Privacy vs. Open Banking.: Data Access Drives Innovation — But Where’s the Ethical Line?
Open banking was supposed to put power back in the hands of consumers. And in many ways, it has. With a tap and a login, users can share their financial data with apps that help them budget smarter, borrow faster, and pay seamlessly.
But beneath this streamlined convenience lies a growing tension—how much access is too much? We’ve entered an era where data flows freely—but understanding doesn’t. Consent has become a click, not a conversation. And as banks, fintechs, and third-party aggregators trade in information, users are often left navigating a system they don’t fully see, let alone control.
Innovation demands access. Privacy demands restraint. The challenge? Balancing both without breaking trust. This article explores the murky middle ground—where user data becomes a competitive weapon, regulation races to catch up, and the line between empowerment and exploitation gets harder to draw.
What Is Open Banking and Why It Matters
Stripe defines open banking as “the practice of sharing customer data between banks and third-party providers (TPPs).” Open Banking completely redefines the traditional finance dynamics. Instead of keeping data locked within banks, it gives consumers the power to securely share their financial information with trusted third-party apps and services. Users can unlock everything from personalised budgeting tools to faster loan approvals and streamlined payments with their consent.What makes Open Banking stand out is its blend of freedom and structure. It empowers innovation—allowing fintechs to build better, more tailored services—while operating within a maturing regulatory framework prioritising security and user rights. It's not just a tech upgrade; it's a fundamental redesign of how people access and control their money. An open banking transaction typically involves three key players: the bank, the fintech company, and a data aggregator. Each entity maintains an independent relationship with the consumer, adding layers of complexity to privacy compliance.
Fragmented Consent Management - In traditional B2C interactions, obtaining and managing consumer consent is relatively straightforward. However, in open banking, consent must be managed across multiple entities. For instance, a consumer may provide consent to a fintech app to access their bank data, but the data aggregator facilitating this access must also ensure that the consent is valid and that data usage aligns with the consumer's expectations. This multi-tiered consent structure requires meticulous coordination to prevent unauthorised data sharing and to maintain compliance with regulations such as the General Data Protection Regulation (GDPR) and the Consumer Financial Protection Bureau's (CFPB) guidelines (IAPP, 2025).
Ensuring Data Security Across Entities - Each entity involved in open banking must implement robust security measures to protect consumer data. The bank must secure its APIs, the fintech must safeguard its applications, and the data aggregator must ensure secure data transmission and storage. A lapse in security at any point can compromise the entire system. Therefore, establishing standardised security protocols and conducting regular audits are essential to maintain trust and compliance
Accountability and Liability - Determining accountability in the event of a data breach or misuse is complex in open banking. With multiple entities handling consumer data, pinpointing responsibility requires clear contractual agreements and a thorough understanding of each party's role. Regulatory bodies emphasise the importance of transparency and accountability, urging entities to establish clear lines of responsibility and to implement measures that allow for effective monitoring and enforcement of IAPP.
Harmonising Privacy Notices - Providing consumers with clear and consistent privacy notices is challenging when multiple entities are involved. Each entity must ensure that their privacy notices accurately reflect their data practices and that they are harmonised with the notices provided by their partners. Inconsistencies can lead to consumer confusion and potential regulatory scrutiny. Collaborative efforts are necessary to develop standardised privacy notices that are easily understandable and that accurately convey how consumer data is used and protected
Consent vs. Comprehension: Are Users Truly Informed?
Most users see a checkbox, click “Allow access,” and move on. But behind that simple tap lies a multi-step framework designed to protect user agency—if users understand what’s actually happening. Behind the scenes, that control hinges on a multi-step process prioritising transparency, security, and trust.
1. Consent: Clarity First - Consent starts with communication. Before sharing data, the third-party provider (TPP) must clearly state the information needed and why. Users opt in explicitly—nothing is assumed. Time limits are set upfront so consumers know when access expires and how to revoke it at any time.
2. Authentication: Secure Handoff - Once consent is given, the bank steps in. Users authenticate through familiar channels, usually using the same login they use for their online banking. This phase confirms the user’s identity, reassuring them that their credentials are secure and never exposed to the TPP.
3. Authorisation: Final Approval -Here’s where users see exactly what will be shared—like account balances or transaction history—and with whom. They confirm or deny, and the bank logs the decision. Even after approval, consumers retain the right to withdraw access whenever they choose.
And yet, despite these safeguards, a major question remains: Are users truly informed—or just fatigued by fine print? True data control means more than clicking "I agree." It means understanding what you're agreeing to. As open finance expands, the gap between consent and comprehension may be one of the most urgent problems regulators and designers need to solve.
The Role of Third Parties: Who Has Access and How Is It Used?
Depending on the region and its laws (like PSD2 in the EU or the Open Banking Act in the UK), open banking can involve sharing things like:
- Account holder details
- Transaction history
- Account balances
- Loan or liability data
This data flows securely via APIs (Application Programming Interfaces)—tools that enable instant, encrypted, and traceable transfers between banks and fintechs.
Who Can Access It? Not just anyone. Third-party providers must be accredited by national regulators—like the ACCC in Australia or the FCA in the UK. These agencies ensure each player meets rigorous data protection, security, and compliance standards. Accreditation can be granted, modified, or revoked based on performance and adherence to legal norms.
Accredited third-party providers use open banking data to enhance financial services in three key ways:
- Smarter Lending: Real-time transaction data helps lenders assess creditworthiness beyond traditional scores—supporting faster, more inclusive loan approvals.
- Personalised Insights: Apps analyse spending and income patterns to offer tailored budgeting tips, savings plans, and investment advice.
- Instant Payments: Direct account access enables encrypted, real-time transfers—streamlining peer-to-peer payments and automating payroll or bill payments.
Regulatory Landscape: PSD2, GDPR, and Beyond
Europe’s bold digital laws—like PSD2 (the second Payment Services Directive) and GDPR (the General Data Protection Regulation)—moved away from data as corporate property and toward data as a user right.
PSD2 cracked open the bank vault, not with a crowbar, but with code. Under the directive, European banks were required to build and maintain dedicated APIs that allowed regulated third parties—such as fintechs, payment initiators, and account aggregators—to access customer data if and only if the customer explicitly consented. This was the start of open banking, a concept that promised to dismantle data monopolies and catalyse competition in one of the most entrenched industries on Earth.
GDPR arrived as a digital earthquake. While PSD2 dealt with who can access data, GDPR focused on how that data should be protected and respected. It introduced sweeping obligations:
- The right to access and portability, which dovetailed with PSD2 to enable user-led data sharing.
- The right to erasure (“right to be forgotten”) posed architectural challenges for firms reliant on data persistence.
- And the principle of privacy by design and by default, pushes developers to build privacy protections into infrastructure—not just as afterthoughts, but as core design features.
GDPR’s reach was global. Any company processing EU citizen data had to comply regardless of where it was headquartered. As a result, it reshaped global data governance. Facebook restructured its user agreements. Apple launched new privacy features as a brand differentiator. Privacy went from legalese to product strategy.
Together, PSD2 and GDPR represented two sides of the same coin: control and consent. One gave users the right to move their data; the other gave them the right to limit or erase it. But they also revealed a deeper truth: data rights are powerful—but fragile—and meaningful only if backed by enforceable standards and user-friendly mechanisms.
Today, we’re seeing the rise of CDR in Australia, FIDA in Canada, and Open Finance frameworks in Brazil and India—all part of a growing recognition that control over personal data should lie with the individual, not the institution.
Ethical Design: Privacy-Centric Innovation Is Possible
Open banking thrives on access—but access without ethics is a liability. Privacy-centric design ensures that innovation doesn’t come at the cost of user trust. The most effective platforms limit data collection to what’s necessary, provide real-time visibility into third-party access, and make consent clear, contextual, and revocable. It’s not just about ticking boxes—it’s about showing users they’re in charge.
Done right, ethical design doesn’t slow innovation. It accelerates adoption by embedding transparency and control into every interaction. In open banking, that’s not just good UX—it’s a strategic advantage.
Case Studies: Where Open Banking Crossed the Line
The consequences can be severe when open banking goes too far—or not far enough in the right direction. Evolve Bank & Trust made headlines in 2024 after they froze the funds of thousands of fintech customers (Forbes, 2024). These consumers, many of whom were users of platforms like Yotta and Juno, suddenly found themselves locked out of their accounts, with over $49 million effectively trapped. For five months, users waited in the dark. The issue wasn’t fraud—it was a breakdown in trust between traditional banks, their fintech partners, and the infrastructure meant to connect them. The takeaway from this massive failure is that transparency and operational accountability must evolve as quickly as the tech itself.
Open banking nearly took a dystopian turn in the UK, with the Guardian (2024) saying that “Monitoring UK bank accounts for benefits fraud would be ‘huge blow to privacy.” A government proposal sought to harness bank data to detect welfare fraud—essentially asking benefit recipients to share financial records in exchange for support. Critics slammed the plan for its disproportionate impact on vulnerable populations and its troubling privacy implications. The backlash underscored a vital truth: data-sharing is not inherently empowering if consent is coerced or control is lost.
Even within regulated environments, oversight can falter. Spain’s Openbank was fined €2.5 million for weak data security, while HSBC received regulatory warnings for inaccuracies in its open banking APIs (Finextra, 2023). These grave breaches of consumer trust threaten the entire ecosystem's credibility.
Striking the Balance: Trust as a Competitive Advantage
Trust reduces friction When every app fights for user attention and retention. It lowers customer acquisition costs, improves retention, and creates brand advocates—not through ads, but through behaviour. On the flip side, a breach of trust—even without a breach of data—can be catastrophic. Misused consent, vague permissions, or data sharing without clarity can erode years of credibility in a moment.
That’s why the winners in this era won’t just be the fastest or the cheapest. They’ll be the ones who design trust into every interaction—turning consent into empowerment, security into reassurance, and compliance into a competitive edge.