What is Open Banking API?

What Is an Open Banking API?

An Open Banking API is a set of programming interfaces that allow authorised third-party providers to securely access bank account data and initiate payments on behalf of customers -- with the customer's explicit consent. In plain terms, it is the technology that lets apps and services talk directly to your bank, so you can share your financial information or make payments without going through your bank's own website or app.

Before Open Banking, your bank account was a walled garden. Only your bank could see your transactions, check your balance, or move your money. Open Banking changed that by requiring banks to make their data and payment capabilities available through standardised, secure APIs. This opened the door to a wave of new financial services built on top of existing bank infrastructure.

How Open Banking APIs Work

Open Banking APIs operate through a regulated framework that balances innovation with security. In the UK, this framework is governed by the Open Banking Implementation Entity (OBIE) and underpinned by the Payment Services Directive 2 (PSD2) regulations.

There are two main types of Open Banking API:

Account Information Services (AIS)

These APIs allow authorised providers to read account data -- balances, transaction history, account details -- with the customer's permission. This is what powers budgeting apps that aggregate your accounts from multiple banks into one view, affordability checking services used by lenders, and financial management tools that categorise your spending automatically.

Payment Initiation Services (PIS)

These APIs allow authorised providers to initiate payments directly from a customer's bank account. Instead of the customer logging into their banking app and manually setting up a transfer, a third-party service can trigger the payment -- but only after the customer has authenticated with their bank and given explicit consent.

The Authorisation Flow

Security is built into every Open Banking API interaction. When a customer wants to use an Open Banking service, the process typically works like this:

• The customer initiates an action in the third-party app (viewing accounts or making a payment)
• The app redirects the customer to their own bank's secure authentication page
• The customer logs in with their bank credentials and approves the specific access being requested
• The bank issues a secure token to the third-party app
• The app uses this token to access the approved data or initiate the approved payment

At no point does the third-party app see the customer's bank login details. The authentication happens entirely within the bank's own secure environment.

Why Open Banking APIs Matter for Businesses

Open Banking APIs give businesses new ways to get paid and new tools for understanding their customers' finances. The payment initiation capability is particularly significant because it creates an alternative to card payments. Instead of paying a merchant service charge of 1-3% on every card transaction, a business can accept a bank transfer initiated through Open Banking, often at a fraction of the cost.

For businesses that extend credit or offer payment plans, the account information APIs provide better data for affordability assessments. Instead of relying on credit scores and self-declared income, lenders can see actual bank transactions -- real income, real spending patterns, and real financial commitments.

Accounting and reconciliation also benefit. When payments come through Open Banking with rich data attached -- invoice numbers, customer references, order IDs -- matching payments to invoices becomes automatic rather than manual.

Open Banking APIs and Telephone Payments

Open Banking APIs are creating new possibilities for telephone payments. During a phone call, an agent can generate a payment link powered by Open Banking's payment initiation API and send it to the customer via SMS. The customer opens the link, selects their bank, authenticates through their banking app, and the payment is initiated -- all in less than a minute, all while the agent remains on the line.

This approach has significant security advantages. No card numbers are exchanged during the call. The customer authenticates directly with their own bank. And because the payment is a bank transfer rather than a card payment, there is no chargeback risk and the processing costs are typically lower.

For businesses that collect payments over the phone, Open Banking APIs offer a way to reduce PCI scope, lower transaction costs, and provide customers with an additional payment option that many find easier than reading out card details.

Practical Considerations

Businesses wanting to use Open Banking APIs need to work with a regulated provider -- either an Account Information Service Provider (AISP) or a Payment Initiation Service Provider (PISP), or a partner that holds these authorisations. Building directly on bank APIs is technically possible but comes with significant regulatory and compliance requirements.

Customer adoption is growing but not universal. Younger, digitally confident customers tend to be comfortable with Open Banking. Older demographics or those unfamiliar with the concept may need reassurance about security and privacy. Clear communication about what data is being accessed, why, and how it is protected is essential for building trust.