Open Banking Explained: How It Benefits Business

Open banking is one of those terms that most people have heard but few truly understand. It sounds technical, possibly risky, and not obviously relevant to someone running a small business. In reality, open banking is one of the most practical and beneficial financial innovations for sole traders and small businesses in recent years. It saves time, improves accuracy, and gives you financial visibility that was previously impossible without a dedicated bookkeeper.

This guide explains what open banking is, how it works, what it means for your business, and how you can start using it today.

What Is Open Banking?

Open banking is a system that allows you to securely share your bank account data with authorised third-party providers, such as accounting software, budgeting apps, or payment services. It was introduced in the UK in January 2018, mandated by the Competition and Markets Authority (CMA) and regulated by the Financial Conduct Authority (FCA).

Before open banking, the only way to share your bank data with another service was to give them your login credentials (risky and against most banks' terms of service) or to manually download and upload bank statements (tedious and error-prone). Open banking created a secure, standardised way for your bank to share data directly with services you authorise, without exposing your login details.

How It Works Technically

The system works through Application Programming Interfaces (APIs), which are standardised connections between systems. When you connect your bank account to a service through open banking:

1. You initiate the connection through the third-party service (such as your accounting software)
2. You are redirected to your bank's website or app
3. You log in to your bank and authorise the connection
4. Your bank provides the third-party service with access to your account data via the API
5. The service can then read your transaction data (and in some cases initiate payments) according to the permissions you granted

Crucially, the third-party service never sees your bank login credentials. The authorisation happens directly with your bank, and you can revoke access at any time.

The Nine Largest UK Banks

Open banking regulations originally applied to the nine largest UK banks, known as the CMA9: Barclays, HSBC, Lloyds Banking Group, Nationwide, NatWest Group, Santander, Bank of Ireland, AIB Group, and Danske Bank. Since then, most other UK banks and building societies have adopted open banking voluntarily, including Monzo, Starling, Tide, and many others.

As of 2026, the Open Banking Implementation Entity reports that over 7 million UK consumers and businesses use open banking services, and the number continues to grow.

How Open Banking Benefits Your Business

The practical benefits for sole traders and small businesses are substantial and immediate.

Automated Bank Feeds

The most obvious benefit is automated bank feeds in your accounting software. When you connect your business bank account to Accounted via open banking, your transactions are imported automatically. Every payment in, every payment out, every transfer, all appearing in your accounting software without you typing a single number.

This eliminates the most tedious aspect of bookkeeping: manual data entry. No more downloading CSV files from your bank's website, no more typing in transactions from paper statements, and no more wondering whether you missed anything.

Real-Time Financial Visibility

Because transactions are imported in near real time, your accounting software always reflects your current financial position. You can check your bank balance, see your latest transactions, and understand your cash flow at any moment, from any device.

This is transformative for sole traders who previously only had an accurate picture of their finances after completing their monthly bookkeeping. With open banking, the picture is always current.

Faster Bank Reconciliation

Bank reconciliation, the process of matching your accounting records against your bank statements, is dramatically simplified with open banking. Your accounting software can automatically match imported transactions against invoices, bills, and expected payments. What used to take hours can now take minutes.

Improved Cash Flow Management

When you can see exactly what is in your bank account, what payments are expected, and what bills are due, you can manage your cash flow proactively rather than reactively. This is particularly important for sole traders with irregular income patterns.

Combined with AI-powered features, open banking data enables cash flow forecasting that predicts your financial position weeks or months into the future, giving you early warning of potential shortfalls.

Easier Loan and Mortgage Applications

Open banking can simplify the process of applying for business finance. Instead of providing months of paper bank statements, you can authorise the lender to view your account data directly. This speeds up the application process and provides the lender with verified, up-to-date information.

For sole traders applying for mortgages, some providers now accept open banking data as evidence of income alongside self-assessment records.

Open Banking Payments

Beyond data sharing, open banking also enables a new way to make and receive payments. Open banking payments (sometimes called "Pay by Bank") allow customers to pay you directly from their bank account without using a card. The payment is initiated through the bank's API, and funds typically arrive within seconds.

For businesses, this means lower transaction fees compared to card payments, faster settlement, and reduced risk of chargebacks. Several payment providers now offer open banking payment options that can be integrated into invoices or online checkout processes.

Is Open Banking Safe?

Safety is the most common concern about open banking, and it is a legitimate one. You are, after all, giving a third party access to your bank data. Here is why the system is actually very secure.

Regulatory Oversight

All open banking providers must be authorised by the FCA. They are subject to strict regulations around data handling, security, and consumer protection. Unauthorised access to banking APIs is not possible.

No Credential Sharing

You never share your bank login details with the third-party service. The authorisation happens directly through your bank's secure environment. The third party receives a token that grants limited access, not your username and password.

You Control Access

You decide which services can access your data, and you can revoke access at any time through your bank's app or website. You also control the scope of access: some services only need read-only access to transactions, while others may need the ability to initiate payments.

Strong Customer Authentication

Open banking uses Strong Customer Authentication (SCA), which requires at least two forms of verification (such as a password and a fingerprint or a password and a code sent to your phone). This is the same level of security used for online banking.

Data Encryption

All data transmitted through open banking APIs is encrypted, both in transit and at rest. The security standards are at least as strong as those used by the banks themselves.

How to Start Using Open Banking

Getting started with open banking is straightforward.

Step 1: Choose Your Services

Decide which services you want to connect to your bank account. For most sole traders, the primary use case is connecting accounting software. Accounted uses open banking to import your transactions and provide real-time financial visibility.

Step 2: Initiate the Connection

Within your chosen service, look for the option to connect your bank account. This is usually found in settings or during the initial setup process. Select your bank from the list of supported institutions.

Step 3: Authorise with Your Bank

You will be redirected to your bank's website or app. Log in as you normally would and review the permissions being requested. Authorise the connection.

Step 4: Start Using the Data

Once connected, your transactions will begin flowing into the service automatically. Depending on the provider and your bank, you may see transactions from the last 90 days imported immediately, with new transactions arriving in real time going forward.

Step 5: Maintain the Connection

Open banking connections typically need to be re-authorised every 90 days for security reasons. Your service provider will notify you when re-authorisation is needed, and the process takes only a minute or two.

Open Banking and Making Tax Digital

Open banking and Making Tax Digital (MTD) are complementary developments that together are modernising small business finance in the UK. MTD requires digital record keeping and quarterly submissions; open banking provides the automated data feeds that make digital record keeping practical.

Without open banking, MTD compliance would require significantly more manual effort: downloading statements, entering transactions, and reconciling accounts by hand. With open banking, the data flows automatically, and the accounting software handles the heavy lifting.

For more on MTD requirements, see our guide on Making Tax Digital.

Open Banking for Accounting Software Integration

If you use accounting software, open banking integration should be a non-negotiable feature. Here is what good integration looks like:

• Automatic transaction import: Transactions appear in your accounting software without manual intervention
• Multi-account support: Connect all your business accounts, including current accounts, savings accounts, and credit cards
• Smart matching: The software automatically matches transactions against invoices and expected payments
• Categorisation assistance: AI-powered categorisation uses open banking data to suggest or assign expense categories
• Balance visibility: See your real-time bank balance alongside your accounting data

Accounted integrates with open banking through TrueLayer, providing secure, reliable connections to virtually all UK banks. Transactions are imported in real time, and Penny uses the data to categorise expenses, match payments, and maintain your financial records automatically.

The Future of Open Banking

Open banking in the UK is evolving rapidly. Several developments are worth watching.

Variable Recurring Payments (VRPs)

VRPs extend open banking beyond one-off payments to recurring payments with variable amounts. This could eventually replace direct debits, giving businesses more flexibility in how they collect payments from clients. Unlike direct debits, VRPs can be set up instantly and are controlled by the payer, reducing friction for both parties.

Smart Data

The UK government is exploring extending open banking principles to other sectors, including energy, telecoms, and insurance. This "Smart Data" initiative could allow businesses to compare and switch providers more easily, potentially reducing costs.

Enhanced Security

As the technology matures, security features continue to improve. Biometric authentication, device binding, and real-time fraud detection are all being integrated into open banking flows.

International Expansion

While open banking started in the UK and EU, similar initiatives are now under way in Australia, Canada, Brazil, and other markets. For UK businesses with international operations, this could simplify cross-border financial management in the future.

Common Questions

Will my bank charge me for open banking? No. UK banks are required to provide open banking access without additional charges.

Can a third party take money from my account without my permission? No. Payment initiation requires your explicit authorisation each time (for one-off payments) or within the limits you set (for VRPs). Read-only access to transaction data does not allow any payments to be made.

What happens if my open banking provider goes out of business? Their access to your bank data would cease. Your bank account and the data in it remain unaffected.

Can I use open banking with a personal bank account? Yes, though for business purposes, we strongly recommend using a dedicated business bank account. For more on why, see our guide on how AI is changing bookkeeping.

Open banking is not a trend or a gimmick. It is critical financial infrastructure that is making small business accounting faster, more accurate, and less painful. If you are not using it yet, you are spending more time on financial admin than you need to.

Ready to connect your bank and automate your bookkeeping? Sign up for Accounted and let open banking and Penny work together to manage your finances. Visit our features page to see everything that is included.