How Open Finance Works
Open Finance is built on the same consent-and-API architecture that underpins Open Banking, but applied across the full spectrum of financial services. A consumer grants explicit permission for a specific third party to access specific categories of their financial data. The financial institution then exposes that data through a standardised API, and the third party uses it to deliver a product or service — all without requiring the consumer to share passwords or paper statements.
The process follows a consistent pattern regardless of the data type or institution involved.
Consumer initiates consent
The customer selects a product or service offered by a Third-Party Provider (TPP) and is presented with a clear consent request. This specifies exactly which financial institution, which data categories, and for how long access is granted. Consent is explicit, granular, and revocable at any time.
Identity and authorisation
The consumer authenticates directly with their financial institution — their bank, insurer, or pension provider — using strong customer authentication (SCA). This confirms the consent without the third party ever handling login credentials, reducing the risk of credential theft.
Data is exposed via API
The financial institution's open-banking-style API returns the requested data in a structured, machine-readable format. Depending on the regulatory framework, this may be a read-only data feed (for account information) or an action-capable endpoint (for payment initiation or variable recurring payments).
Third party builds value on top of data
The TPP — which could be a lender, insurance aggregator, payment orchestrator, or wealth manager — processes the financial data to deliver its service. This might be an instant credit decision, a personalised insurance quote, or a cross-institution cashflow dashboard.
Consumer benefits from enriched services
The end result is a product or service that is faster, more accurate, and more personalised than what was previously possible. The consumer retains full control: they can withdraw consent via the institution's portal or the TPP's interface at any time, and data access expires automatically at the agreed end date.
Why Open Finance Matters
Open Finance represents a structural shift in how financial data flows — from siloed institutions to interoperable, consumer-controlled networks. For merchants and payment professionals, this has direct commercial implications: lower transaction costs, better fraud signals, and access to financial products that would previously have required weeks of manual underwriting.
The scale of the opportunity is significant. The global open banking and open finance market was valued at approximately $22.5 billion in 2023 and is projected to reach $123.7 billion by 2031, growing at a CAGR of 27.4% (Allied Market Research, 2023). This growth is driven by regulatory mandates, rising API standardisation, and consumer demand for more personalised financial products.
In the UK, the Financial Data and Services (FDS) framework — which builds on psd2-era open banking infrastructure — is expected to govern access to assets across pensions, savings, and investments sectors collectively worth over £20 trillion. Separately, a 2024 Plaid survey found that 71% of SMEs said access to richer financial data would meaningfully improve their ability to manage cash flow and secure financing. For B2B merchants, this directly translates into better trade credit terms and faster payment cycles.
Regulatory watch
The EU's Financial Data Access (FIDA) regulation, proposed in June 2023, would require insurers, asset managers, and pension funds to share data with authorised TPPs upon customer consent — creating the first comprehensive open finance mandate in a major market. Implementation timelines are expected from 2026 onwards.
Open Finance vs. Open Banking
Open Finance is frequently conflated with Open Banking. They share the same technical and consent architecture, but differ significantly in scope, maturity, and regulatory status. Understanding the distinction is critical when evaluating which data sources are available, which institutions are obligated to share, and which regulatory frameworks govern the product you are building.
| Dimension | Open Banking | Open Finance |
|---|---|---|
| Scope | Payment accounts (current, credit) | All financial products (insurance, pensions, investments, mortgages) |
| Regulatory status | Mandated in EU (PSD2), UK, Brazil, Australia | Emerging — FIDA (EU), FDS (UK), voluntary elsewhere |
| Data types | Transaction history, balances, payment initiation | Insurance policies, pension values, investment portfolios, mortgage data |
| Use cases | A2A payments, account aggregation, credit scoring | Full affordability checks, pension dashboards, cross-product personalisation |
| API maturity | Standardised (Open Banking UK, Berlin Group) | Fragmented — standards still developing |
| Consumer awareness | Growing, especially in the UK | Early stage in most markets |
| Third-party access | Payment initiation, account information | Read access expanding to action capabilities over time |
Types of Open Finance
Open Finance is not a single product category — it is an umbrella term for data-sharing across multiple distinct financial verticals. Each vertical has its own data structures, regulatory considerations, and use cases relevant to merchants and payment professionals.
Open Insurance covers life, home, motor, and health policies. Insurers expose coverage details, claims history, and premium data, enabling real-time comparison, embedded cover at checkout, and dynamic underwriting.
Open Pensions provides access to retirement account balances and contribution history. This is central to affordability decisioning for large purchases and mortgage applications, and is a focus of the UK's Pensions Dashboard Programme.
Open Investments and Wealth exposes brokerage and ISA holdings, enabling wealth aggregation apps and more accurate net-worth-based credit decisioning. Relevant to high-value merchants offering financing.
Open Mortgage and Lending makes existing credit obligations and repayment history available, complementing credit bureau data with real-time, consent-driven signals — particularly valuable for embedded-finance checkout lending.
Open Payments — the most mature vertical — encompasses account-to-account-payments, variable recurring payments (VRP), and sweep services. This is where open finance has the most immediate commercial impact for merchants today.
Best Practices
Open Finance unlocks significant value, but only when implemented with clear data governance, robust APIs, and well-designed consent flows. The risks of a poor implementation — regulatory breaches, consumer distrust, or data leakage — can outweigh the benefits.
For Merchants
Map your data needs before integrating. Identify specifically which financial data categories you need and why — income verification, affordability scoring, identity confirmation — and ensure your consent request is scoped accordingly. Requesting more data than necessary increases regulatory risk and damages consumer trust.
Prioritise providers with standardised API coverage. Where possible, work with TPPs and aggregators that access data via regulated, standardised APIs rather than screen-scraping fallbacks. Standardised access is more reliable, more secure, and more likely to remain compliant as regulation matures.
Design consent into the UX, not onto it. Consent prompts placed as friction points will be dismissed or misunderstood. Present the value exchange clearly: explain what data you are accessing, why, and what the customer gets in return. Conversion rates for consent-based flows improve significantly when the benefit is explicit.
Build for data expiry. Open finance consent is time-limited. Build your systems to handle token refresh, consent renewal, and graceful degradation when access lapses — rather than treating a one-time grant as permanent access.
For Developers
Implement OAuth 2.0 and FAPI profiles correctly. Open finance APIs follow the Financial-grade API (FAPI) security profile, which builds on OAuth 2.0 with additional requirements for token binding, PKCE, and mTLS. Use certified libraries and have your implementation audited before going to production.
Normalise data across institutions. Financial data formats vary by institution and jurisdiction. Build a normalisation layer that maps institution-specific field names and formats to a canonical internal schema, so your downstream logic is decoupled from provider-specific quirks.
Log consent events immutably. Every consent grant, scope change, and revocation must be logged with a timestamp and audit trail. This is required under most data protection frameworks and is essential for responding to consumer access requests or regulatory investigations.
Test against sandbox environments that mirror production edge cases. Many open finance sandboxes do not reflect the full range of account states — empty accounts, frozen accounts, accounts with complex product structures. Invest in test fixtures that cover these scenarios before going live.
Common Mistakes
1. Treating open finance as synonymous with open banking. Open banking covers payment accounts. Open finance extends to insurance, pensions, investments, and mortgages. Building a product on the assumption that all financial data is available via existing open banking APIs will result in gaps — particularly for pension and insurance data, which requires separate integrations and, in some markets, separate regulatory authorisation.
2. Ignoring consent lifecycle management. Consent in open finance is not a one-time event. It expires, can be revoked, and may need to be renewed if the scope changes. Systems that do not handle token expiry, revocation webhooks, and re-consent flows will silently lose access to data — often without surfacing an obvious error to the end user.
3. Over-scoping data requests. Requesting access to more financial data categories than your use case requires is a common compliance error. Under GDPR and equivalent frameworks, data minimisation is a legal obligation, not a best practice. Over-scoping also increases consumer hesitation at the consent screen, reducing conversion.
4. Building on non-standardised or screen-scraping APIs. Some aggregators still supplement standardised API coverage with screen-scraping for institutions that have not yet opened their APIs. This is increasingly prohibited under PSD2 and equivalent frameworks, fragile to institution website changes, and a liability in any regulated market. Verify your aggregator's data access methods before signing a contract.
5. Underestimating cross-border regulatory complexity. A product compliant in the UK under the FDS framework may require separate authorisation and consent flows in the EU under FIDA, and face a completely different voluntary framework in the US. Build your data-portability and consent architecture to be jurisdiction-aware from the start, rather than retrofitting it after expansion.
Open Finance and Tagada
Open Finance is directly relevant to how payment orchestration platforms like Tagada route and optimise transactions. By connecting to open finance data flows, Tagada can access real-time account balance signals, income verification data, and affordability scores to make smarter routing decisions — sending high-value transactions through account-to-account rails instead of card networks when the cost and conversion maths favours it.
How Tagada uses open finance signals
Tagada's orchestration layer can ingest open finance data — including account balances and verified income signals from consented sources — to dynamically select the optimal payment method at checkout. For merchants with high average order values, this means routing eligible customers to A2A payment flows with lower interchange costs, without any change to the customer-facing checkout experience.
For merchants using Tagada, open finance also strengthens the data inputs used in fraud scoring and payment method eligibility. A customer presenting a verified, consented view of their financial position — rather than a self-declared income figure — enables more accurate real-time decisioning, fewer false declines, and better approval rates on embedded financing products.