What is Open Banking, and what are the benefits for businesses?

What is Open Banking? How does Open Banking work, and what’s in store for Open Banking in 2025?

In the not-too-distant past, when you needed help making financial decisions for yourself or your contractor business, you’d probably make an appointment with a financial adviser.

Open Banking is changing that norm, by putting powerful financial insight, tools and services into consumers’ own hands.

The upshot? Businesses and individuals can manage their finances more confidently and comprehensively.

Open Banking FAQs

Here, I aim to tackle these Open Banking questions and more, exclusively for ITContracting.com, writes Aiste Krevneviciute, acting VP of member accession marketing at Tide.

What is Open Banking?

Open Banking is a secure system that lets you share specific bank account data with third-party companies that provide financial services, products, platforms and apps.

Essentially, you give the third-party company ‘view only’ access to your account balance, and transaction history, in exchange for their innovative solution to your financial need.

An Open Banking example (and what monetary insights it opens up)

In terms of providers, we can only really talk about ourselves with confidence, so here’s a quick example. When you connect to Tide via Open Banking, we can assess your eligibility for business credit and provide detailed insights into your past, present and future cash flow.

We can also suggest suitable lending options for your business or offer steps on how to improve your credit score — which can increase your chances of securing favourable funding and terms from lenders.

Here’s how Open Banking works in practice, at least so far in 2024!

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How does Open Banking work?

Open Banking works via an application programming interface, or API — a secure program that sits between two separate computer systems and allows them to ‘talk’ to each other.

When you sign up for a financial service or tool using Open Banking, the provider of that product makes a ‘call’ to the API whenever it wants to view your banking data.

The API checks that call, and forwards it to your bank.

Your bank then sends the requested data back to the Open Banking API, which sends it on to the service provider who requested it.

Here are just three of the most common ways Open Banking is being used for now and looks set to continue to be used in financial year 2025-26, which begins on April 6th 2025.

Use cases and benefits of Open Banking

The use cases for Open Banking are broad and expanding all the time.

But three in particular are already bringing big benefits to small business owners and their customers.

1. Better cash flow insights and management

Thanks to Open Banking technology, the days of using clunky, manual spreadsheets to track incomings and outgoings across your entire financial ‘landscape’ can be long gone!

Finance apps and platforms can now monitor your activity across multiple accounts, flag any impending cash shortfalls, provide tips for staying out of the red, predict when a customer might not pay on time, and show you your credit score (without adversely affecting it).

2. Improved access to affordable credit

Your business credit score affects your ability to secure affordable credit.

But the information in a credit report isn’t always accurate, and keeping them up-to-date can be difficult.

Open Banking loosens the grip which your credit score has on your borrowing potential by giving lenders a direct view of your spending habits, income trends and balance history.

This accurate picture of your ability to repay can improve your access to cheaper credit.

3. Faster, smoother and cheaper payments

Making and receiving card payments can be frustrating for limited companies and their customers, thanks to card processing fees, slow settlement speeds and the exchange of sensitive data.

Open Banking ‘pay-by-bank’ payments settle instantly and there’s no card processing fee.

You also don’t have to enter your card number time and again, or worry about whether it’s being stored securely — you simply use your fingerprint or face ID to authorise the payment.

Is Open Banking safe?

Yes, insofar as the Open Banking API uses bank-level security — and only Financial Conduct Authority-regulated firms can become providers of Open Banking-enabled services.

Open Banking is governed by regulations that protect customer data using encryption and secure authentication, and providers must adhere to these strict rules and oversight.

You can also withdraw a provider’s access to your account data at any time.

And you’ll never (never!) be asked to share your bank account login, PIN or password details.

Will 2025 be the year Open Banking REALLY takes off?

Open Banking has already amassed more than 11 million UK users, highlighting enormous appetite among individuals and business-owners for boosting their financial wellbeing.

But 2025 could be the biggest year yet for Open Banking.

How come? Well, the Digital Information and Smart Data Bill that’s currently moving through UK parliament looks set to extend the Open Banking ecosystem into sectors such as insurance, pensions, energy, telecommunications, and more.

The expansion of Variable Recurring Payments (VRPs), which bring greater control and transparency than Direct Debits and standing orders, could be huge too.

The future of Open Banking: Beware last mover disadvantage

So, 2025 could be a banner year for joined-up, digital-first banking and financial management.

Watch this space, but if being ahead of the curve sounds like something you usually do, don’t wait till then.

Looking for a limited company bank account with no monthly fees, plus FSCS protection?

With Tide, you can open a free business bank account online in minutes and not only is there no monthly fee, but up to £120,000 of your deposits are also FSCS-protected on eligible business bank accounts. £50 cashback for IT Contracting visitors.