In plain words
Think of a valet key for a car. It lets someone park your car, but not open the boot or drive across the country, and you can take it back whenever you like. Open banking gives apps a valet key to your bank account: limited, approved by you, and easy to cancel.
Before open banking, an app that wanted to see your transactions usually asked for your online banking password and logged in as you. Open banking replaced that with a secure door. The app is licensed, you approve the access with your own bank, and the bank shares only what you agreed to through an application programming interface (API).
There are two basic things an open banking app can do. It can read your account data, which is an account information service (AIS). Or it can start a payment from your account, which is a payment initiation service (PIS). In Europe the legal right to do both comes from PSD2. 2
How it works
How an open banking connection works
The customer sees a short hop to their bank and back. Behind it, three parties agree.
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1
The app asks
You choose your bank in the app and see what it wants to access or pay, and for how long.
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2
Your bank checks it is you
You are sent to your bank’s app or website and approve with strong customer authentication. The app never sees your password.
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3
The bank shares or pays
Through its API, the bank sends the data or makes the payment you approved, and nothing more.
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4
You stay in control
Data access lasts only as long as agreed and must be renewed. You can withdraw it from the app or your bank.
AIS vs PIS
| Account information (AIS) | Payment initiation (PIS) | |
|---|---|---|
| What it does | Reads balances, transactions and account details | Starts a payment from the customer’s account |
| Typical uses | Budgeting apps, affordability and lending checks, accounting tools, account verification | Pay by bank at checkout, wallet top-ups, bill payments |
| Does it touch the money | No | It starts the payment but never holds the money |
| Consent | Ongoing, for an agreed period | Usually for one payment, or within a mandate |
| Why founders use it | Faster onboarding and better data than asking for statements | Lower costs than cards for many payments, and money arrives quickly |
Because a PIS payment moves straight from one bank account to another, it is a form of account-to-account (A2A) payment. There are no card scheme fees, and in the UK it usually settles over Faster Payments.
Variable recurring payments
A standard PIS payment needs the customer to approve each payment. Variable recurring payments (VRPs) let the customer approve once, with limits such as a maximum per payment or per month, so the provider can take varying amounts over time. In the UK, VRPs are already used to move money between a customer’s own accounts, often called sweeping. 1 Their use for paying businesses, such as bills and subscriptions, is being introduced in phases, so check what is live before you design around it.
What open banking can and cannot do
Can
- Show balances and transactions from several banks in one app
- Confirm that an account belongs to the customer
- Speed up affordability and income checks
- Start a payment straight from a bank account
- Top up a wallet without a card
Cannot
- Access an account without the customer’s consent
- Hold or move money for the app itself
- Replace KYC on its own
- Reach every account type, such as some savings or business accounts
- Guarantee the same coverage in every country
Open banking in the UK, EU, UAE and Saudi Arabia
The idea is the same everywhere. How it started, who sets the standards and how far it reaches are not.
| Market | How it is set up | What to know |
|---|---|---|
| United Kingdom | A 2017 order by the Competition and Markets Authority (CMA) required the nine largest banks, the CMA9, to build open APIs to common standards, alongside the UK’s version of PSD2 1 | One shared set of standards, run by Open Banking Limited (OBL). Oversight is moving to a long-term framework |
| European Union | PSD2 gives licensed providers the right to access payment accounts 2 | No single EU-wide API standard, so quality and coverage vary by bank and country. The proposed successor rules aim to improve this |
| UAE | The CBUAE has issued an open finance framework 3 | Broader than bank accounts from the start. Being rolled out in phases |
| Saudi Arabia | SAMA has published an open banking framework 4 | Covers account information and payment initiation, introduced in phases |
Where open banking extends to savings, investments, pensions and insurance, it is called open finance. For what that means in the Gulf, read open finance in the UAE for UK founders.
Example: Ella tops up her wallet
Ella uses a multi-currency wallet and wants to add £500 from her bank account before a trip.
- Choice. She taps “Top up by bank” and picks her bank from a list. The wallet uses a licensed PIS provider behind the scenes.
- Approval. Her banking app opens with the amount and payee already filled in. She confirms with her face.
- Payment. The bank sends £500 to the wallet’s account. No card details, no card fees, and the money usually arrives within seconds.
- Next time. The wallet offers her a VRP for automatic top-ups up to £200 a month. Whether it can offer this depends on what her bank and the provider support.
Common misconceptions
“Open banking means sharing your banking password.”
The opposite. Open banking exists so you never have to. You approve access with your own bank.
“Any app can use open banking.”
Only licensed or registered providers can. Most startups connect through one rather than holding their own permission.
“Pay by bank will replace cards everywhere.”
It is strong for top-ups, bills and larger payments. Cards still win where buyers expect chargeback protection or pay in many countries.
FAQ
What is open banking in simple terms?
Open banking lets you give a licensed app permission to see your bank account data or to make a payment from your account. You approve it with your own bank, and the bank shares only what you agreed to through a secure connection.
Is open banking safe?
Open banking providers must be licensed or registered, you approve access with your own bank's security checks, and you never share your banking password with the app. You can see and withdraw the access you have given at any time.
What is the difference between AIS and PIS?
An account information service (AIS) reads your account data, such as balances and transactions, with your consent. A payment initiation service (PIS) starts a payment from your account on your behalf, for example when you choose pay by bank at checkout.
What is the difference between open banking and open finance?
Open banking covers payment accounts such as current accounts. Open finance extends the same idea to savings, investments, pensions, insurance and other financial products.
What are variable recurring payments?
Variable recurring payments (VRPs) let you authorise a provider once, within limits you set, to take payments of varying amounts from your bank account over time. In the UK they are already used to move money between a customer's own accounts, and their use for other payments is being introduced in phases.
Does open banking exist in the UAE and Saudi Arabia?
Yes. The Central Bank of the UAE has issued an open finance framework, and the Saudi Central Bank (SAMA) has published an open banking framework. Both are being rolled out in phases, so check which services are live before planning a launch.
Related terms
Sources
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1
OB
Open Banking Limited Open Banking
https://www.openbanking.org.uk/ -
2
EL
EUR-Lex Directive (EU) 2015/2366 on payment services in the internal market (PSD2)
https://eur-lex.europa.eu/eli/dir/2015/2366/oj -
3
CB
Central Bank of the UAE Central Bank of the UAE
https://www.centralbank.ae/ -
4
SC
Saudi Central Bank SAMA
https://www.sama.gov.sa/
