What is Open Banking and What Does it Mean for Your Money?

It has been over a year since the sweeping rules that resulted in banks being required to let you share your financial data with external authorised parties were introduced. Diaspora explores the reasons behind ‘Open Banking’ rules being implemented in the first place, and what the implications are for your money.

Open Banking was introduced in the UK as a direct response to the EU’s General Data Protection Regulations (GDPR)  and the Second Payment Services Directive (PSD2). 5 million people in the UK were deemed as financially excluded or underbanked in one way or another. Open Banking is a secure technology that allows the consumer or an SME to safely share their transaction data with an authorised third party and it works with mobile or online banking using a single Application Program Interface – more commonly known as an API.

An API allows the consumer to instruct the third party to send a payment from their account. Consent and trust lay the foundations for Open Banking, and the most important principle that underpins the entire movement is that it is consumers that own the data, not the institutions that store and process it.

Why is Open Banking necessary?

In 2016 The Competition and Markets Authority (CMA) found that older, larger banks do not have to compete hard enough for customers’ business due to their long-standing reputations, and smaller and newer banks found it too difficult to grow and access the market. In such a scenario it is always the consumer that loses out as innovation is slow and lags behind the expectations of digital natives.  The UK decided to respond to ever-changing consumer needs and took a unique regulatory stance in terms of Open Banking implementation and spearheaded the transformation of the industry.

An entity was formed and funded by the 9 largest banks in the UK to create a set of standards and ensure that fintechs wanting to join the initiative were regulated and insured third parties with a digital certificate awarded by the Open Banking Directory.

Three key elements that support a fully functional Open Banking system:


Banks need a way to confirm that a user has granted consent to data being shared which in turn means they need a way to:

  • Allow users to authorise a third party to access their data; and
  • Authenticate that the third party is who they claim to be


Banks need a way to onboard and verify that third parties are to be trusted with personal account data


Third Parties need a way to access user account data, and banks need a way to protect that data and enforce that it is only accessed with our consent.

Potential ways Open Banking will affect everyday financial services

Open Banking is an enabling technology much like the internet. It gains its power from its user base – the businesses that use it as a foundation to create products and services to improve people’s everyday lives.

  • As a start-point, Open Banking could transform the way you use price comparison websites: if you choose to give a regulated price comparison website access to your account information, you’ll be able to get results based on what you actually spend.
  • Secondly, some apps and websites currently use screen-scraping, which involves you giving them your login details and password so they can login to your account and analyse your financial information or make payments on your behalf. With Open Banking API technology, you’re never asked to share your password or login details with anyone other than your own bank or building society which means your money is safer.

So what does this mean for your money?

Open Banking is beginning to power progress for the millions of squeezed and struggling people who are experiencing debt across the UK – so this can only be a good thing. Fintechs and other non-financial organisations can now continually monitor a consumer’s financial circumstances, providing ongoing assistance in the rehabilitation out of debt over a period of time. The result; improving the experience of people struggling with debt and improving financial awareness for customers, while providing a robust, easy to use API for the industry.

Diaspora is developing tailored services that deliver value to consumers using AI to help monitor spending behaviours and provide insights, analytics and financial recommendations to help with things such as budgeting, saving, forecasting and obtaining credit to name a few. These innovations help you to get more out of your money and data, thus improving your financial health and literacy for you and your business.

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