Open Banking gives regulated providers secure access to customers’ account data and payment services, through a consent-driven journey. Effectively, it provides visibility into an individual’s real-time income and spending activity from their bank account. Open Finance goes one step further than Open Banking in the financial ecosystem, providing direct account access to other accounts like pensions, investments, insurance policies, mortgages and loans, under the same consent permissions.
If you are planning a new financial service, this guide explains where Open Banking ends, where Open Finance begins, and what to consider when choosing a provider.
What is Open Banking?
Open Banking is an API-based technology framework that enables customers to share their financial account data directly with regulated institutions. This enables the customer to make easy account-to-account payments, or is often shared in exchange for better personal financial management tools, such as budgeting, subscription management etc.
For the banks, Open Banking is a useful way to see a customer’s bank account incomings and outgoings in real-time, meaning any decisions are based on the most up-to-date view of the customer’s finances. In terms of making the right product offers or stepping in when a customer shows signals of financial vulnerability, this real-time action is integral.
The types of information available through an Open Banking connection include:
- current account data
- transaction history
- account balances
- direct debits and standing orders
- account information services
- payment initiation services
Born from the idea to increase competition and drive innovation, Open Banking has been a part of the UK financial ecosystem since its 2018 roadmap was released. It is regulated under PSD2, establishing the licensing powers for Account Information Service Providers (AISPs) and Payment Initiation Service Providers (PISPs), forcing the CMA9 banks to open their infrastructure and share customer data.
What can Open Banking be used for?
Open Banking works best when a product journey needs current account data or a direct account-to-account payment.
For example:
- Account aggregation: providing a single view of all of an individual’s bank accounts.
- Specific affordability checks: removing the manual application steps, and enabling lenders to work on verified data, directly from the applicant’s bank account
- Income verification: check for income types like salary, benefits or dividends without repeated document upload
- Account-to-account payments: a fast way to bank transfer
- Spending insights: categorisation and enrichment of transactions provides more detail about bills, subscriptions and outgoings more clearly, helping users to recognise their spending and understand it
These use cases work because the data is current, permissioned and connected to real account activity. Importantly, each one provides value to the customer, which is why they opt to connect their account rather than filling out a manual application form, or uploading statements and documents.
What is Open Finance?
Open Finance extends secure, consent-based data sharing beyond bank accounts to other financial products such as savings, pensions, mortgages, investments, insurance and credit agreements.
It gives consumers and businesses a more complete view of their money. It also gives authorised firms more data categories to design products around, with long-term needs, risk, broader affordability and financial goals in the picture.
What can Open Finance be used for?
Open Finance is useful for granting visibility into areas that Open Banking does not fully cover, reducing risk for onward decisions.
That can include connections to:
- Savings accounts: determining ‘safe-to-save’ amounts based on excess cash and automatic transfers.
- Pensions: enabling forecasting, retirement modelling and aggregating multiple pensions into a single dashboard.
- Mortgages: offering a validated view of repayment history, committed spend and current affordability.
- Insurance: where cover, premiums and renewal behaviour can help firms identify product gaps or duplication.
- Investments: insight into holdings, regularity and growth can change forecasts, lending or investment actions.
- Credit products: repayment patterns and wider commitments can support a current view of affordability.
For consumers, the value lies in a clearer whole financial picture. For banks and lenders, it’s fewer blind spots, lower risk and better relevance in actions taken, products offered and offer timing.
What are the main differences between Open Banking and Open Finance?
Open Banking opens access to current accounts and payment journeys, while Open Finance relies on the same consent-based model but for more product categories, providing fuller context around a customer’s financial life.
| Factor | Open Banking | Open Finance |
|---|---|---|
| Data scope | Current accounts and payment account data | Payment account data plus pensions, savings, credit, investments, mortgages, insurance and more |
| Main use cases | Account aggregation, spending insights, payments, affordability checks and income verification | Fuller credit decisioning, vulnerability signals, product journeys, financial planning, risk analysis, cross-sell and retention |
| Regulatory maturity | Well-established in the UK | More recent and continuing to develop through the UK Open Finance and Smart Data agenda |
| Customer view | View of current account activity and payments | Aggregated view of more financial products and commitments |
| Product opportunity | Improve banking, lending and payment journeys | Build personalised services around a fuller view of customer need |
| Data challenge | Secure access, consent journeys and consistent bank data | Wider permissions, broader data categories and strong governance |
Why are financial services moving towards Open Finance?
Financial services are moving towards Open Finance because a current account only shows one part of the customer’s position. Open Banking has been the standard since 2018, and is now established and trusted between institutions and customers alike. But for a more reliable, comprehensive view of an individual’s finances, personalised analysis and communication, Open Finance is the necessary choice.
The wider view matters because it helps firms make better decisions in four areas:
- Risk: lenders can see more of the commitments that shape affordability, through a validated data channel.
- Customer experience: firms can reduce repetitive, manual steps and make support more relevant.
- Commercial performance: banks generate more relevant product offers (based around actual need and timing through the Segment of One), increasing conversion likeliness.
- Product design: teams can build journeys around real customer needs, not assumptions.
The UK Open Finance roadmap sets out the FCA’s plan to move open finance from vision to delivery by 2030. It works in tandem with the government’s Smart Data Strategy, setting out a wider plan for secure, trusted data sharing across the economy.
Customers expect more personalised journeys
71% of consumers now expect personalised interactions, and they already experience these outside of financial services. A travel app can show delays before someone leaves home. A supermarket app can remind a customer what they usually buy. A streaming service can adapt recommendations from recent behaviour.
The standard across financial services is even higher, because of the relationship and sensitivity that individuals have with their money. If a firm has permission to use data, the customer expects the experience to add value, and receive a personalised outcome in exchange.
Supporting commercial growth
From making vague assumptions based on outdated credit and ONS data, to confidently identifying an individual’s exact next step: that is the difference that Open Finance makes.
Through Open Finance, firms get better insights to make more relevant communications, building primacy and becoming their customers’ favourite bank. It’s knowing that a customer has regular excess cash and hasn’t yet hit their annual ISA limit. Or that a customer has made 11 payments to an insurance company, and might be shopping around for a new policy before renewal.
Firms already have an arsenal of tools at their disposal to build these personalised journeys, including:
- following the Segment of One concept to move beyond broad audience assumptions
- triggering account-based nudges for more relevant actions
- using real-time behavioural signals to spot vulnerability and step in under Consumer Duty
Need an Open Banking and Open Finance provider?
The UK’s Open Banking and Open Finance landscapes require authorisation to access an individual’s data. Here at Moneyhub, we have been fully licensed by the FCA to hold those permissions since the very beginning, 2018 (even powering the very first Open Banking payment by a member of the public).
From working with Paragon to double daily open banking payments, to Voxi’s benefit-verification for affordability, we power a huge range of use cases.
About Shannon Trimble
Shannon Trimble is a fintech and regtech content marketing manager based in Manchester, UK. She owns content strategy at Moneyhub and alongside that, interviews our internal subject matter experts, turning their quotes into crystal clear insights. She particularly enjoys transforming traditionally complex or ‘boring’ subjects into engaging content that is genuinely valuable to the reader. Outside of her work, Shannon enjoys escaping the UK winter by chasing the sun.
FAQs
Open Banking can be limited by account scope and data coverage. For financial institutions that need a broader view of a customers’ finances, or want to build products that integrate with more than just current accounts, Open Finance might be required.
The UK Open Finance strategy focuses on extending secure, consent-based data sharing beyond bank accounts to a wider range of financial products and services. The FCA’s Open Finance roadmap sets out a path towards delivery by 2030, alongside the wider Smart Data agenda.
Open Banking typically covers payment account data, such as balances, transactions and payment initiation. Open Finance can include a broader range of account connections, including savings, pensions, investments, credit, mortgages and insurance. The right choice for you will depend on the exact customer journey that you want to build, and most institutions use both.
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