All About Open Banking

If you’ve searched or applied for a credit product, such as a credit card or loan, you might have come across the term ‘Open Banking.’
Perhaps you’re wondering, ‘what is Open Banking?’
In the Little Loans guide to Open Banking, we answer the following frequently asked questions:

• How does Open Banking work?
• Is Open Banking Safe?
• What are the risks of Open Banking?
• Can I refuse to use Open Banking?

What is Open Banking?

Open Banking is a secure procedure that allows you to share the information held in your online banking account, such as your recent transactions, with an authorised and regulated third party, such as a lender.

Some credit providers use Open Banking in addition to, or instead of, a hard credit search. A hard search focuses on your credit history, whereas Open Banking offers insight into your recent financial activity.

When was Open Banking introduced in the UK?

Open Banking was first introduced in the UK in 2017.

How does Open Banking work?

Here’s an example of how Open Banking could look. Please note that the following example is for illustrative purposes only.

1. You apply for a £500 loan with a direct lender.


2. The direct lender carries out a creditworthiness assessment to check you’re able to repay the money you want to borrow. The creditworthiness assessment includes an Open Banking check.


3. With your consent, the provider will be able to access your online bank account with a read-only view. They’ll be able to take a look at your balance, recent transactions, and activity to understand your current financial situation.

What are the possible advantages of Open Banking?

Open Banking could be especially useful for those applying for credit with a bad credit history or no credit history at all. This is because it offers providers a more recent view of your finances, rather than relying on your credit history alone.

Let’s imagine the following scenario.

• You have a history of bad credit and missed repayments, but have consistently managed your finances well in recent months/years.
• You apply for a loan to fund a financial emergency. The lender you apply with carries out a hard credit search as part of their creditworthiness assessment.

Scenario One – Open Banking is NOT used	Scenario Two – Open Banking IS used
Your application has been declined based on your credit history. With previous missed repayments on your credit file, the lender is not confident that you will be able to keep up with your monthly repayments. Your current financial situation and habits are not explored or considered.	You give consent for the lender to access your online banking account and view your recent financial activity. While you have historically missed a couple of repayments, as shown on your credit file, your recent activity shows that you have kept on top of your credit account(s), which suggests stable financial management. Your application for a loan is approved.

Please note that this is an example only. You could still be considered for a credit product with bad credit, regardless of whether Open Banking is used or not; at the same time, your application for a loan could still be turned down, even if Open Banking is used.

Is Open Banking safe?

Yes, Open Banking is safe.
Open Banking is protected by high-level security, and in addition to this, only firms authorised and regulated by the Financial Conduct Authority (FCA) can register to use Open Banking.
It’s also worth noting that with Open Banking, only you can decide who has access to your information.

For an extra layer of personal security, you may wish to check whether a provider is authorised and regulated by the FCA before you agree to share any of your personal and financial details. You can do this by using the FCA Firm Checker tool.

What are the risks of Open Banking?

Even with the highest level of safety in place, when it comes to financial data, it’s important to be aware that the risk of scams and fraud is still something to be mindful of.
Criminals may pose as legitimate companies to gain your trust and encourage you to share your personal information.

You can find out more about spotting the signs of and protecting yourself from scams in our guide here.

Is Open Banking automatic?

No, Open Banking is not automatic.
You’ll need to give your consent before any company can carry out Open Banking. This means that you can control who accesses your information, and you can withdraw your consent at any time.

Which banks support Open Banking?

Not all banks support Open Banking. You can find a list of firms that support Open Banking in the official Open Banking directory here.

Can I use Open Banking if I don’t have online banking?

No, unfortunately not. In order to use Open Banking services, you must have an online bank account.

Can I refuse to use Open Banking?

Yes, Open Banking requires your consent, and you are under no obligation to provide this if you don’t want to. However, it is important to bear in mind that some providers must carry out an Open Banking check to complete their creditworthiness assessment. Without your consent, it may mean that you are unable to proceed with your application.

Is Open Banking legal in the UK?

Yes, Open Banking is legal in the UK.

Does Little Loans use Open Banking?

Little Loans is a credit broker, not a lender. We do not use Open Banking as part of our credit broking service; however, some of the lenders on our panel do include Open Banking as part of their creditworthiness assessment.

How does the Little Loans process work?

Interested in searching for a loan with Little Loans? The lenders on our panel offer short-term, personal loans between £100 and £10,000, with repayment terms from 3 to 60 months, depending on the amount of money you’re hoping to borrow.
This is what you can expect from the Little Loans journey.

1. Fill out our five-minute online form and let us know how much money you need to borrow and how long you would like to borrow it for.


2. Using the information provided on your application, we’ll run a soft search on your financial history with no impact to your credit score and scan our panel of lenders for a suitable loan.*


3. If we’ve matched you with a loan, you’ll be redirected to the lender’s website.


4. Happy with the loan we’ve found for you? You can go ahead and make a full application with the lender. At this stage, the lender will carry out their creditworthiness assessment, which will include a hard search and/or an Open Banking check.


5. If the lender is satisfied with the outcome of their creditworthiness assessment, you will be offered the loan.

*Soft searches do not harm your credit score, and will not be visible on your credit file to other credit providers. If you’re matched with a loan and choose to make a full application with the lender, they will complete a creditworthiness assessment, which will involve a hard search and/or an Open Banking check. Please be aware that a hard search will be visible on your credit file, and undergoing multiple hard searches in a short space of time could damage your credit score.

Are you worried about your financial situation?

Talking about money can feel daunting, but please know that support is available. You can get free, confidential money and debt advice through charities and organisations such as StepChange, MoneyHelper, National Debtline, and Citizens Advice.