Open Banking Expansion in the UK and Europe: What You Need to Know

In 2024, open banking is taking centre stage in both the UK and Europe, and it’s poised to revolutionize how we manage money. But what exactly is open banking, and how does it work? 

What Is Open Banking?

Open banking is a system that allows financial institutions (like banks) to securely share customer data with third-party apps or services, with your permission. These apps can then help you manage your money more efficiently by offering budgeting tools, tracking expenses, or even finding better financial products like loans or savings accounts. In essence, it opens up a world of personalized financial services that weren’t easily accessible before.

Why Is It Expanding in 2024?

In 2024, new regulations like PSD3 (Payment Services Directive 3) are being introduced across Europe to build on the success of previous frameworks like PSD2. These regulations aim to make it even easier and safer for banks and apps to collaborate, resulting in a better user experience for everyone. For example:

  • Faster Transactions: Payments will be processed faster, meaning no more waiting days for a bank transfer to go through.
  • Improved Security: With strict rules in place, your data is handled more securely, ensuring peace of mind while using financial apps.
  • Wider Adoption: Both consumers and businesses will adopt open banking more widely, meaning more innovative apps to help you save, invest, and budget.

The Pros and Cons of Open Banking

There are clear advantages to open banking. For one, it can streamline your financial life by consolidating all your accounts in one app, helping you track spending, save money, and even make better investment choices. It can also provide access to more competitive financial products. For instance, a lender could offer you a better interest rate by analysing your actual spending patterns rather than relying on broad credit score data.

However, open banking isn’t without its drawbacks. Security remains a major concern for many users. Although the system operates under strict regulations, the idea of sharing sensitive financial information with third-party apps can make people uneasy. There’s also the issue of data privacy, even if these services are secure, you’re still entrusting your financial habits and personal information to third-party companies. Additionally, not all banks or financial institutions are fully integrated into open banking yet, meaning the system isn’t as widespread or seamless as it could be.

Why Is Open Banking Expanding?

The expansion of open banking in 2024 is driven by new regulatory updates, like PSD3, which aim to make financial services more transparent and accessible. The European Union and the UK are pushing for a system that allows businesses and consumers to benefit from better services, faster transactions, and more tailored financial products. This shift from open banking to open finance means that more than just your bank account data could be shared, pension information, mortgage details, and insurance policies could all be integrated into one system.

As these regulations tighten and improve, open banking will likely become the standard in the financial services world. Already, the UK has been a leader in this space, but countries across Europe are quickly catching up. With rising trust in these systems, more banks are expected to offer enhanced services based on the open banking model, including faster, more secure payments like Variable Recurring Payments (VRP).

How to Prepare for the Future of Open Banking

As open banking expands, it’s crucial to stay informed and adaptable. The financial world is becoming more digital, and open banking is part of that evolution. Ignoring this shift could mean missing out on tools that can help you better manage your finances or save money on financial products. Look for apps and services that align with your financial goals, but be cautious about the permissions you grant. Not every app is created equally, and while many are secure, always choose services from reputable providers.

Ultimately, while open banking is set to improve financial services for most people, it’s important to understand the trade-offs. The future of finance is digital, and staying aware of how these changes can benefit (or potentially harm) your financial standing is key to not being left behind. Open banking will continue to evolve, and knowing the pros, cons, and upcoming changes will help you navigate it with confidence.

Reference List: 

  1. Plaid - Key trends shaping fintech across the UK and Europe in 2024. This source outlines how open banking is evolving under new regulations like PSD3, with insights into improved security, faster payments, and rising adoption across Europe​ Plaid 

  2. Moore Kingston Smith - Navigating the UK fintech market in 2024. This article discusses the broader fintech landscape, focusing on challenges like security risks and regulatory changes that will influence open banking expansion​ Moore Kingston Smith

  3. Grant Thornton - 2024 Key trends and risks for financial services. It provides insights into regulatory changes affecting financial services, including the push for better operational resilience and data privacy, which are essential for the future of open banking​ Grant Thornton UK LLP

  4. Norton Rose Fulbright - 2024 FinTech Outlook. This resource highlights ongoing discussions about AI, cybersecurity, and regulations shaping open banking and fintech across the UK and Europe​ Norton Rose Fulbright | Global law firm

     

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