Open Banking and API Development: Complete Guide 2026

The financial services landscape is undergoing a fundamental transformation driven by open banking. By mandating that banks share customer data — with explicit consent — through secure APIs, open banking has created an entirely new ecosystem for innovation. This guide covers everything from the regulatory foundations to the technical architecture of building open banking APIs, equipping developers, CTOs and product managers with a comprehensive roadmap.

What Is Open Banking?

Open banking is a regulatory and technological framework that requires or enables banks to share customer financial data with licensed third-party providers (TPPs) through standardized, secure APIs. The core principle is that financial data belongs to the customer, not the institution holding it.

The three foundational services of open banking are:

• Account Information Service (AIS): Allows TPPs to retrieve account balances, transaction histories and account details from multiple banks through a single interface.
• Payment Initiation Service (PIS): Enables TPPs to initiate payments directly from a customer's bank account, bypassing traditional card networks entirely.
• Confirmation of Funds (CoF): Verifies whether a customer's account holds sufficient funds before a transaction is executed.

These services form the building blocks of countless fintech products — from personal finance managers and lending platforms to e-commerce checkout solutions. For a broader view of the fintech ecosystem, see our guide on What is FinTech? Top Turkish FinTechs.

The Regulatory Landscape: PSD2, PSD3 and Beyond

PSD2 — The Foundation

The revised Payment Services Directive (PSD2), effective since January 2018 in the European Union, is the regulatory cornerstone of open banking. Its key mandates include:

• Banks must provide API access to licensed Account Information Service Providers (AISPs) and Payment Initiation Service Providers (PISPs)
• Strong Customer Authentication (SCA) is required for electronic payments and sensitive account access
• A standardized framework for AIS and PIS licensing across EU member states
• 90-day re-authentication requirements for ongoing consent

PSD3 and the Payment Services Regulation (PSR)

The European Commission published the PSD3/PSR proposal in 2023, with implementation expected in 2025-2026. Key enhancements include:

• IBAN/name verification: Mandatory payee name matching to combat authorized push payment fraud
• Consent dashboard: Banks must provide customers a single view of all TPP access permissions
• API performance standards: Legally binding requirements for API uptime, latency and data quality
• Open finance gateway: Legal foundation for extending data sharing to insurance, investments, pensions and mortgages beyond traditional banking

API Standards Across Regions

Multiple API specifications coexist globally:

• Berlin Group (NextGenPSD2): JSON-based REST specification adopted across Germany, Austria and many EU countries
• UK Open Banking Standard: One of the most mature implementations, overseen by the FCA with comprehensive JSON/REST specifications
• STET: French-origin standard aligned with ISO 20022
• ÖHVPS (Turkey): CBRT-managed open banking framework with AIS, PIS and GKD (strong authentication) specifications
• FDX (USA/Canada): Financial Data Exchange standard for consumer-permissioned data sharing

Technical Architecture for Open Banking APIs

Building a production-grade open banking platform requires careful architectural decisions that balance scalability, security and regulatory compliance.

Microservices Architecture

Modern open banking platforms are typically built on a microservices architecture with clear domain boundaries:

• Auth / Consent Service: Manages OAuth 2.0 / OpenID Connect token issuance, consent lifecycle (creation, renewal, revocation) and SCA orchestration
• Account Service: Handles AIS endpoints — balance queries, transaction listings, account detail retrieval with proper pagination
• Payment Service: Manages PIS flows — payment initiation, status polling, idempotency enforcement and multi-currency support
• Notification Service: Event-driven webhooks and push notifications for payment status changes, consent expiry and account alerts
• Audit & Compliance Service: Immutable logging of every API call, consent action and authentication event for regulatory reporting

API Gateway Layer

An API gateway is essential infrastructure for any open banking platform:

• Rate limiting and throttling: Per-TPP request limits (e.g., 100 req/min for AIS, 10 req/min for PIS) with graceful degradation
• mTLS termination: Mutual TLS enforcement with eIDAS QWAC certificate validation
• Request routing: Version-based routing (/v1/, /v2/) with backward compatibility
• Payload transformation: Format conversion between internal representations and standard-compliant responses
• Caching: Intelligent caching for low-volatility data (account details) with cache invalidation on state changes

Popular choices include Kong Gateway, Apigee, AWS API Gateway and Azure API Management.

RESTful API Design Principles

Open banking APIs should follow established design principles for consistency and developer experience:

• Resource-oriented URIs: /accounts/{accountId}/transactions with clear noun-based paths
• HTTP method semantics: GET for reads, POST for payment initiation, DELETE for consent revocation
• HATEOAS links: Response bodies include navigational links to related resources and next actions
• Versioning strategy: URL path versioning (/v2/accounts) with minimum 12-month deprecation windows
• Idempotency keys: Mandatory x-idempotency-key header for all state-changing operations to prevent duplicate payments
• Cursor-based pagination: Efficient pagination for large transaction sets using opaque cursor tokens

OAuth 2.0, FAPI and Multi-Layered Security

Open banking security requirements go far beyond standard web application security, demanding a defence-in-depth approach.

OAuth 2.0 and Financial-grade API (FAPI) Profile

• Authorization Code Flow with PKCE: The recommended grant type for both web and mobile applications, eliminating client secret exposure
• FAPI 2.0 Security Profile: Purpose-built for financial APIs with DPoP (Demonstration of Proof-of-Possession) for sender-constrained tokens, PAR (Pushed Authorization Requests) to prevent authorization request tampering and JARM (JWT Authorization Response Mode) for signed authorization responses
• Granular consent scopes: Fine-grained permissions such as accounts:read, transactions:read, payments:initiate, funds:confirm
• Token lifecycle management: Short-lived access tokens (5-15 minutes), long-lived refresh tokens (tied to consent duration), and token revocation endpoints

Transport and Message Security

• Mutual TLS (mTLS): Both client and server present certificates; eIDAS QWAC certificates for TPP identification and QSealC for message signing
• JWS (JSON Web Signature): Digital signing of request and response bodies to ensure integrity and non-repudiation
• Replay protection: Combination of idempotency keys, timestamp validation and nonce values
• Certificate pinning: Additional protection against man-in-the-middle attacks for mobile applications

Infrastructure Security

• WAF (Web Application Firewall): OWASP API Security Top 10 rule sets, bot detection and payload inspection
• DDoS protection: Volumetric and application-layer attack mitigation
• SIEM integration: Centralized security event monitoring with real-time alerting for anomalous patterns
• Network segmentation: Strict isolation between public-facing API tier, internal services and data stores
• Secret management: HashiCorp Vault or cloud-native solutions (AWS Secrets Manager, Azure Key Vault) for API keys, certificates and database credentials

Development Workflow and Best Practices

Sandbox Environment

A robust sandbox is the foundation of a productive development experience:

• Realistic mock services: Simulated bank responses covering happy paths, error scenarios and edge cases (insufficient funds, expired consent, SCA challenges)
• Synthetic test data: Diverse account types, transaction patterns, multi-currency scenarios
• Interactive documentation: OpenAPI 3.x specifications with Swagger UI or Redoc, Postman collections and SDK generators
• CI/CD integration: Automated contract testing, security scanning (SAST/DAST) and deployment pipelines

Data Standards and Formats

• ISO 20022: The universal message standard for financial transactions, aligned with SEPA and SWIFT messaging
• OpenAPI 3.x: API specification format enabling code generation, validation and documentation
• ISO 4217: Currency codes with proper decimal handling (BigDecimal, no floating point)
• ISO 8601: Timezone-aware date/time formatting with UTC as the canonical timezone
• RFC 7807 (Problem Details): Standardized error response format with type URIs, titles and detail messages

Monitoring and Observability

• Distributed tracing: OpenTelemetry with Jaeger or Zipkin for end-to-end request tracing across microservices
• Metrics: Prometheus with Grafana dashboards tracking API latency (p50, p95, p99), error rates, consent lifecycle events and TPP-level usage
• Alerting: PagerDuty or Opsgenie integration with tiered severity levels for SLA breaches
• Health endpoints: /health (liveness) and /ready (readiness) probes for Kubernetes orchestration

Technology Stack Recommendations

Backend Technologies

• Java / Spring Boot: The enterprise standard for banking; excellent OAuth2 resource server support via Spring Security, mature transaction management and strong typing
• Node.js / NestJS: Ideal for rapid API development with TypeScript safety; great ecosystem for real-time webhooks and event processing
• Go: Optimal for high-throughput, low-latency components like API gateways and middleware proxies
• Python / FastAPI: Well-suited for AIS analytics, ML-based fraud detection and data enrichment services

Infrastructure

• Kubernetes: Container orchestration with horizontal pod autoscaling for traffic spikes
• Service mesh (Istio/Linkerd): mTLS between services, traffic management and observability
• Event streaming (Kafka): Asynchronous event processing for payment status updates and audit logging
• Database: PostgreSQL for transactional data, Redis for session/token caching, Elasticsearch for audit log search

Real-World Use Cases

Open banking APIs power a wide range of financial products:

• Account aggregation: Unified view of accounts across multiple banks for personal and business finance
• Credit decisioning: Transaction-based credit scoring as an alternative to traditional bureau data
• E-commerce payments: Direct bank-to-bank payments at checkout, reducing card network fees
• Invoice management: Automated invoice reconciliation and scheduled payment execution
• Cash flow forecasting: AI-driven predictions based on historical transaction patterns
• KYC and identity verification: Account ownership confirmation and identity data matching

For comprehensive fintech solutions, explore our FinTech Services page.

Key Considerations for Open Banking Projects

Successful open banking API projects require attention to both technical and business factors:

1. Regulatory compliance: Stay current with PSD2/PSD3, local regulations and standard updates
2. Consent management: Implement transparent, user-friendly consent flows with clear data usage explanations
3. Performance SLAs: Target sub-500ms response times and 99.9%+ uptime; many regulators now mandate specific thresholds
4. Backward compatibility: Maintain multiple API versions with graceful deprecation and migration support
5. Developer experience: Invest in documentation, SDKs, sandbox quality and developer support
6. Security audits: Regular penetration testing, OWASP API Security Top 10 assessments and third-party security reviews

Frequently Asked Questions (FAQ)

Is open banking secure?

Yes. Open banking employs multiple security layers including OAuth 2.0 / FAPI security profiles, mutual TLS certificate authentication, Strong Customer Authentication (SCA), end-to-end encryption and digital signatures. Banks only grant API access to licensed, regulated third-party providers, and no data is shared without the customer's explicit consent. In many respects, open banking is more secure than legacy data-sharing methods like screen scraping.

What is the difference between PSD2 and PSD3?

PSD2, effective since 2018, established the legal foundation for open banking in the EU by requiring banks to open API access to licensed TPPs. PSD3, expected in 2025-2026, enhances this framework with mandatory IBAN/name verification to prevent payment fraud, stricter API performance standards, a customer consent dashboard requirement and a pathway toward open finance covering insurance, investments and pensions. PSD3 also converts parts of the directive into a directly applicable regulation (PSR) for more consistent enforcement across member states.

What technologies are needed to build open banking APIs?

Building open banking APIs requires OAuth 2.0 / OpenID Connect for authentication and authorization, RESTful API design expertise, mTLS certificate management, a microservices architecture and container orchestration (Kubernetes). Common technology choices include Java/Spring Boot or Node.js/NestJS for backend services, Kong or Apigee for API management, PostgreSQL and Redis for data storage and Prometheus/Grafana for monitoring. Familiarity with FAPI security profiles and relevant API standards (Berlin Group, UK OB, ÖHVPS) is also essential.

How long does it take to develop an open banking platform?

Timeline depends on scope and regulatory requirements. A minimum viable product (MVP) with basic AIS endpoints, OAuth 2.0 consent flow and sandbox typically takes 3-6 months. A full-featured platform with AIS, PIS, comprehensive consent management, production-grade security, monitoring and regulatory certification generally requires 9-18 months. Leveraging existing open-source components (e.g., Keycloak for identity, Kong for gateway) can significantly accelerate development.

Do I need a license to build open banking APIs?

It depends on your role. If you are a TPP that directly accesses bank APIs to provide AIS or PIS services to end customers, you need a license — an AISP or PISP license under PSD2 in the EU, or a YÖS license from CBRT in Turkey. If you are a technology vendor building the platform for a licensed entity, you do not need a license yourself, but your software must meet all regulatory technical standards. Many companies choose to partner with an already-licensed entity during their initial market entry.

Conclusion

Open banking represents a fundamental shift in how financial services are built and delivered. With PSD3 on the horizon in Europe and ÖHVPS maturing in Turkey, the ability to design, develop and operate banking APIs is becoming a critical competitive advantage for fintech companies. Success requires a combination of strong technical architecture, layered security, regulatory awareness and exceptional developer experience.

At Cesa Software, we provide end-to-end fintech and open banking API development services. Contact us to discuss your project.