We know many ways to prove our identity in the analogue world. In addition to the “classics” such as a passport and national identity card, it is sometimes possible to identify oneself using a driving licence, a certificate of registration, a birth certificate or an employee ID card. Criminals tend to reveal their identity inadvertently through fingerprints. However, law-abiding citizens, too, can present biometric characteristics such as fingerprints or an iris scan to prove they are authorised individuals.
Nevertheless, we no longer live in a purely analogue world. Especially in the financial sector, identity verification is a key part of every customer relationship — be it when opening an account, taking out a loan, or for payment transactions. KYC processes (Know Your Customer) are intended to ensure that individuals are uniquely identifiable and that legal requirements are met. Open Banking creates new, data-driven possibilities to verify identities more quickly, more easily, and still reliably.
Traditional KYC procedures: the status quo
Conventional KYC processes often rely on manual checks and fragmented workflows, such as uploading ID documents or video verification. These methods are time-consuming, error-prone, and often slow down digital onboarding. For many customers, they create unnecessary hurdles and long waiting times. At the same time, financial institutions must meet high standards for data protection, documentation, and fraud prevention. Increasing regulatory pressure meets processes that are often technically outdated.
Open Banking as a game-changer – especially for the KYC process
Open Banking allows authorised third parties, with customer consent, to securely access bank account data via standardised APIs. This data provides valuable information about identity and financial standing, such as name, address, salary deposits, or recurring payments. Instead of traditional proofs, financial institutions can access verified, up-to-date data directly and analyse it in real time. This makes Open Banking a powerful foundation for automated, digital identity verification in the KYC process.
By using Open Banking data, onboarding is significantly accelerated: manual document uploads are eliminated, and identity and creditworthiness attributes can be checked automatically. Customers experience smoother, faster account openings or product activations—often within minutes. For financial service providers, this leads to higher conversion rates and lower drop-off rates. At the same time, the quality and timeliness of verified data improves, strengthening compliance and reducing the risk of incorrect decisions.
Benefits for Banks, FinTechs and Customers
Open Banking makes KYC processes faster, more cost-efficient, and less prone to errors. Banks and FinTechs can onboard new customers in real time while simultaneously fulfilling regulatory requirements such as anti-money laundering obligations more efficiently. The use of account and transaction data replaces laborious proofs such as payslips or address confirmations. This significantly accelerates the process and reduces media disruptions as well as manual checks.
Customers benefit from a much simpler onboarding experience, fewer obstacles, and the immediate activation of products or services.
Compliance departments also see advantages: the data used is up to date, traceable, and auditable. In addition, risk-based checks can be carried out more precisely since Open Banking data enables deeper insights. The result is an entirely digital KYC process that is both user-friendly and robust from a regulatory perspective.
Challenges and Limitations
Despite its advantages, the use of Open Banking in the KYC context also presents a number of challenges. A fundamental prerequisite is the explicit consent of the customer to access their account data – which requires both transparency and trust. In addition, technically connecting to the diverse interfaces of various banks is complex and demands stable, scalable API integrations. Not all banks within the SEPA area are yet fully compatible or provide data in sufficient quality and structure.
Data protection is also crucial: processing sensitive financial data is subject to stringent GDPR requirements and must be properly documented and secured. Furthermore, there are regulatory uncertainties, for instance regarding the interplay between eIDAS, AML5 and national KYC regulations. A particular challenge in cross-border cases is the lack of unified standards. The main task is to reconcile technological innovation with legal reliability.
Conclusion
Digital identity verification through Open Banking is fundamentally revolutionising traditional KYC processes. It enables faster, automated, and more accurate checks that offer significant benefits for both financial institutions and customers. Banks and FinTechs that leverage these new data sources improve their efficiency, reduce costs, and simultaneously increase security and compliance. At the same time, customers enjoy a much simpler and more convenient onboarding experience. Despite existing technical and regulatory challenges, the development clearly points towards a fully digital, data-driven identity management system. Those who invest now in modern solutions and partnerships position themselves securely for the future and maintain a competitive edge. Open Banking thus represents a crucial building block on the path to a modern, trustworthy, and customer-friendly financial world.
