Open banking for business: How it works and how to use it

Open banking for business is reshaping how companies manage payments, financial data, and customer experience. By allowing authorised third-party providers to access bank account data via secure APIs – with the account holder’s consent – open banking eliminates intermediaries, reduces transaction costs, and enables a faster, more seamless payment experience.

“For online businesses, platforms, and marketplaces, the implications are significant. Open banking can increase conversion rates by simplifying checkout, cut payment processing costs by bypassing card networks, and improve financial management through real-time data access – and providers like ConnectPay build these capabilities directly into their payment infrastructure, so businesses can adopt open banking without managing the regulatory and technical complexity themselves.

What is an open banking business model?

Open banking refers to a system where banks and financial institutions provide access to customer financial data to authorised third parties via APIs, with the explicit consent of the account holder. In the European Union, open banking is regulated under the PSD2 framework, which requires banks to develop APIs and grant authorised providers access to financial data for services ranging from payment initiation to identity verification.

Open banking for business enables companies to use these APIs to initiate payments directly from customer bank accounts, aggregate financial data from multiple accounts, automate reconciliation, and access real-time transaction data for decision-making.

An open banking business – whether a fintech, platform, or payment service provider – uses this data to build value-added services: more efficient payment methods, cash flow dashboards, automated budgeting tools, or personalised financial products.

How open banking for business increases conversion rates

Open banking can improve conversion rates for e-commerce players and platforms through three primary mechanisms.

Smoother checkout experience

A frictionless checkout is one of the most direct drivers of online conversion. According to the Baymard Institute, the average cart abandonment rate is 70.19%, with checkout friction a leading cause. With open banking payment initiation, customers can pay directly from their bank account at checkout – no card details to enter, no redirects to third-party payment pages. Payment is initiated through the customer’s own banking app with their preferred authentication method (biometrics or one-time password), and confirmed immediately.

Instant bank transfers with seamless authentication

Open banking enables instant bank-to-bank payments with real-time confirmation – a significant advantage over traditional payment methods that often involve a delay. Customers know immediately that their payment has been processed, which reduces post-purchase anxiety and builds trust. Open banking requires strong customer authentication under PSD2, meaning these instant transfers are also highly secure.

Personalised and targeted offers

With the customer’s consent, businesses can access transaction data to gain insights into spending patterns and preferences. This information enables personalised offers, relevant financial recommendations, and targeted promotions that improve customer experience and foster loyalty – a level of personalisation that generic payment methods do not support.

How open banking reduces costs for businesses

Open banking for business improves operational efficiency and reduces costs in four main areas.

Eliminating card network intermediaries

Every intermediary in a payment chain takes a fee. Credit card processing fees for merchants typically range from 1.3% to 3.5% per transaction (The Motley Fool). Open banking payment initiation bypasses card networks entirely, enabling direct bank-to-bank transfers at significantly lower cost – making it particularly valuable for high-volume or high-value transactions where card fees compound quickly.

Streamlined payment processing

Open banking APIs create a direct connection between businesses and their customers’ banks. This reduces the number of steps in the payment process, lowers the risk of human error, and speeds up transaction completion – saving both time and cost per payment.

Simplified reconciliation

Real-time access to transaction data allows for immediate reconciliation of payments. Automated invoice reconciliation reduces administrative workload significantly, cutting the time and overhead associated with matching payments to invoices manually. Open banking can automate accounting processes using real-time data access from banks, improving accuracy and freeing up finance team capacity.

Improved financial planning

Open banking business accounts and aggregated financial dashboards give businesses a consolidated view of cash flow across multiple accounts. This real-time financial visibility allows for faster and more informed financial decisions, more accurate forecasting, and better cash flow management.

Open banking for small business: Key use cases

Open banking for small business is particularly valuable because it democratises access to financial tools that previously required enterprise-level banking relationships or significant technical investment.

Key open banking use cases for small businesses include:

• Payment initiation – accept direct bank payments from customers without card processing fees, ideal for invoice-based or high-value transactions
• Account aggregation – consolidate multiple open banking business accounts into one dashboard for real-time cash flow visibility
• Automated budgeting and expense tracking – automated budgeting systems track spending across accounts without manual data entry
• Faster credit assessment – instant loans and credit facilities can be assessed using real-time transaction data rather than historical statements, improving access to financing for small businesses
• Automated invoice reconciliation – match incoming payments to outstanding invoices automatically, reducing administrative overhead

For small businesses that previously had to choose between expensive card processing or slow bank transfers, open banking provides a middle path: fast, low-cost, direct payments with full data visibility.

What are the downsides of open banking?

Open banking for business comes with genuine limitations worth understanding before implementation:

• Data privacy risks – open banking increases the risk of data breaches and fraud if third-party providers do not implement adequate security. Encryption is essential, and businesses should verify the security credentials of any open banking provider before sharing customer data
• Integration complexity – combining multiple third-party open banking services can create integration challenges, particularly for businesses with legacy infrastructure
• Regulatory compliance – businesses must stay updated on changing open banking regulations, which differ across jurisdictions and continue to evolve with PSD3 in progress
• Provider quality variation – inconsistent quality among third-party providers can lead to service interruptions. Open banking APIs must implement robust security measures, but enforcement varies
• Dependency risk – outsourcing core payment functions to third-party open banking services creates dependency. If a provider experiences downtime, it can directly affect payment acceptance
• Consumer adoption – not all customers are comfortable with open banking or familiar with the authentication process, which may limit adoption in certain demographics

How to choose an open banking provider for your business

As open banking for business continues to grow, the quality and capability of providers varies significantly. The right provider should align with your specific use cases – whether that is payment initiation, data aggregation, or both – and be able to support your target markets and regulatory environment.

When screening for the best payment provider, you have to take into account multiple factors to make an informed decision:

• Check your potential provider’s market coverage. Are there certain payment methods they can’t support? How popular are those methods in your market?
• What kind of API design principles are they using? What is the frequency of their API tests and feedback procedures?
• Do they have features that extend beyond payment processing? This is especially important, if you want to benefit from data analytics.
• How does the integration process look like? How long does it take? 
• Can the provider ensure a 99%+ uptime? It helps if there is a status page you can check and interrogate.
• Can the provider ensure 24/7 customer support?
• What is the providers’ data protection policy?

At ConnectPay, we’re happy to answer all these questions directly and sincerely. Reach out to us today.

FAQs: Open banking for business