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Open Banking in simple terms

Written byKoyo Loans
First published20th October 2020
  • What is Open Banking in the UK?
  • What is an Open Banking API?
  • Is my data safe with Open Banking?
  • Which banks use Open Banking?
  • Can I opt out of Open Banking?
  • What accounts does Open Banking apply to?
  • Potential benefits of Open Banking loans
  • Does an Open Banking loan application affect my credit score?

Open Banking isn’t particularly complicated, but there’s a lot of abbreviated jargon involved – if you Google it, expect to wade through pages of information about PSD2, fintech and open APIs.  In this guide, we’ll explain Open Banking in simple terms, and explore how you can use it to take control of your finances.

Koyo uses Open Banking technology, so that we can base our lending decisions on your real financial situation – rather than what someone else says about you. Find out more at www.koyoloans.com. Representative APR 27%

In short, Open Banking is a safe, secure way for you to give providers access to your financial information.

It isn’t a product or service. It’s a set of new rules that apply to financial service providers. These rules require banks and building societies (the ones we use every day) to make an effort in order to help customers – like you – use their own data.

Open Banking was set up at the UK Government’s request, and a big roll-out took place in 2018. It requires the UK’s big banks – think Santander, HSBC, RBS, Lloyds and their competitors – to open up their data in a secure form, so that authorised companies can use it.

As a result, companies are able to use the data smartly in order to give you a better service.

What is Open Banking in the UK?

Your bank has all sorts of data on your spending and income. Of course, you want that data to be kept securely, but you might also want to allow a trusted organisation to access that information. Here are a few things you might want to do:

  • View different bank account balances (for example an HSBC bank account and a Barclays credit card) in the same place – this is called account aggregation
  • Allow a potential lender to view your spending and income, so that they can get a better idea of how affordable a loan is for you
  • Allow an app to look at your savings and tell you when you could get a better deal in a new savings account

Before Open Banking, you couldn’t safely do any of those things. That’s annoying for customers (these things would be useful), and also can make it harder for them to get competitively-priced credit from other lenders, since only their bank is able to see their detailed financial information.

Open Banking was designed to spark the launch of new products in an industry which hadn’t seen much innovation since the launch of basic banking apps and simplified payment accounts.

So, the Competition and Markets Authority (CMA) was asked by the UK Government to open up the banking market and encourage competition.

It’s probably best to explain with a simplified example.

Example: how Open Banking can help you to get a loan

Imagine that you’re a lender, and want to be able to check that loan applicants can comfortably afford their repayments. There’s no perfect way to do this. Some lenders ask you to print off your bank statements and send them in, which is difficult to verify. Others go to third party credit agencies, who look at whether you’ve defaulted on a loan in the past.

One useful way to do it would be to look at an applicant’s bank transaction data, in a secure way. If you did that, you’d be able to see how much a borrower has coming in and going out, and you’d be able to use that information to make a fair lending decision.

Before Open Banking was introduced, it wasn’t possible to do this. Banks would use your data for their own purposes, but did not share it – even if it could help save you money. In some cases, this meant that people would share their own data in an unsecure way.

Now though, most banks if you ask to share your account data with a trusted third party, will do so.  So, a lender could base its decisions on data, relying on accurate, up-to-date information instead of what a third party says about you.


This is a real-world example of how Open Banking can be used to provide fairer loans with more competitive pricing.

What else can you do with Open Banking?

All sorts of things! Here are a few other ways in which financial services companies are using Open Banking to help ordinary people:

  • Moneybox works differently to other banking apps: it allows users to save money by rounding up purchases. So if you spend £2.70 on a coffee using one of your debit cards, it will automatically put 30p into a savings account for you
  • Canopy lets you track rental payments on a property so that you can count them on your credit report
  • Kalgera spots unusual activity on vulnerable peoples’ bank accounts, helping to keep them safe from fraud

These new services are just the tip of the iceberg – people are coming up with creative ideas all the time, and this is exactly the kind of innovation that Open Banking is designed to encourage in the banking industry.

Open Banking is a huge change for financial institutions, designed to make it easier for you to take control of your data in order to save money and get a better service.

What is an Open Banking API?

API stands for application programming interfaces, and is a term you might see used from time to time. Technically it refers to the way that providers standardise the format in which they share information, and in this case, it’s the technology which allows account providers to safely share data with third parties.

Is my data safe with Open Banking?

Yes, your data is very secure, thanks to strict Open Banking regulation and close supervision from the Financial Conduct Authority.

Open Banking was actually set up to make data transfer safer. The third party (which has to be approved by the FCA or European equivalent) gets direct, secure access, only with your authorisation. Your financial information stays safe.

Which banks use Open Banking?

The UK’s nine largest banks and building societies are required to make data available through Open Banking. Plus, many other banks have joined the scheme voluntarily – this means that the scheme covers big banks and building societies such as Barclays, Nationwide and NatWest as well as some newer or less well-known banks such as Monzo, Starling and Revolut.

And the number of companies who offer a service through Open Banking is growing all the time. You can view a list of all approved providers on the Open Banking website. Any provider on this list (which includes Koyo) is regulated by either the FCA or the EU equivalent.

Can I opt out of Open Banking?

Yes. You don’t ever have to use Open Banking services if you don’t want to. Open Banking is designed to put you in control of your data – so, if you don’t want to take advantage, you don’t have to.

What’s more, you’re allowed to change your mind. Any provider must offer you the ability to stop providing access at any time.

What accounts does Open Banking apply to?

Any online account from a provider who has opted in. In practice, if you have a bank account – particularly one with a well-known bank – and you can access your current account through online banking or on your mobile, you can almost certainly use Open Banking.

It’s not just personal accounts either – small businesses can benefit too. SMEs can use an equivalent set of financial products, including budgeting apps and plug-ins designed to help them save money on bills.

Potential benefits of Open Banking loans

As we’ve explained above, if a provider can use Open Banking to securely view transactional banking data, it may be able to:

  • Charge a lower rate on loans
  • Lend to “thin file” borrowers, who have not yet built up a credit history
  • Get a better idea of whether a loan is affordable or not

Traditionally, lenders use information from credit agencies to decide whether to offer you a loan. As we covered in a previous post, though, the information that credit agencies (such as Experian and Equifax) have on a person can actually be pretty limited. For example, they don’t verify your income, savings, employment or health expenses.

Lenders using Open Banking are able to use a different approach: When you apply for a loan, a lender can request permission to connect with your bank account, in order to confirm your income and your ability to repay the loan.

With this information, a lender is able to make a credit decision based on the facts, and not what someone else says about you.

Does an Open Banking loan application affect my credit score?

No. A soft credit check isn’t visible to other lenders, and doesn’t affect your credit score.

Open Banking is one of the biggest changes to the banking industry in a decade, and we’re proud to be among the dozens of companies who are using it to make finance fairer for our customers. 

Now that you’ve read our article on Open Banking, you might want to take a look at some of the options available to you. Our loan calculator is a great place to start.

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