What is the Difference Between Open Banking and Open Finance

Open Banking and Open Finance

Date: 26 Aug, 2022

Author: dirooriginal

The terms open banking and open finance are often used interchangeably. While both of them fall under the same umbrella, they are different from each other. Open banking is turning a lot of heads in the industry because of what it has to offer. The use of open banking is virtually endless and they help in providing additional layers of security and customer experience. 

Based on where you live and financial advancements in your area, you may get access to a variety of open banking-based services. At their core, open finance and open banking rely on consumer-permissioned data.

Understanding Open Banking:

Open banking is a concept that provides consumers with better control over their finances. Consumers can choose whether they want third-party providers to access their financial data or not. Access to this data can help third-party service providers offer specific services to the users. That’s not all, open banking can even lead to better bank account verification.

In the United Kingdom, European Union, Australia, and Brazil, open banking regulations are set by specific entities. In other countries, the growth of open banking means simplifying a customer’s financial journey. In the USA and Canada, open banking requires sharing of financial data with authorized third parties. This data sharing and open landscape become open finance.

Understanding Open Finance?

Open finance is a bigger concept than open banking. In open banking, the concept is sharing consumer-permissioned data and using it to improve customers’ financial data.

The core of open finance is consumer permissioned data that is used for one specific purpose. The goal of open finance is to provide consumers with the benefits the users wouldn’t receive without sharing data.

In the US, this same concept is called open banking, while in the EU it’s known as Open Finance.

Consumers are consenting to financial data sharing for use in FinTech apps and other solutions. Data sharing is leading to an open banking revolution. But some users believe that open banking is a brand new concept, but the truth is that consumers have been willingly sharing data since the early 2000s.

In some markets, open banking and open finance are related to account data connected using an API. However, in other markets, both terms include sharing consumer data with authorized third-party services. Regardless of how open banking/finance operates in a new market, they have to consent to their data being shared.

Open Finance is the Key to New Innovations:

In the early days of open finance, a lot of solutions revolved around payments and personal finance management. But, in recent times many more innovations have come out to the market based on the open banking landscape:


Whether consumers are looking for new accounts, personal loans, or mortgages. The open banking landscape can help them verify them in a couple of steps. Small businesses can also share their financial data to apply for a loan instead of the traditional process that often leads to rejection. Open banking can provide a complete overview of an individual’s and business’s financial reports. 

Digital Payment Processing:

One of the most challenging parts of the early days of banking was moving money from one bank to another one. Open banking-based payment processing is solving these problems and improving customer experience. Customers of today have so many options to choose from for payment processing, Customers have the freedom to customize payments,  type of accounts, and much more.

Personal Finance Management:

Open finance offers better control over a consumer’s finances. Open banking-based apps can help customers keep track of their transactions, investments in crypto, accounts, crypto wallets, and more. With better access to their personal finance data, consumers can learn how to handle their finances and improve their financial health.

Perks of Using Open Banking and Open Finance:

Open banking allows consumers and small businesses by providing a single platform for accessing, controlling, and permissioning their data. With API-reliant integrated accounts, consumers can access their finances within seconds.

Open banking plays a vital role in improving the financial landscape. Open banking requires a constant sharing of data between accounts and third-party service providers thus improving the efficiency and effectiveness of online financial services and apps. Moreover, the open banking landscape is also helping financial institutions with KYC verification during onboarding.

Future of Open Banking and Open Finance:

Open banking and open finance are transforming the banking sector into a place where credentials are not required. Instead, API-based access is becoming the focus of some markets. Other markets on the other hand are trying to utilize open banking and open finance to strengthen a customer’s financial journey.

Although, it is agreed worldwide that the use of API is a better option for connectivity than any other method. API access is all set to revolutionize the banking sector.

Open banking as a concept is still new to customers and even financial institutions. While it does offer several benefits, it will take some time for the concept to become more mature. It is also helping in providing clarity on data protection, data privacy, and consumer data rights. These things were not given much attention in the past.

As we move towards a more open finance-based economy, consumers, financial institutions, and regulators will have more data continuity.

Data continuity is a stream of data that consumers have used all throughout their financial lives. Financial data needs to stay with a customer for better experiences and services, thus coming back to open banking and open finance.

By dirooriginal

DIRO is an online document verification solution built to mitigate financial fraud and help businesses comply with regulations. DIRO helps businesses with building robust internal solutions for fraud mitigation. With DIRO’s online document verification API, financial institutions can reduce the risk of money laundering and other financial fraud.

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