What is Open Banking and how does it help with credit scoring in the UK?

In 2018, the EU’s PSD2 directive was introduced in the UK, breaking the banks’ monopoly on customers’ financial data. The idea behind this change was that customers should own their own data, not financial institutions. Since then, banks have been obliged to provide all information upon a customer’s request. Many other companies have benefited from this, mainly thanks to Open Banking –** in this post, we’ll explain what this system is and how it affects the process of taking out a mortgage.**

Open Banking

The term ‘Open Banking’ refers to a system that allows any UK resident to easily share their financial data and initiate payments via external, licensed companies (known as TPPs – Third Party Providers).

For example, with a single click you can share your financial data with apps such as Emma or Snoop, which analyse your spending and help you manage your budget more effectively. You can link your bank account, savings account and credit card to these apps, and the algorithm will analyse what steps you could take to positively impact your household budget.

How does it work?

The entire Open Banking system is based on APIs (Application Programming Interfaces), which are secure connections between apps that encrypt data and transmit it without the need for a password. Thanks to this technology, users can freely choose which data they wish to share and who receives it – with a single click, they can decide who has access to it.

Security

Open banking is designed to ensure the highest possible level of data security. You can be assured that no TPP company will be able to view your data unless you grant them access. In addition, there is a 90-day rule, under which you must renew your access consent approximately every 3 months – if you do not do so, access will expire. This prevents situations where you forget that you have granted a company access and, as a result, they have access to your financial data for years.

Security oversight for Open Banking is carried out by the Financial Conduct Authority (FCA). This is the same organisation that protects borrowers from unfair practices by financial institutions and from poor financial advice.

Open banking and creditworthiness

Open banking has a significant impact on the mechanisms for assessing creditworthiness and risk when applying for a mortgage. This is mainly due to the Consumer Duty regulations introduced in mid-2023 and the review of mortgage market rules in 2025 (Mortgage Rule Review). Prior to these changes, Open Banking was used more for account aggregation, although the entire infrastructure was ready for the changes to be introduced. Due to fairly stringent regulations from the FCA, banks were reluctant to use new technologies when assessing mortgage applications. It was only after the regulations were relaxed between 2023 and 2025 that Open Banking really took off and became an integral part of many creditworthiness assessments.

Firstly, Open Banking simplifies the process of transferring financial data to the bank as much as possible. Until recently, printed payslips and lists of statements from the previous six months were the norm. When you agree to Open Banking, it takes just a few clicks for the bank to access your financial history.

Open Banking also affects your credit score. Some systems allow you to include even monthly payments, such as rent or a Netflix subscription, in your credit report. Now, even regularly paying for a streaming service can add a few points to your credit score. This is another way to quickly improve your score.

Open Banking is a major part of the changes introduced by the Mortgage Rules Review 2025 in relation to assessing the creditworthiness of people with non-standard income. This includes the self-employed, those on zero-hours contracts, and directors of limited companies. Previously, such individuals were almost always treated as ‘high-risk customers’, and creditworthiness and risk assessments were more stringent. Thanks to Open Banking and the use of new technologies, algorithms now automatically identify income patterns, often working to the customer’s advantage.

Verification of the source of funds

The process of verifying the source of funds has also been simplified. This is a mandatory step designed to confirm that the money for the deposit has been earned legally. Previously, this cumbersome part of the entire property purchase process could take up to four weeks and required the submission of numerous bank statements. Although this did not involve a great deal of work for the borrower themselves, it certainly increased the cost of the entire transaction, due to the hours spent by the conveyancer analysing the documents. Open Banking has become the ideal solution to this problem. Thanks to it, algorithms analyse the statements themselves and, using artificial intelligence, classify them in terms of risk. Something that used to take 2–4 weeks can now be done with a few clicks in a single day.

Where else can Open Banking be used?

Open Banking has a wide range of applications across many different areas of life, as it is revolutionising online payments. Below are a few examples of sectors where it makes life easier for users.

Retail payments

The vast majority of online shops offer payment via Open Banking to avoid card limits and high fees. This refers to the ‘Pay by Bank’ feature, which processes an instant transfer without the need to enter card details. Such capabilities pose a significant challenge to the decades-long dominance of Visa and Mastercard.

Taxes

As HM Revenue & Customs is one of the leaders in implementing Open Banking technologies, the Pay by Bank feature can be used to pay Self Assessment or other taxes.

Benefits

Many benefits in the UK are based on income levels and appropriate documentation. Many councils are beginning to use Open Banking to verify applications for Universal Credit or Pension Credit.

Finance for Business (SMEs)

Open Banking is used in accounting software (such as Xero or QuickBooks), which can retrieve transactions in real time, automatically matching invoices to payments. In addition, thanks to Open Banking, businesses can secure financing within a few hours – the bank sees their actual cash flows ‘live’, so it does not have to rely on historical financial statements.

Summary

Open Banking is a secure, government-backed system that enables financial data to be shared quickly with other businesses. Users have full control over the information they share and can revoke access for specific recipients at any time. This system significantly streamlines the credit assessment process and impacts the time and cost of buying property in the UK.