Open banking
Topic: Payment Systems and Digital Finance · NCERT: Beyond NCERT
Meaning
Open banking is a system in which banks share a customer's financial data with outside companies, called third-party providers, but only when the customer agrees. The data moves through secure APIs, which are software links that let two computer systems talk to each other safely. With this data, other firms can offer new services, such as quicker loans or money-management apps. It matters because a person's financial history stops being locked inside one bank.
Example
Under the EU's PSD2 rules and the UK's open-banking rules, a customer can let a budgeting app read their bank transactions through the bank's API. The app then shows all their spending in one place.
Don't confuse with
- Account Aggregator (India): India's version of open banking. A separate RBI-regulated consent manager (an NBFC-AA, live since September 2021) sits between the bank and the data user. Banks do not deal directly with each third party. The AA is "data-blind": it passes on encrypted data but cannot read or store it.