What Is Open Banking And Why Are So Many People Using It?

Open banking is a method that lets people share their bank account data with approved third parties through secure digital links. In practice, this means a lender or service can view recent transactions after a customer gives consent. The system uses regulated technology instead of using screen scraping, which keeps access controlled.

The idea gained traction in the UK after regulatory changes encouraged competition and transparency. Usage has grown fast. Open Banking Limited said more than 16 million people in Britain use open banking services. The same source reported heavy growth in payment activity during 2025.

Lenders use the data to see income and spending in real time. This replaces older checks that relied on paperwork and historic credit files. Many applicants finish forms faster because they do not upload statements or send emails back and forth.

Jo Allsop, Director of Lenders at B Corp accredited Zuto car finance, said, “Open banking is a financial model which enables consumers to safely share their banking data with third party providers.”

Why Are So Many People Using It?

Open banking payments came up quite a bit in 2025 as people looked for quicker approvals and clearer outcomes. The Open Banking organisation said the service now handles billions of secure API calls each month, showing strong public take up.

Cost pressures also influence demand. Younger adults often live at home longer and have fewer bills in their own name. Traditional credit checks struggle to read this picture, which leads to delays or declines.

Open banking shows day to day money flows instead. Lenders can see wages, rent, food and travel spending. This gives a more accurate picture of what a person can afford each month.

Allsop said, “When a lender requires an applicant to complete open banking, this is a secure way for lenders to check their income and expenditure to better understand affordability.”

Who Is The Credit Invisible Generation?

Zuto research refers to a group with little or no credit footprint. In a survey run last year, 55% of respondents said they felt credit score anxiety. Gen Z aged 20 to 29 were least likely to know their score at 48%, according to Zuto.

Housing patterns help explain this with Zuto application data showing 21.6% of car finance applicants aged 18 to 20 now live with parents, up from 13.7% in 2015. That is a 58% rise over 10 years.

This affects automated checks. Zuto said 18 to 20 year olds were almost twice as likely to fail automated credit checks than the average across other age groups in August 2025. Manual reviews go down steadily with age.

How Does This Change Lending Decisions?

Lenders now read affordability instead of on a score alone. Open banking shows non discretionary spending such as rent, childcare and utilities. What remains each month becomes clearer.

Allsop said, “Rather than looking at total income and outgoings, they are usually looking at non discretionary spending to understand what is remaining each month to cover additional expenses such as a new finance payment.”

Buy Now Pay Later usage also appears in these records. Zuto said frequent use can affect approval chances even when credit scores do not show harm.

Over the last 12 months, Zuto reported more than 250,000 car finance applications from young adults living with parents. Open banking helps lenders read these cases more accurately.

Is Open Banking Safe And Mandatory?

Security is a worry, of course, but for reassurance, open banking operates under Financial Conduct Authority rules. Access works through time limited consent and read only permissions.

Allsop said, “Open banking is safe and secure, being regulated by the Financial Conduct Authority. Permission is granted to the lender to have visibility of your recent bank statements usually the last three months.”

Completion is not compulsory because requests depend on triggers such as self employment, higher loan amounts or lower credit scores. Links usually arrive through a direct message from the lender.

Allsop added, “This process makes it much easier for lenders to make the right decision on how much you can afford to borrow, lightening the previous burden of sorting out lots of documents.”