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All you need to know about the open banking system
All you need to know about the open banking system
Smaro Makropoulou avatar
Written by Smaro Makropoulou
Updated over a week ago

What is open banking? Is it safe? How is it used by finloup?

Although open banking has been around for quite some time now, many people still don’t have a clue about what it really is or how it affects them. Keep reading if you want to discover how exactly it has made your life better, without you even noticing it.

What is the open banking system?

Open banking is a relatively new development that enables banks to securely share their data with 3rd party providers, such as specialized fintechs. To gain access to these data, these 3rd parties use a specific kind of coding called application programming interfaces (APIs).

Only a company/organization that is registered and certified as an Account Information Service Provider (AISP) or Payment Initiation Service Provider (PISP) can have access to those APIs and provide users’ data to 3rd parties – and strictly on the occasion that users have provided their consent.

These 3rd parties can then only view the data and not process them, in order to provide financial services, like leasing services or financial management tools.

Some examples

  • Example 1

A user safely shares their banking data via open banking with a mobile app that compares and finds tailor-made insurance packages, according to the user’s needs and affordability.

  • Example 2

A freelancer wants to lease devices from finloup. They safely share their banking data via open banking with fnloup, so that our algorithm can assess the business’s eligibility and approve the leasing plan.

The open banking system in Europe

After the European Union’s 1st failed attempt to implement open banking in 2007 through the «Payment Services Directive» (PSD1), in order to protect users’ rights and open the way for new financial services, the 2nd attempt in 2018 was successful, and «Payment Services Directive» (PSD2) was also incorporated in the Greek legislature with the Law 4537/2018.

How open banking is shifting the economy

Although in the biggest part of the world, banks have a long-term and loyal relationship with their clients, there is still a big percentage of people that do “not qualify for banking products”. This discrimination doesn’t just affect poor countries – even in wealthy parts of the world, there are groups that don’t have access to these products – such as credit or even a bank account!

Open banking gives the power to the consumer, by enabling a much more transparent system and unblocking a host of benefits such as:

  • Enables personalized and tailor-made financial products

  • Gives consumers full control over their financial data

  • Openes the way to fair access to credit

  • Encourages financially informed spending behaviors

  • Supports small businesses

  • Supports solo proprietorship owners and freelance professionals

The future of open banking

Bearing in mind that the open banking system has been practically applied since 2018, 24.7 million users worldwide have used open banking-supported services in 2020. This number is expected to reach 132.2 million users in 2024.

The open banking system is now inevitable for financial services companies, but also for businesses that need to gain a competitive advantage. Researchers forecast that open banking will soon be utilized by more industries, other than financing, and become the new norm.

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