What Is Open Banking and How Does It Work in the UK?
If you've ever connected a budgeting app to your bank account in a few taps, you've already used open banking UK services. Introduced by the FCA and CMA in 2018, open banking has quietly become one of the most important pieces of financial infrastructure in Britain, now used by more than 13 million people. This guide explains what it is, how does open banking work in practice, and why it's become a big deal for both consumers and UK startups.
What Is Open Banking?
Open banking is a secure, regulated system that lets you share your bank account data or initiate payments with authorised third-party providers, entirely with your consent. It operates under the Payment Services Regulations 2017, meaning every provider using it must be registered with the FCA. Crucially, your bank password never leaves your bank; access is granted through secure tokens instead.
How Does Open Banking Work?
The process is straightforward:
You choose a service that uses open banking, such as a budgeting app or lender.
The service redirects you to your own bank's app or website.
You log in as normal, using Face ID, fingerprint, or a PIN.
You review exactly what data is being requested and for how long.
You confirm consent, and the data flows securely through standardised APIs.
You can revoke access at any time, and open banking cannot move money out of your account unless you explicitly authorise a payment.
Why It Matters for UK Startups
Open banking isn't just a consumer convenience it's reshaping startup funding and fintech innovation across the country. Lenders can assess affordability using real-time transaction data instead of paper statements, speeding up decisions for founders seeking capital. Many UK startups now build entirely on open banking rails, from budgeting tools to embedded lending platforms, and venture capital investors increasingly favour companies with strong data-driven underwriting models. For anyone collecting founder stories in the UK fintech scene, open banking is a recurring theme: it's often the technology that made a founder's idea technically possible in the first place. It's also a common thread in startup advice columns, where founders are encouraged to explore open banking integrations early to build trust and reduce friction for customers.
Is Open Banking Safe?
Yes. Data is encrypted in transit, providers can only access what you've agreed to share, and permissions are time-limited. Because access runs through regulated APIs rather than screen-scraping or shared passwords, open banking is generally considered safer than older methods of linking accounts.
Conclusion
Open banking has moved from a regulatory experiment to a mainstream part of UK financial life, powering everything from budgeting apps to Pay by Bank checkout options at major retailers. Understanding open banking UK rules and how does open banking work under the hood is useful whether you're a consumer managing your money or a founder building the next generation of UK fintech.