The Open Banking market in the US has passed the USD 7bn mark, with a projected value of over USD 35bn by 2031. In the UK, the market is worth around GBP 4bn to the economy, with one in five consumers and small businesses already actively using open banking. If you’re not up to speed yet with what open banking APIs are, what open banking API management is, how it functions, and its significance in the financial industry, it’s time to catch up.
What are open banking APIs?
Open banking APIs are secure digital connections that allow third-party financial service providers to access customer banking data and initiate payments with the customer’s permission. These standardized interfaces enable banks to share financial information with authorized apps and services. They create new opportunities for financial management tools, services, and monetization for banks and fintechs, and deliver greater choice and control for customers.
API stands for application programming interface, which is a set of rules that allows different software systems to communicate with each other. In open banking, these APIs create a secure bridge between banks and authorized third-party providers.
Understanding APIs in the banking context
What is an API in banking? Well, banks use APIs for the smooth flow of data between their internal systems, third party providers and customer-facing apps. Their API ecosystem supports this to happen in a secure and compliant way.
In recent years, open banking APIs have taken this data sharing to new levels. Open banking is a financial framework and technology standard that empowers customers to consent to share their banking data with select authorized apps and services. This has paved the way for innovative bank and fintech integration, leading to benefits for those institutions, as well as for their customers.
Types of open banking APIs
Open banking APIs must ensure the security of customer data and comply with relevant regulatory frameworks. In Europe, they must comply with the revised Payment Services Director (PSD2), for example, while in Australia the relevant regulation is the Consumer Data Right. Compliance with such frameworks supports both standardization and security, ensuring that open banking APIs can be used successfully by developers, irrespective of the banking institution or third party in question.
Types of open banking APIs include:
- Account information APIs, which provide third parties with access customers’ financial data (once the customer has consented for them to do so).
- Payment initiation APIs, which enable third parties to initiate payments directly from a customer’s account, without having to go through a card network.
- Product and service information APIs, which provide third parties with access to financial service product information.
While the above are the three main types of open banking APIs, others that aid smooth interactions between financial institutions and third parties include:
- Funds confirmation APIs, which card-based payment instrument issuers use to verify that a user’s account has sufficient funds, helping prevent failed transactions and fraudulent payments.
- Identity verification APIs, also known as Know Your Customer (KYC) APIs. These provide third parties with access to verified customer identity information, helping streamline onboarding processes and prevent fraud.
- Transaction categorization and analytics APIs, which third parties can use to enrich transaction data (this is particularly useful for things like budget apps and credit scoring tools).
How do open banking APIs work?
What is an API in open banking? An open banking API works by opening up customer data to third parties in a secure and standardized way. The customer remains in control of the access, which they can revoke at any time.
Open banking API solutions rely on the customer initiating the connection, during which process they specify which information the third party can access from their bank account. After successful user consent and verification, the third party uses the bank’s token-based verification process for authorization to access the relevant data. Once the financial institution approves access, the third party receives the encrypted data via the open banking API.
What is open banking API management?
This relatively new and rapidly growing type of API banking automation has given rise to the need for a robust approach to open banking API management.
Open banking API management refers to the process of governing the full open banking API lifecycle. It encompasses the processes banks put in place to design, develop, secure, deploy, scale, analyze, and monitor their open banking APIs.
Banks often rely on an open banking API platform, such as Tyk, to implement this governance. Doing so helps them standardize the policies and processes they put in place, supporting a robust and comprehensive approach to API security and regulatory compliance. These transparent governance guardrails can ensure the open banking API management is standardized across the bank’s operations, while also giving individual developer teams the headroom to be flexible and innovative in their approach to creating new API products.
One of the tools that open banking API providers use to manage, maintain and govern their APIs is an API gateway.
What is an open banking API gateway?
An open banking API gateway is a secure platform that connects banks with third party financial service providers. It enables controlled access to customer account data through standardized APIs. Banks use it to support compliance with open banking regulations and to enhance innovation in financial products. They can enforce policies at the gateway level to ensure all open banking APIs deliver consistent security and performance.
Why API management is critical for open banking
API management for open banking is critical for a whole host of reasons. It sits at the heart of ensuring that open banking APIs protect customer data, adhere to regulatory requirements, and ultimately give customers the choice and control that open banking promises.
Beyond basic API deployment
Deploying an API is just one part of delivering a successful open banking initiative. API management ensures that API is interoperable, reliable, standardized, and secure, providing third party developers with everything they need to create innovative and scalable open banking products. That’s about far more than delivering an endpoint – it relies on full lifecycle API management to optimize the chances of success.
Standards such as PSD2 do much to support this open banking API integration. They ensure that a developer attempting to connect with and integrate an open banking API knows what to expect from the provider. Making open banking APIs accessible in this way thus supports greater competition in the financial services marketplace.
Key API management functions
Open banking API management encompasses several essential functions. These include:
- Security and access control: Robust authentication and authorization processes, such as using OAuth 2.0, are critical to ensuring third parties can access information securely, in line with what the customer authorizes them to access.
- Rate limiting and traffic management: Open banking API providers use rate limiting and other traffic management policy features to ensure their APIs deliver consistent performance even in the face of fluctuating traffic. Rate limiting protects APIs from overload, ensuring fair use and maintaining performance and stability.
- API versioning: Banks and other financial institutions need to evolve their APIs over time while also maintaining backward compatibility. Versioning is a key part of this, as it affords the flexibility and stability that banks need to evolve their open banking APIs while also supporting existing users.
- Documentation: This ensures developers can understand an open banking API, including its capabilities and limitations. It can be provided through a developer portal, with documentation covering each version of the API as it evolves.
- Developer portal and onboarding: A self-service developer portal can help drive open banking API adoption, providing developers with everything they need for easy onboarding and API integration.
- Analytics and monitoring: By tracking API usage, performance, and error rates, banks can maintain the reliability of their APIs, proactively detecting any anomalies.
Governance and compliance requirements
Open banking API governance and compliance regulations differ around the world, from Europe’s PSD2 legislation to the requirements of the US’s Consumer Financial Protection Bureau (CFPB). Any financial institution providing open banking APIs and using an open banking API platform needs to be aware of the regulations that apply to their region of operation.
Standardization initiatives for open banking APIs also differ from region to region. In the US, for example, Financial Data Exchange (FDX) is now officially recognized by the CFPB as a standard-setting body, making it the recognized open banking standard for open banking APIs there. We can see a similar situation in Europe, where the pan-European Berlin Group initiative developed the standardized API specifications for the NextGenPSD2 framework. In the UK, the Competition and Markets Authority has established the Open Banking Implementation Entity (OBIE) to define and maintain the country’s open banking standards.
Any organization providing an open banking API must comply with the open banking and data protection regulations that apply in that region. Robust API security, Strong Customer Authentication, detailed audit trails, compliance reporting, and more are essential to meeting these standards.
Open banking API monetization
Open banking API management is also critical for supporting the financial services sector to innovate. The days when banks tightly controlled data are long gone. While they must still keep data secure, they must also now share it with authorized, trusted third parties if they want to remain competitive.
This need to share data is leading to new monetization opportunities. After all, nobody said the exchange of data between banks and fintechs had to be free. This is an area of open banking that is still emerging, with many players watching how market changes in the US pan out, after a leading bank announced a new open banking API monetization strategy in July 2025. Whether such an approach becomes the industry standard remains to be seen.
Enhanced business decision-making
One further reason that open banking API management is so important is its ability to support enhanced business decision-making. With a comprehensive approach to monitoring and analytics in place, organizations can achieve far greater visibility, with detailed insight able to feed into strategic decisions across the business.
How to choose the best open banking API management platform in financial services
There is much to think about when it comes to future-proofing API management in open banking and financial services. The market continues to evolve rapidly, with open banking growing to become a broader open finance landscape, encompassing even more types of financial data and products.
This means choosing the best open banking API management platform in financial services is a hugely important strategic decision. It also means it’s time to find out about open banking API management with Tyk. Our open banking API platform provides all the capabilities and components you need for security, reliability, and scalability.
Speak to our team today about all your open banking API management needs.