A few years ago, I tried to sign up for a budgeting app and it asked me to type in my bank login. My first thought was, “Absolutely not.” Handing over my password to a stranger felt like giving a house key to someone I’d just met at a bus stop.
That nervous feeling is exactly why open banking exists. It’s a safer way to let apps see your financial data, and it’s quietly changing how banking works in Europe, the UK and Australia.
So, what is open banking? In this guide, I’ll explain it in plain English, show how it works step by step, and compare how the EU, UK and Australia handle it.
General information only. This article explains how a system works and isn’t financial advice.
What Is Open Banking? The Simple Version
Open banking is a system that lets you share your bank data with approved third-party apps and services, securely and only with your permission.
The key word is permission. Your bank holds your data, but it’s still your data. Open banking gives you a regulated way to say, “Yes, this app can see my transactions,” or “Yes, this company can send a payment from my account.”
Think of it like a hotel key card. A hotel can give you a card that opens your room only, for a limited time, and nothing else. You never hand over the master key. Open banking works the same way: apps get limited access, you can switch it off, and your password stays private.
How Does Open Banking Work?
Behind the scenes, banks open up secure connections called APIs (application programming interfaces). An API is just a digital doorway that lets two systems talk to each other under strict rules.
Here’s what happens when you connect an app:
- You choose an app or service. It could be a budgeting tool, an accounting platform or a payment provider.
- The app sends you to your bank. You log in on your bank’s own website or app, not on the third party’s page.
- You give consent. You see what is being requested, such as account balances or transaction history, and for how long.
- The bank shares only that data. The app receives a secure token, not your password.
- You stay in control. You can review and withdraw access at any time through your bank.
There are two main things open banking can do. The first is account information, where an app reads your data. The second is payment initiation, where a provider sends a payment directly from your account without needing a card.
Why Does Open Banking Exist?
Historically, banks kept customer data to themselves, which made it hard for newer companies to compete. Regulators in several regions decided that giving customers more control over their data could create better products, more competition and fewer risky workarounds like “screen scraping,” where apps used your actual login details.
In practice, that has meant things like:
- Budgeting apps that pull all your accounts into one view
- Accounting software that matches bank transactions automatically
- Faster online checkout by paying straight from your bank
- Easier verification when you open a new account
Open Banking in the EU
In Europe, open banking grew out of a law called PSD2 (the second Payment Services Directive), which came into force in 2018 and applies across the European Union.
PSD2 required banks to give licensed third-party providers access to customer accounts, with the customer’s consent. It also introduced strong customer authentication, meaning you usually confirm your identity with two factors, like a password plus a phone prompt.
Two types of regulated providers appeared:
- Account information service providers that read your data
- Payment initiation service providers that start payments for you
Because the EU has many countries, many languages and many banks, the experience can vary from place to place. Some markets moved quickly, while others took longer to get smooth, reliable connections. The EU has also been discussing a follow-up framework to widen data sharing, so this is an area still evolving.
Open Banking in the UK
The UK is often seen as an early leader. Following a competition investigation, the UK’s largest banks were required to open up their data, and the system went live in January 2018.
What made the UK distinctive was the focus on shared technical standards, so apps could connect to many banks in a similar way. Today, millions of people and businesses use open banking services in the UK, often without realising it. Every time you pay by “pay by bank” or connect an accounting tool, there’s a good chance open banking is working in the background.
Providers must be authorised and supervised by the Financial Conduct Authority (FCA), and customers can see and manage their consents. The UK has continued to develop the system, including moving toward a long-term governing structure and wider uses like payments.
Open Banking in Australia
Australia took a different route. Instead of focusing only on banking, it created the Consumer Data Right (CDR), a framework designed to cover multiple industries over time.
Banking was the first sector, starting in 2020, and the framework has since expanded to other areas such as energy. The rules are overseen by Australian regulators, including the ACCC and the OAIC, and providers must be accredited before they can receive your data.
A few features stand out:
- It’s about data rights, not just banking. The same idea is meant to apply across sectors.
- Accreditation is strict. Only approved recipients can access CDR data.
- Consent is detailed. You can see what you’ve shared and withdraw it.
One note for readers in New Zealand: NZ has been building its own approach, with industry standards developed through Payments NZ and a government plan for a customer data framework. It’s moving in a similar direction, but the details differ from Australia’s.
EU vs UK vs Australia: Quick Comparison
| EU | UK | Australia | |
|---|---|---|---|
| Framework | PSD2 | UK open banking rules | Consumer Data Right |
| Started | 2018 | 2018 | 2020 |
| Scope | Payments and accounts | Payments and accounts | Banking first, then other sectors |
| Provider checks | Licensed providers | FCA-authorised providers | Accredited recipients |
| Main idea | Competition in payments | Competition and standard APIs | Consumer data ownership |
And what about the US? There isn’t a single nationwide system like these yet. Data sharing there has mostly grown through private agreements between banks and fintech companies, with regulators still shaping the rules.
Is Open Banking Safe?
It’s a fair question, and it was my first one too. In regulated systems, there are several built-in protections:
- No password sharing. You log in at your own bank.
- Regulated providers. Companies must be authorised, licensed or accredited.
- Limited, time-bound access. You choose what’s shared and for how long.
- Easy withdrawal. You can cancel access whenever you like.
No system is risk-free. Scams exist, so it’s sensible to check that a provider is properly registered and to read each consent screen carefully before you approve it.
Open Banking FAQs
Is open banking free to use? For consumers, connecting an app is usually free. The app or provider may charge for its own services, though.
Does open banking let apps move my money? Only if you approve a payment. Reading data and making payments are separate permissions.
Can I stop sharing my data? Yes. You can withdraw consent through your bank or the provider at any time.
Is open banking the same everywhere? No. The EU, UK and Australia each have different rules, names and timelines, even though the core idea is similar.
Final Thoughts
Open banking sounds technical, but the idea is refreshingly simple: it’s your data, so you decide who sees it. The EU brought in PSD2, the UK pushed shared standards, and Australia built the broader Consumer Data Right. Different routes, same goal.
If you remember one thing, make it this: never type your bank password into a third-party app. A properly regulated open banking connection should send you to your bank’s own login instead.
Sources to cite when you publish: European Commission (PSD2), UK Open Banking and the FCA, Australian Treasury and ACCC (Consumer Data Right), and Payments NZ.