Open Finance vs. Open Banking: How the Scope Is Expanding

When you link your bank account to a budgeting app like YNAB or Monzo, you’re using open banking. But what happens when that same app starts pulling in your investment portfolio, your small business loan, or even your crypto wallet? That’s open finance-and it’s already starting to change how money works.

What Exactly Is Open Banking?

Open banking is about giving you control over your bank account data. It lets you safely share information from your checking and savings accounts with third-party apps-like spending trackers, loan comparators, or payment services-without handing over your login details. Instead, it uses secure APIs built by your bank. isrameds.com

This isn’t magic. It’s regulation. In the European Union, it started with PSD2, which went fully live in September 2019. The UK, Australia, and Brazil followed with their own rules. These laws forced banks to open up their systems. Before this, if you wanted to see all your accounts in one place, you had to manually log into each one-or worse, give your password to a third-party app. That was risky. Open banking fixed that.

Today, open banking lets you:

• Connect your bank accounts to apps like Mint or PocketGuard to track spending automatically
• Compare personal loan rates using real income and balance data
• Send money through apps like PayPal or Revolut without switching between banking platforms
• Get faster mortgage approvals because lenders can verify income in real time

In the U.S. and Canada, there’s no single law like PSD2. But open banking still exists-because consumers demand it. Banks and fintechs have built their own APIs, often working through intermediaries like Plaid or MX. The result? Similar outcomes, but less uniform rules.

Open Finance Is Open Banking’s Bigger Cousin

Open finance takes everything open banking does-and expands it beyond checking and savings accounts. It includes:

• Investment accounts (stocks, ETFs, retirement funds)
• Credit cards and loans
• Insurance policies
• Pension plans
• Crypto wallets
• Small business financial data

Think of it this way: open banking shows you how much you spent on groceries last month. Open finance shows you how much you’ve lost in fees across your credit card, how much your 401(k) is underperforming compared to your brokerage account, and whether you should move money from your savings to a higher-yield investment.

The European Commission started looking into open finance in early 2023. They’re considering new rules-possibly called PSD3-that would extend the same data-sharing principles from banking to all financial services. Right now, only a few places like Israel have formal open finance frameworks. Most of the world is still in pilot mode.

But that’s changing fast. Companies like Akoya and Truelayer are already building platforms that pull together your bank balance, your stock holdings, and your insurance premiums into one dashboard. You don’t need to log into five different apps anymore. You just grant permission once-and your entire financial picture appears.

Why the Difference Matters

The line between open banking and open finance isn’t just technical-it’s legal and practical.

Open banking is mostly about payment accounts. That’s it. Under PSD2, banks only have to share data from current and savings accounts. Credit cards? Not required. Investments? Not included. Crypto? Forget it.

Open finance says: if it’s financial data, it should be shareable-with your permission. That’s a huge shift. It means your robo-advisor could see your mortgage payments and adjust your investment strategy. Your lender could see your rental income from Airbnb and approve a bigger loan. Your retirement planner could track your crypto holdings and warn you if you’re overexposed.

In the U.S., where regulation is lighter, open finance is already happening-but unevenly. Fintechs like Wealthfront and Robinhood are quietly building data-sharing tools. Banks are partnering with them. But because there’s no national standard, each integration is custom-built. That slows things down.

In Europe, the push is top-down. Regulators are pushing for uniform APIs, clear consent rules, and strict security standards. That means slower rollout-but more reliable, safer systems long-term.

How It Actually Works: The Four Steps

Whether you’re using open banking or open finance, the process is the same:

1. Consent: You click “Allow access” in your budgeting app or financial dashboard. You choose what data to share and for how long.
2. API Access: The app connects to your bank or financial provider through a secure, encrypted channel. No passwords are shared.
3. Data Usage: The app uses your data to give you insights, automate transfers, or find better deals.
4. Security: Everything is encrypted. Access is time-limited. You can revoke permission anytime.

This isn’t just convenient. It’s safer than handing out your online banking password. And it’s faster than manually downloading statements every month.

Who Benefits the Most?

Consumers win. You get control. You see your whole financial picture. You can find better rates, automate savings, and avoid hidden fees.

Fintechs win. They can build smarter tools without having to convince every bank to build custom integrations. They use standardized APIs to reach millions of users at once.

Banks? They’re caught in the middle. Some see it as a threat. Others are turning it into a service. JPMorgan Chase, for example, now offers its own API platform so developers can build apps on top of its data. They’re not just reacting-they’re leading.

Small businesses benefit too. A restaurant owner can now connect their point-of-sale system, business bank account, and payroll service to one dashboard. They can see cash flow trends, forecast taxes, and apply for loans-all without jumping between software.

The Road Ahead: What’s Coming Next?

The European Commission’s public consultation on open finance ended in early 2023. A legislative proposal-likely called PSD3-is expected in 2025 or 2026. If it passes, it will make open finance mandatory across the EU, just like PSD2 did for open banking.

In the U.S., the Consumer Financial Protection Bureau (CFPB) is drafting rules under the 2021 Order on Data Sharing. If finalized, it could create a federal standard for financial data access, closing the gap between open banking and open finance.

Meanwhile, crypto is becoming part of the conversation. Platforms like Coinbase and Kraken are starting to offer API access to wallet balances and transaction history. That means your financial app could soon show your Bitcoin holdings alongside your checking account.

The biggest challenge? Standardization. Right now, every bank, every fintech, every country uses slightly different APIs. That makes it hard for apps to scale. The solution? Industry-wide standards-like those being developed by the Financial Data Exchange (FDX) in the U.S. and the European Banking Authority (EBA).

What This Means for You

You don’t need to understand APIs or regulations to benefit. But you do need to know one thing: your financial data belongs to you.

If you’re using a budgeting app, a loan comparison tool, or an investment tracker-check what data it’s accessing. Can you see which accounts are connected? Can you turn access off? If not, it’s time to switch.

Start small. Link your checking account to a free app like Empower or Cleo. See how it categorizes your spending. Then, if you have investments or a credit card, try connecting those too. You might be surprised how much you’re paying in fees-or how much you could be earning.

Open finance isn’t about giving up control. It’s about taking it back-from banks, from outdated systems, from fragmented tools. And it’s happening faster than most people realize.

Is Open Finance Just a Fancy Name for Open Banking?

Some experts say yes. Others say no. The truth? It’s both.

Open banking laid the groundwork. It proved that consumers want control. It proved that secure data sharing works. It proved that banks can’t hide behind secrecy anymore.

Open finance is the next chapter. It’s not replacing open banking-it’s expanding it. Where open banking gave you access to your checking account, open finance gives you access to your entire financial life.

And that’s why it matters.