What is open banking and why does it exist?
For years, banks controlled customer financial data, limiting competition and consumer choice. Open banking changed that.
Now, individuals and businesses have control over their financial information. They can securely share it with third-party providers to access more personalised financial services.
The principle is simple: data should work for consumers, not against them. With open banking, lenders, fintechs, and financial service providers can make smarter decisions. They gain real-time financial insights rather than relying on outdated credit scores.
At Atto, we make transaction data meaningful. We transform raw financial data into structured insights, helping lenders assess risk accurately and offer credit products that truly reflect a borrower’s financial reality.
How did open banking develop?
In 2016, the UK’s Competition and Markets Authority (CMA) identified a problem: large banks weren’t competing enough, and consumers weren’t benefiting from innovation. Smaller financial providers struggled to scale, limiting access to better financial products.
To address this, regulators introduced open banking. By 2018, Open Banking Limited (OBL) was established to oversee implementation. This set the foundation for a more transparent financial ecosystem.
Since then, open banking has gained momentum:
- 10 million+ active users (individuals and SMEs) now use open banking-powered apps.
- Banks must provide secure APIs for regulated providers to access transaction data (with customer consent).
- Fintechs have developed faster, more accurate affordability checks and lending solutions.
How does open banking work?
For a company to offer Account Information Services (AIS), it must be authorised by a regulatory body, such as the Financial Conduct Authority (FCA) in the UK or its equivalent in other regions. With customer consent, regulated providers can access financial data via secure APIs—the same technology used in online banking. This ensures high security while enabling real-time financial insights.
Why open banking matters for lenders
1. A more accurate picture of financial health
Traditional credit scores rely on historical data—which can be outdated or incomplete. Open banking fills this gap by providing a real-time financial snapshot, allowing lenders to assess affordability based on live income and spending patterns. This is especially useful for:
- Thin-file customers (those without extensive credit history).
- Freelancers & gig workers with variable income streams.
- Newcomers to a country with strong finances but no local credit footprint.
With real-time cash flow analysis, lenders can make lending decisions that are fairer and more reflective of a borrower’s actual financial situation.
2. Risk assessment with live data
Credit reports provide a static view of a borrower’s financial history, but financial circumstances change. Open banking allows lenders to monitor live financial activity, meaning they can:
- Detect income fluctuations or early financial stress indicators.
- Identify warning signs before a borrower defaults.
- Assess affordability dynamically, reducing unnecessary declines & improving retention.
This enhances risk management, allowing lenders to make faster, more responsive credit decisions.
3. Making bank transactions meaningful
Raw bank transaction data is complex, unstructured, and difficult to interpret. Open banking platforms enrich this data, turning it into actionable insights that drive better decision-making. At Atto, we specialise in this process. Our transaction enrichment engine categorises and contextualises financial data, helping lenders assess creditworthiness with greater accuracy.
How transaction enrichment works:
- Categorisation – Identifying spending patterns (e.g., groceries, rent, subscriptions).
- Classification – Understanding transaction types (e.g., recurring bills vs. discretionary spending).
- Merchant Identification – Recognising businesses instead of vague bank descriptions.
- Affordability & Income Verification – Determining disposable income & financial stability.
- Risk Indicators – Highlighting overdraft reliance, loan stacking, or spending volatility.
By moving beyond static credit scores, lenders can offer smarter, fairer lending decisions with confidence.
Where is open banking headed?
- The global open banking market is projected to reach $116 billion by 2026, growing at 25% CAGR.
- Europe leads adoption, with 68% of fintechs in the UK already integrating open banking APIs.
- 64% of lenders report that open banking has improved their credit decisioning.
As adoption grows, open banking is driving a shift towards data-driven lending models. This evolution is unlocking:
- Stronger fraud prevention, using live financial data.
- Faster, fairer lending, especially for underserved consumers.
- More personalised financial products, aligned with real spending behaviour.
Lenders who integrate open banking gain a competitive edge, while those relying solely on traditional models risk being left behind.
Conclusion
The financial industry is evolving, and open banking is at its centre. Lenders are shifting from traditional credit models to real-time financial decision-making, reducing risk while expanding access to fairer credit. At Atto, we help lenders turn raw banking data into powerful insights. Through real-time affordability checks, enhanced risk assessments, and enriched transaction data, we are shaping a more transparent, efficient, and inclusive financial ecosystem. For financial institutions, data-led decision-making isn’t optional—it’s the foundation of modern risk management and growth.
