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Written by Cyndie Martini
on July 03, 2019

Intuit's Quicken, the popular personal financial software application, pulls down your financial data by connecting to banks. But how exactly? Quicken does this by connecting to a bank's API (application programming interface). That interaction, in a nutshell, is open banking.

For Quicken to pull in your data, a bank needs to decide that it is going to open up part of its software and data to the outside world. Quicken software developers then need to read the bank's API documentation to understand what's required to make a successful connection and data exchange.

Not just any company can connect to a bank and start pulling down customer data. There are a number of levels of authentication to ensure the right companies are connecting to the bank. Any company wanting data will need to register as an API user with the bank.

Why Do Banks Need Open Banking?

Allowing software such as Quicken or Mint to pull customer data helps the customer. These software applications allow customers to view their financial data in ways that aren't offered by the bank or credit card company. The bank could develop similar software but that is a large effort and outside of the bank's wheelhouse.

With Open Banking, banks are basically able to offload functionality onto other companies. Banks still must expose their software but at a fraction of the cost of developing something like Quicken. Creating an API is not just a matter of letting the world know it can connect to a certain area on the bank's system and retrieve data. API documentation must be create; the API must follow web connection and data exchange standards; developers must be available to support the API and 3rd parties that are trying to use it.

What Is PSD2 and Open Banking Initiative

PSD2 is an open API effort by the EU, and the Open Banking Initiative is the same for the UK. Unlike here in the U.S., these are regulatory initiatives. Open Banking in the U.S. is not regulated.

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