go through our portfolio to get inspired by the impactful solutions we’ve created for forward-thinking companies.
Our deep understanding of the fintech industry, paired with our financial tech expertise, ensures that you remain competitive, scalable, and ready to meet the evolving demands of the market.
