A Comprehensive Guide To Open Finance

A few years ago, managing your finances often felt like juggling in the dark. Your data sits siloed in banks, apps barely talk to each other, and switching providers? A bureaucratic nightmare. You had little control, limited visibility, and few options tailored to your real financial needs.

Now, imagine a system where you control your financial data. Accounts sync effortlessly, budgeting apps personalize advice in real-time, and accessing loans or investments is faster, fairer, and smarter, regardless of your provider. That’s the promise of open finance.

But what exactly is it? How is it different from open banking? And why are governments and fintechs racing to adopt it? In this guide, you’ll discover what open finance is, how it differs from open banking, the technologies behind it, and how it's reshaping financial ecosystems worldwide. 

What is open finance?

Open finance is the next evolution of open banking that allows customers to securely share financial data from across their entire financial life, not just their bank accounts. With their consent, users can connect services like savings, loans, pensions, and insurance to third-party apps for better money management and smarter financial decisions.

Open finance goes beyond basic banking access. It gives consumers more control over their data, enabling personalized tools like budgeting apps, credit insights, or investment platforms. For businesses, it unlocks innovation, fueling new products, automating financial tasks, and offering deeper insights into customer behavior, all while putting transparency and user consent first.

Open finance vs open banking

While open finance and open banking sound like the same thing, they are two distinct technologies. Open banking gives third-party providers access to bank account data with user consent, mainly focused on payments and financial data from banks. On the other hand, open finance expands this concept to include a broader range of financial products, like pensions, investments, and insurance, offering a more holistic view of a user’s financial life. Here is a breakdown of the differences between open finance and open banking:

• Scope of data sharing: Open banking is limited, mostly covering transaction histories and payment accounts. Need to split a bill or track spending? Apps like Venmo or Mint use this. Open finance, however, dives deeper. It connects every financial footprint you have: stocks, loans, crypto wallets, even your energy bills.
• Who’s Involved: Open banking rules (like PSD2 in Europe) force banks to share data securely. But open finance isn’t just about banks—it pulls in insurers, brokers, and fintechs. If open banking is a bank’s API playing nice with apps, open finance is the entire financial ecosystem talking seamlessly.
• Control and convenience: With open banking, you grant access to one account. Open finance, on the other hand, you’re handing over the keys to your entire financial life.
• The future potential: Open banking makes payments faster. Open finance could reshape finance entirely. Think automated tax filings, real-time loan approvals, or AI wealth advisors that see your full portfolio. The catch? Stricter regulations and bigger privacy debates are coming.

How does open finance work?

Open finance is an extension of open banking that allows consumers to share a broader range of financial data beyond just bank accounts with third-party providers via secure APIs (application programming interfaces). It gives individuals and businesses more control over their financial information and enables more personalized financial services.

Here is how open finance works:

1. User consent

The foundation of open finance lies in user consent. Individuals must give explicit permission before a third-party provider (TPP), such as a budgeting app, investment tool, or loan platform, can access their financial data. 

This consent process typically uses Strong Customer Authentication (SCA), a two-factor verification method designed to enhance security and protect user privacy. Consent is often time-bound and revocable, meaning users can easily withdraw access when desired.

2. Data sharing via APIs

Once permission is granted, financial institutions, such as banks, pension providers, credit card issuers, or insurance companies, expose specific datasets via secure APIs. The shared data may include:

• Bank accounts – Transaction history, balances, etc.
• Credit cards – Credit limits, outstanding balances, usage patterns.
• Loans – Payment history, interest rates, balances.
• Mortgages – Terms, repayments, equity information.
• Investments – Portfolio composition, returns, risk profiles.
• Pensions – Contributions, balances, expected payouts.
• Insurance policies – Coverage details, premiums, claims history.

This enables TPPs to access and retrieve relevant financial data in a standardized and secure manner.

3. Data aggregation and analysis

After accessing the data, third-party services aggregate it across multiple sources to build a comprehensive financial profile. They use advanced analytics to deliver value-added services such as:

• Financial planning tools that offer goal-based savings strategies.
• Credit scoring engines that include broader data for more accurate assessments.
• Loan comparison tools that recommend suitable lending options.
• Personalized offers based on user habits and financial behavior.
• Robo-advisors that use algorithms to optimize investment portfolios.
• Automated savings apps that move spare change or idle funds into savings.

This step transforms raw data into actionable insights tailored to the user.

4. Ongoing access (with Consent)

Certain applications require continuous or periodic access to financial data to function optimally. For example, a spending tracker or alert service may need real-time access to detect unusual activity or notify users of overdraft risks. With the user's ongoing consent, these services can refresh the data periodically and maintain an up-to-date financial overview.

What are the core principles of open finance?

Open finance is built on empowering consumers by giving them control over their financial data. The key principles of open finance include data ownership and control, consent-based sharing, interoperability, robust security, transparency, financial inclusion, innovation, and consumer empowerment. 

These principles ensure that open finance is safe, user-centric, and accessible, while encouraging innovation and competition in the financial sector.

Here’s a closer look at the core principles of open finance:

1. Data ownership and control

In open finance, you own your financial data. That might sound simple, but it flips the traditional model on its head. For decades, financial institutions acted as gatekeepers to your transaction history, credit data, and account activity. 

Open finance changes that. Now, you decide who can access your data and for what purpose. This shift promotes trust, because control lies where it should: with the consumer. It also sets a new standard for fairness and accountability in financial relationships.

2. Consent-driven data sharing

In open finance, data sharing only happens when you give explicit, informed permission. You’re told exactly what data is being shared, with whom, and why. Just as importantly, you can revoke that consent at any time. It’s a system designed to keep users in control. 

This approach prevents silent data exchanges behind the scenes and ensures that your participation in the ecosystem is fully voluntary and reversible.

3. Interoperability

Imagine trying to use two different phone chargers from rival brands. Frustrating, right? That’s how the financial world used to operate. Interoperability fixes this. It ensures that systems, apps, and financial institutions can seamlessly communicate and exchange data. 

Whether you’re managing accounts across different banks or using a budgeting app, interoperability ensures that everything works together. It reduces friction, expands consumer choice, and allows financial tools to integrate more easily into your life.

4. Security and privacy

No one wants to trade convenience for vulnerability. That’s why security is central to open finance. End-to-end encryption, multi-factor authentication, and privacy by design are essentials. 

Financial data is highly sensitive, and strong safeguards are necessary to keep it out of the wrong hands. Importantly, privacy is built into the architecture from day one, not as an afterthought. Open finance systems aim to minimize the data shared and ensure it's used only for the agreed-upon purpose.

5. Transparency

We’re all tired of fine print and hidden fees. Open finance pushes for clear, honest communication. Providers must be upfront about their data practices, fees, and terms of service. That means fewer surprises and more confidence in the platforms you choose to trust with your data. 

With transparency, consumers can make informed decisions, compare services more effectively, and hold companies accountable when they fall short.

Benefits of open finance 

Open finance offers numerous benefits for consumers, financial institutions, and fintechs. It empowers consumers with control over their financial data, enables financial institutions to deliver more personalized services, and helps fintechs build innovative, inclusive solutions. 

By securely sharing data across providers, open finance fuels competition, transparency, and smarter decision-making for everyone involved in the financial ecosystem.

To understand its impact, let’s break the benefits down by key stakeholders: consumers, financial institutions, and fintechs. 

Benefits of open finance for Consumers

• Greater control and ownership of financial data: Open finance puts consumers in the driver’s seat. No longer do people need to rely on siloed systems or wait for banks to provide paper statements. Instead, users can grant and revoke access to their financial data as they choose, quickly and digitally.
• More personalized financial products: When financial data flows freely (with permission), service providers can tailor their offerings more precisely. Whether it’s a budgeting app that factors in your real-time spending or a lender offering fairer rates based on your transaction history, open finance helps ensure products are relevant, not generic.
• Simplified money management across institutions: Let’s face it: managing finances across multiple banks, investment accounts, and pension providers is often a hassle. Open finance aggregates this information into a single view, offering clarity and convenience. Consumers no longer have to hop between apps to get a full picture of their financial health.
• Improved access to credit and financial services: Creditworthiness shouldn’t depend only on traditional credit scores. With open finance, lenders can assess applicants using real-time cash flow data, income patterns, and other metrics, potentially opening up credit access to underserved or “thin file” individuals, such as freelancers or gig workers.
• Enhanced financial literacy and decision-making: When data becomes more accessible and user-friendly, consumers are better positioned to understand their own habits. Open finance tools can visualize spending trends, highlight savings opportunities, and prompt smarter choices without overwhelming jargon.

Benefits of open finance for financial institutions

• Richer customer insights: With customer consent, banks and financial firms can access a broader swath of financial behavior, spanning accounts, loans, and investments. This offers a 360-degree view of clients, allowing institutions to spot opportunities, detect risks early, and deepen engagement.
• Lower customer acquisition costs: Rather than spending heavily on ads or outbound marketing, open finance allows banks to integrate into platforms where consumers already are, like personal finance apps or marketplaces. This embedded approach means less friction and lower acquisition costs.
• Enhanced compliance and fraud detection: Better data visibility helps banks improve risk profiling, monitor suspicious behavior, and meet evolving regulatory standards. Open finance systems often include robust encryption and real-time monitoring, which add another layer of security and compliance readiness.

Benefits of open finance for Fintechs

• Access to rich, real-time data: Fintechs thrive on data, and open finance gives them access to consumer-permissioned financial insights they would’ve otherwise had to scrape or simulate. Real-time transaction data, savings patterns, and payment behaviors unlock massive innovation potential.
• Faster product development: Time-to-market matters, and open APIs allow fintechs to plug into the financial system without building everything from scratch. Whether it's launching a budgeting app, savings tool, or lending algorithm, open finance accelerates the path from idea to execution.
• Opportunities for collaboration: Rather than competing head-to-head with banks, many fintechs now build complementary services that integrate directly with existing institutions. Open finance facilitates this collaboration, creating an ecosystem where each player adds value.

How the globe is adopting to open finance

Across the globe, open finance is steadily moving from buzzword to business norm. While open banking laid the foundation, open finance takes it a step further. It opens the entire financial ecosystem, from savings and insurance to pensions and investments, putting control back into users’ hands.

In the UK and parts of Europe, regulation has acted as a strong catalyst. The PSD2 directive kickstarted a more connected financial system. Now, companies like Moneyhub are using open finance APIs to offer consumers real-time views of their financial lives, even integrating pension and investment data. This helps users make more informed, tailored financial decisions—whether it’s adjusting savings goals or optimizing tax strategies.

Meanwhile, in Latin America, countries like Brazil are making waves with their open finance initiatives. A standout example is Belvo, a fintech platform enabling businesses to securely access users’ banking, tax, and personal finance data. From budgeting apps to credit scoring tools, Belvo is powering services that were once unimaginable in the region.

Globally, businesses aren’t just responding to open finance—they’re building entirely new models around it. And as consumer expectations shift, companies that embrace openness will be the ones to thrive.

Technologies used in open finance

Open finance thrives on a combination of technologies that work together to enable secure, efficient, and user-consented financial data sharing across institutions. At its core are APIs, AI and machine learning, and blockchain, each playing a unique role in transforming traditional banking into more inclusive, innovative, and automated systems. 

Supporting technologies like cloud computing, big data analytics, SMPC, and DeFi further enhance scalability, intelligence, privacy, and decentralization in open finance ecosystems.

1. APIs 

APIs are the cornerstone of open finance. They allow different software systems, such as banks and fintech apps, to talk to each other in real time. They give authorized third-party providers (TPPs) access to user data held by financial institutions, but only when customers explicitly grant permission. 

This access enables TPPs to build a wide array of services like budgeting tools, account aggregators, lending platforms, or investment advisors—all based on up-to-date financial data.

What makes APIs so valuable in open finance is their standardization. In regions with regulatory frameworks like PSD2 in Europe, financial institutions must provide open APIs. 

This levels the playing field, fuels competition, and opens doors for innovative services tailored to different consumer needs. APIs also improve speed and reduce the cost of integration, helping even smaller fintech startups enter the market faster.

2. AI and machine learning (ML)

Artificial intelligence and machine learning have become essential in managing the vast amount of financial data that open finance enables. These technologies analyze patterns, detect anomalies, and make predictions far faster than traditional systems. 

In fraud detection, for example, AI can instantly flag unusual transaction behavior based on a user’s historical data. In credit scoring, ML models assess risk more fairly by incorporating a broader range of data, not just a credit score.

Personalization is another key benefit. AI can tailor financial advice, spending insights, or investment strategies based on a user’s financial habits. ML also automates tedious processes like document verification or customer onboarding, drastically improving efficiency and user experience.

3. Blockchain

Blockchain adds a powerful layer of trust and transparency to open finance. At its core, it’s a decentralized ledger where data entries (blocks) are chained together and cryptographically secured. In open finance, blockchain is often used to verify transactions without needing a central authority. 

This makes it useful for cross-border payments, where intermediaries can slow down the process and increase costs.

The immutability of blockchain records ensures data cannot be altered after the fact, enhancing auditability and fraud prevention. Smart contracts(self-executing programs on the blockchain) can automate processes like loan approvals or insurance claims based on real-time data feeds.

4. Other technologies used in open finance

• Cloud computing: Cloud platforms provide scalable infrastructure for storing and processing massive volumes of financial data. This flexibility allows fintechs and banks to deploy services globally while reducing overhead costs and improving uptime.
• Big data analytics: Analyzing massive datasets enables better insights into consumer behavior, helping institutions improve decision-making. For instance, a bank might identify spending trends to offer personalized products or detect emerging risks.
• Secure multi-party computation (SMPC): SMPC enables multiple parties to analyze shared data without actually revealing their individual inputs. It’s particularly valuable in open finance when institutions want to collaborate without compromising customer privacy.
• Decentralized finance (DeFi): DeFi applications operate on public blockchains and offer services like lending, borrowing, and trading without intermediaries. This makes financial tools accessible to users who might not qualify for traditional services due to location or credit history.

Security and regulations in open finance

Some of the key security and regulations in open finance include:

1. Data protection and privacy

Open finance hinges on customer data, so protecting that data is non-negotiable. Financial institutions and third parties must implement strict security measures like encryption and secure servers to guard against breaches. 

Laws such as GDPR (EU) or LGPD (Brazil) guide how data should be collected, stored, and used. Violating the GDPR can attract a fine of up to over $20 million or up to 4% of an organization’s total global turnover of the preceding fiscal year.

The goal is to ensure that personal information stays private and is only used for what the user agrees to.

2. Consent management

Before any data is shared, users must give clear, informed consent. This is to enable users to control how their financial data is used. A good consent system should:

• Be easy to understand (no legal jargon)
• Let users choose exactly what data to share
• Allow users to withdraw permission at any time
  This gives people peace of mind and puts them in the driver’s seat of their financial data.

3. Authentication and authorization

Security starts with knowing who is accessing the system. That’s where strong authentication comes in. Open finance systems often rely on protocols like:

• OAuth 2.0 (used for secure delegated access)
• Mutual TLS (ensures both client and server identities are verified)

These processes ensure that only verified users and apps can access or move financial data, protecting against fraud and impersonation.

4. API security

APIs are the "pipes" through which data flows in open finance. But just like any infrastructure, these pipes need to be secure. Common API security practices include:

• Limiting who can access APIs (using tokens or keys)
• Monitoring API usage for unusual behavior
• Encrypting all data in transit
  APIs are powerful, but without proper security, they become vulnerabilities.

5. Regulatory frameworks

Open finance isn’t a free-for-all. Governments and regulators set rules to guide how data should be shared and protected. Examples include:

• The UK’s Open Banking Standard (overseen by the Competition and Markets Authority)
• The EU’s PSD2 directive which mandates open APIs and strong customer authentication

These frameworks ensure all players—banks, fintechs, and aggregators—follow the same standards and protect consumer interests.

Adopt open finance with DigitalAPI

Embracing open finance doesn't have to be a complex journey, especially with platforms like DigitalAPI leading the way. For businesses looking to tap into financial data and build customer-first solutions, DigitalAPI offers a practical entry point. 

Their API Management solution gives you the control to build, deploy, and scale APIs securely and efficiently.

But the real game-changer? The API Marketplace. It serves as a centralized hub where developers and businesses can discover ready-to-integrate financial APIs, from digital banking to payments and identity verification. 

This speeds up product development and allows fintechs and traditional institutions alike to collaborate, experiment, and innovate without reinventing the wheel.

What’s refreshing is how DigitalAPI simplifies access to banking capabilities while still giving businesses the flexibility to tailor solutions. Instead of spending months building infrastructure, you get to focus on what matters—user experience and value delivery. 

Book a demo here to see Digital API in action!

FAQs

1. Why is open finance important for the future of fintech?

Open finance unlocks access to a broader range of financial data beyond banks, like pensions, insurance, and investments. This transparency allows fintechs to create smarter, more personalized services. It fuels innovation, enhances financial inclusion, and empowers consumers to take control of their entire financial ecosystem through a single interface.

2. How does open finance benefit consumers and businesses?

Consumers gain easier access to tailored products like budgeting tools, loans, or investment advice, thanks to their shared financial data. For businesses, open finance enables faster credit checks, better risk assessment, and seamless payment experiences. The result is a more competitive, efficient financial market where both parties can thrive.

3. What APIs are involved in open finance?

Open finance relies on APIs such as account information APIs, payment initiation APIs, credit scoring APIs, and identity verification APIs. These interfaces allow secure data sharing between financial institutions and third parties, enabling services like unified dashboards, real-time payment processing, and custom financial insights for users.

4. How will open finance impact traditional financial institutions?

Traditional institutions will need to adapt by embracing collaboration, improving digital experiences, and rethinking data strategies. While it introduces competition, open finance also offers opportunities to partner with fintechs, monetize data access, and modernize legacy systems, ultimately helping them stay relevant in a more open, user-driven financial ecosystem.

5. What are the regulatory frameworks driving open finance in the UK, EU, and US?

In the UK, Open Banking regulations by the CMA laid the groundwork, now evolving toward broader open finance through the Smart Data initiative. The EU advances under PSD2 and the proposed Financial Data Access (FiDA) regulation. The US lacks a unified rule but is progressing via CFPB initiatives under the Dodd-Frank Act’s Section 1033.

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