Open Banking: What It Is and How to Use It to Your Advantage

Imagine being able to carry your entire financial history from one bank to another in just a few clicks — no endless paperwork, no re-proving your income, no starting from scratch. Imagine receiving personalized credit offers with the best rates on the market, because financial institutions already know your real payment profile. This isn’t science fiction — it’s open banking, and it’s already reshaping how consumers interact with financial services across the globe.

Open banking (also known as open finance in more advanced implementations) is one of the most significant transformations in personal finance in recent decades. In the United States, the Consumer Financial Protection Bureau (CFPB) has been advancing Section 1033 of the Dodd-Frank Act, which establishes consumers’ rights to access and share their financial data. In Europe, PSD2 (Payment Services Directive 2) has been driving open banking since 2018. And in countries like Brazil, a comprehensive Open Finance ecosystem regulated by the Central Bank is already fully operational.

In this comprehensive guide, we’ll explain what open banking is, how it works in practice, the real benefits for your wallet, and how you can use it to save money and get better financial conditions.

What Is Open Banking

Open banking is a system that allows consumers to share their financial data between authorized institutions in a secure, standardized, and controlled manner. At its core, it puts you — the consumer — in charge of your own financial data.

Before open banking, your data was locked inside whatever bank you used. If you wanted to switch to a better institution, you had to start from zero: prove your income again, build a new relationship, and wait months to get decent credit limits. Now, with proper consent, you can transfer that entire financial history instantly.

The Global Landscape of Open Banking

Open Banking vs Open Finance

How Data Sharing Works

The process of sharing financial data through open banking is designed to be simple and secure. You maintain complete control throughout the entire process.

Step-by-Step Data Sharing

1. Choose a receiving institution: For example, a fintech offering better credit rates or a lending platform that wants to see your history.
2. Request data sharing: Within the receiving institution’s app, you initiate the process.
3. Redirect to your bank: You’re sent to your current bank’s app or website.
4. Authenticate and consent: You log in to your bank and authorize which specific data will be shared.
5. Data transfer: Your information is sent in an encrypted, standardized format via secure APIs.
6. Receiving institution uses the data: To offer personalized products, better rates, consolidated views, etc.

What You Can Share

Consent Rules

Consent in open banking frameworks follows strict rules designed to protect consumers:

• Time-limited: In most frameworks, consent is valid for a defined period (typically 12 months) and must be renewed.
• Specific: You choose exactly which categories of data to share — you’re never forced to share everything.
• Revocable: You can cancel data sharing at any time, through either institution’s app.
• Free: There is no cost to share or revoke consent.
• Transparent: You can view all active consents and their history at any time.
• Purpose-bound: Institutions must declare what they will use your data for.

Security: Is It Safe to Share?

This is the most common concern — and a completely valid one. The good news is that open banking was designed from the ground up with security as an absolute priority.

Layers of Protection

The system uses multiple layers of security:

1. Regulatory oversight: All participating institutions are supervised by financial regulators (CFPB in the US, FCA in the UK, Central Bank in Brazil) and must meet rigorous technical requirements.
2. Standardized APIs: Communication between institutions uses secure, standardized APIs following international protocols (OAuth 2.0, FAPI - Financial-grade API).
3. End-to-end encryption: Data is encrypted in transit and at rest, never exposed at any point.
4. Strong authentication: Authorizing any data share requires multi-factor authentication in your bank’s official app (biometrics, passwords, tokens).
5. Digital certificates: Each institution has digital certificates issued by accredited certificate authorities.
6. Data protection laws: Open banking operates under strict data protection regulations (GDPR in Europe, CCPA in California, LGPD in Brazil).

What Open Banking Does NOT Do

To be clear: open banking does not give anyone access to your bank account to move money. No institution can transfer funds just because you shared data. The only transactional capability (where available) is payment initiation, which requires your explicit, individual authorization for each transaction.

Benefits for You

Open banking isn’t just a technological curiosity — it brings practical, measurable advantages to your finances. Here are the key benefits:

1. More Competition, Better Prices

When institutions can access your data (with your permission), they compete against each other to offer the best terms. This means:

• Lower interest rates on loans and mortgages
• Lower fees on banking services
• Better returns on savings and investments
• Lower annual fees (or zero) on credit cards

2. Personalized Products

Instead of generic offers based on basic credit scores, institutions can analyze your real financial profile and offer products that actually make sense for your situation.

3. End of “Bank Lock-In”

Before open banking, switching banks was a painful process. Now, with data portability, you can migrate much more easily — and institutions know this, so they work harder to keep you.

4. Complete View of Your Finances

By sharing data from multiple institutions into a single app, you can have a 360-degree view of your finances: accounts, cards, investments, insurance — all in one place.

Better Credit Offers

One of the most tangible benefits of open banking is the ability to get cheaper credit. Here’s how it works in practice:

How Open Banking Reduces Your Interest Rates

Traditionally, when you apply for a loan, the lender uses your credit score from bureaus like Experian, Equifax, or TransUnion, plus whatever limited information they have about you. If you’re a new customer, the lender assumes more risk and charges you more.

With open banking, you can share:

• Your history of on-time payments at other banks
• Your real, recurring income
• Your investments (demonstrating ability to repay)
• Your responsible spending patterns

Practical Example: $15,000 Personal Loan

In this example, simply sharing your financial data could save over $1,100 on a single loan. Multiply that across all the credit products you use over your lifetime, and the savings become enormous.

Types of Credit That Can Get Cheaper

• Personal loans: Lower rates with verified payment history
• Mortgages: Better conditions with complete financial profile
• Auto loans: Lower down payments and more affordable installments
• Credit cards: Higher limits and reduced annual fees
• Student loans: Refinancing at better rates
• Lines of credit: Limits better matched to your real financial capacity

Better Investment Conditions

Open banking doesn’t only benefit those who need credit. For investors, the advantages are equally significant.

How It Works for Investors

By sharing data from your investment portfolio with a brokerage or investment platform, you can receive:

• Personalized recommendations based on your actual holdings and risk tolerance (not just a generic suitability questionnaire)
• Lower management fees — brokerages may offer funds with reduced fees to attract investors with good portfolios
• Pension portability proposals — with better conditions than your current plan
• Access to exclusive products — some investments require proof of qualified investor status

Practical Example: 401(k) Rollover / Pension Portability

Over 20 years of accumulation, that difference in management fees alone can represent over $50,000 more in your final portfolio, thanks to the power of compound interest.

Portfolio Consolidation

One of the biggest pain points for investors is having accounts scattered across multiple institutions. Open banking enables:

• Unified dashboard: See all your investments from all brokerages in one place
• Performance tracking: Compare returns across providers
• Tax optimization: Identify tax-loss harvesting opportunities across your entire portfolio
• Rebalancing alerts: Know when your overall allocation drifts from your target

Easier Portability

Portability is perhaps the most practical everyday benefit. With open banking, switching banks, brokerages, or insurers has become much simpler.

Types of Portability Made Easier

1. Payroll portability: Switch the bank where you receive your salary without paperwork through your employer.
2. Credit portability: Transfer loans and mortgages to institutions with lower rates.
3. Pension portability: Move retirement plans to funds with lower fees and better performance.
4. Investment portability: Transfer assets between brokerages with your history intact.
5. Insurance portability: Compare and switch to insurers with better coverage and pricing.

Before vs After Open Banking

How to Activate Open Banking

Activating open banking is free and straightforward. Here’s a step-by-step guide:

Step 1: Check If Your Institution Participates

Most major banks and fintechs already participate in open banking initiatives. In the US, the CFPB’s Section 1033 rule is being implemented in phases, with the largest institutions required to comply first.

Major participating institutions include:

• US: Chase, Bank of America, Wells Fargo, Citibank, Capital One, plus fintechs like Plaid, Yodlee
• UK: All major high-street banks (HSBC, Barclays, Lloyds, NatWest) plus digital banks (Monzo, Revolut, Starling)
• EU: All banks offering payment accounts are required to provide access under PSD2

Step 2: Choose the Receiving Institution

Decide which institution or app you want to share your data with:

• A digital bank offering fee-free accounts
• A lending platform with better interest rates
• A brokerage for better investment tools
• An aggregator that pulls balances from several institutions

Step 3: Initiate the Sharing Process

In the receiving institution’s app:

1. Look for “Open Banking,” “Connect accounts,” or “Link your bank”
2. Select your bank from the list
3. Choose which categories of data you want to share
4. You’ll be redirected to your bank’s app or website

Step 4: Authorize at Your Bank

In your bank’s official app:

1. Log in as you normally would (password, biometrics, etc.)
2. Review the data that will be shared
3. Confirm your consent
4. Done! Data will be transferred automatically

Step 5: Manage Your Consents

You can check and manage all active consents at any time:

• In each institution’s app: Usually under Settings > Connected accounts or Open Banking
• Through your bank’s dashboard: Most banks now have a dedicated Open Banking management section
• Revocation: At any time, without cost or penalty

Precautions and Permissions

Even though open banking is secure, it’s important to take some precautions:

Best Practices

1. Share only what’s necessary: If an institution only needs your checking account data, don’t also share investments and insurance.
2. Review periodically: Check your active consents every 3-6 months and revoke those that no longer make sense.
3. Be wary of requests outside official channels: Open banking only works within official apps. Never share data via phone calls, emails, or text messages.
4. Verify the receiving institution: Make sure it’s authorized by the relevant financial regulator.
5. Keep your apps updated: Updates include important security patches.

What to Check Before Sharing

Scams Related to Open Banking

Unfortunately, criminals may use the name of open banking to perpetrate scams. Stay alert:

• Fake authorization links: Never click links received via SMS, email, or messaging apps to “authorize” open banking. The process always happens within official bank apps.
• Fake call centers: No bank will call you asking to authorize data sharing over the phone.
• Fake apps: Only download applications from official app stores (Google Play and Apple App Store).
• Phishing emails: Banks will never ask for your credentials via email to “set up” open banking.

The Future of Open Finance

Open banking is constantly evolving, and the future promises even more exciting developments for consumers.

What’s Coming Next

CFPB Section 1033 Full Implementation (US): The rule will be phased in through 2030, with the largest institutions complying first. This will standardize data access across all US financial institutions, making it easier to switch banks and compare products.

PSD3 and Financial Data Access (EU): The European Commission is working on PSD3 and the Financial Data Access (FIDA) regulation, which will expand open banking to investments, insurance, pensions, and more — essentially creating a European Open Finance framework.

Open Finance Expansion (UK): The UK’s Financial Conduct Authority (FCA) is developing a framework to extend open banking principles to savings, investments, insurance, and pensions.

AI-Powered Financial Services: The combination of AI with open banking data will enable:

• Personalized financial assistants that analyze all your accounts
• Smart alerts about savings opportunities
• Automatic negotiation of better rates
• Automated investment rebalancing
• Predictive cash flow management

The Numbers Behind Open Banking

Open banking is growing rapidly worldwide:

How Monely Can Help

Monely takes the opposite road from everything described above, and it is worth being explicit about it: Monely is not part of the open banking ecosystem and does not connect to any bank. Nothing is pulled from your accounts. Everything in the app is what you put there.

A View Built From Your Own Entries

You register your accounts, your cards, and your credit cards with invoice and limit tracking, and then you log what moves:

• Log by hand, by WhatsApp, or by photo: type it, send a text or voice message to the assistant, or snap the receipt and let the OCR read it.
• Import a file: bring a statement or spreadsheet in PDF, CSV, XLS, XLSX, OFX, QFX, or TXT, plus direct importers for Wallet, Bluecoins, Splital, Minhas Finanças, and Money Manager backups.
• Track spending by category: standard and custom categories, plus tags for a second cut of the same expense.
• Set savings and investment goals: track how close you are to the target.

What You Get, and What You Give Up

The trade is plain: no automatic feed, and no bank access either. If you want your transactions to arrive on their own, an open banking aggregator is the right tool and Monely is not it.

Conclusion

Open banking represents a fundamental shift in the relationship between you and the financial system. For the first time, your financial data belongs to you, not to the bank where it’s stored. You decide who can access it, for how long, and for what purpose.

The benefits are concrete:

• Real savings through lower interest rates and fees
• Personalized products that genuinely match your financial profile
• Easier portability to switch banks, brokerages, or insurers without bureaucracy
• Greater competition between institutions, resulting in better conditions for you

Whether you’re in the US waiting for Section 1033 to be fully implemented, in Europe enjoying PSD2 benefits, or anywhere else in the world, open banking is coming to empower you with control over your financial data.

If you haven’t explored open banking yet, now is the perfect time to start. Check the data sharing options in your bank’s app and compare proposals from other institutions.

And whatever you decide about sharing, the day-to-day tracking still has to happen somewhere. Monely does that part without touching your bank: you log by message, by photo, or by hand. Download the app at monely.app and start organizing your accounts in one place — for free.

Open banking is transforming personal finance worldwide. Use this revolution to your advantage and make smarter financial decisions, with more information and more freedom.