Open Banking – From Vision to Reality
In recent years, the financial services sector has undergone significant transformation due to various regulatory and technological developments particularly with the rise of open banking initiatives gaining momentum across developed countries worldwide. This article provides a brief overview and background on open banking, and outlines its impact on the financial and business activities of corporations in the market.
What Is Open Banking?
Open banking is a financial reform that enables bank and credit card customers (“data sources”) to share their financial data with third parties. Under open banking legislation, new players—primarily tech and fintech companies—can access a customer’s bank account (with their consent) and offer innovative, efficient, and personalized financial services. The result is a more open and competitive market with a wide range of financial offerings and new value propositions.
Open banking began to take shape in Europe in 2018 with the enactment of the Second Payment Services Directive (PSD2). Many countries quickly followed with similar legislation. Open banking essentially shifts control over financial data from the data sources—primarily banks and credit card companies—to the customers who own the data.
The Open Banking Reform Has Two Main Aspects:
Legal / Regulatory Aspect:
Creating a regulatory framework aligned with open banking principles. In Israel, the Financial Information Services Law (2021) governs the transfer of financial data from data sources to service providers. Under the law, data sharing is permitted only with licensed Financial Information Service Providers, regulated by the Israel Securities Authority. Additionally, the Payment Services Law (2023) was enacted to support open banking initiatives related to payment services—mainly Payment Initiation Services (PIS)—in addition to financial data services.
Technological Aspect:
Developing a technical standard that enables secure and standardized API integration between service providers and data sources. The Bank of Israel adopted the NextGenPSD2 standard by the Berlin Group for this purpose. Using APIs (Application Programming Interfaces), data can be securely and efficiently exchanged between authorized parties.
Data Buckets
The third appendix of the Financial Information Services Law defines which types of data each data source must make available. These data types are called “Data Buckets” and typically include:
- Account data – account activity, balances, and transactions
- Customer identifiers and personal information
- Loan and credit data – balances, payment terms, and interest rates
- Credit card data and transactions
- Securities information – customer portfolios, asset values, and investment breakdowns
These data buckets are shared via secure APIs that follow strict data privacy and security standards to ensure responsible data use.
Open Banking for Corporations
As of April 14, 2024, data sharing obligations also apply to corporate accounts of large enterprises (defined by annual revenue above NIS 5 million).
Through open banking, technology companies are developing tailored solutions for business needs—from dashboards offering real-time financial insights to automation of accounting tasks such as bank reconciliation.
Although open banking initially focused on individuals, a range of tools, services, and applications have since been developed for businesses. Key use cases include:
Bank Account Aggregation – Technology companies can now offer businesses a service that centralizes all financial data (as permitted by law) from multiple bank accounts into a single financial dashboard.
Cash Flow and Account Management – With access to real-time data, companies can now implement dedicated cash flow management tools that include automated accounting functions like bank reconciliation and liquidity alignment.
Personalized Customer Experience – Leveraging financial data to create customized value offerings for corporate clients, enabling faster decision-making and enhanced customer satisfaction.
Faster Payments and Settlements – Open banking–based tools enable automated invoicing, payments, and settlement processes for both B2B and B2C channels.
Conclusion
Open banking marks a fundamental shift in how financial data is managed. It empowers customers and third-party providers by transferring control over financial information from institutions to data owners. With the adoption of open banking laws, mandatory data buckets have been defined and a secure, standardized API framework is now in place.
Though still in its early stages for corporate use, open banking is already driving innovation. Tech companies are delivering advanced tools that improve accounting efficiency, enhance risk management, and support strategic planning. As this trend grows, especially with the integration of AI for data analysis, businesses can expect even greater value and deeper financial insights.
