Open Banking Explained

Open Banking enables safe and improved payment experiences for consumers and merchants alike. Here we try and break down what exactly it is, how it's good for your business and why it's being adopted globally.

As our world becomes increasingly digital, consumers are demanding slicker, quicker, more personalized experiences that fit conveniently into their lifestyles. This creates a tough environment for merchants and service providers who need to meet this customer demand, while controlling costs and growing their businesses.

Open Banking is one of the key initiatives helping to address both consumer and merchant needs when it comes to payments. In this article, we aim to give you a useful summary of what Open Banking is, why it’s becoming a game-changer at the checkout and what it can do for your business.


What is Open Banking?

In a nutshell, Open Banking is a secure way for consumers to share their financial information with merchants or service providers or to authorize a payment directly from their bank account.

While some countries - particularly the UK and EU - are leading the change, Open Banking is seeing rising adoption around the world, especially among countries with strong digital and mobile payments uptake.

If you’ve already had some discussions around Open Banking, you have probably heard mention of PSD2 (the Second Payment Services Directive). This piece of EU payments legislation came into full effect in September 2019 and is aimed at improving digital payments capabilities and enabling consumers in the EU to have greater control over their financial data. 


“Open Banking has the power to revolutionise the way we move, manage and make more of our money.” - Open Banking UK


PSD2 has provided a regulated way to enable consumers to give service providers of their choice safe and secure access to accounts to either gather transaction data or initiate payments on the customer’s behalf (with their permission). 

Sharing financial data across providers means that consumers can potentially use an app to have a single view of all their finances and one place to manage it all, even if they have different accounts across different banks. This also gives the opportunity for providers to overlay innovative services such as finance management or budgeting tools that create real value for consumers and strengthen their customer relationships.

While lots of these potential overlay services and innovations are still in the pipeline from fintechs and other service providers, the most immediate advantage of Open Banking is the ability for consumers to use Online Banking Payments to pay merchants. PSD2 has acted as a catalyst for this by requiring that all banks allow and support authorized service providers (called PISPs) to initiate payments. This will make Online Banking Payments a much more widely available payment method across Europe.


The benefits of Online Banking Payments

Every business understands the need to be customer-centric and that delivering the experiences and preferences that consumers want can make all difference in the competitive, fast-moving world of commerce. 

Research predicts that in Europe, Online Banking Payments will overtake both credit and debit cards in popularity by 2022. This forecast alone is enough to see why so many merchants are looking to enable Online Banking Payments as a payment method. 


will abandon online purchases if faced with complex checkout procedures


state that available payment methods affect who they shop with


want an Online Banking Payments option when shopping online

Why Online Banking Payments are attractive to consumers

Essentially, Open Banking strikes a chord with consumers because the ability to pay from their bank account addresses their top concerns and needs around payments:

Simplicity: Consumers only have to perform one authentication to pay directly from their bank account using an Open Banking Payment initiation service, without the need to enter card details or further credentials.

Speed: When they utilize instant payments capabilities, Online Banking Payments allow funds to be transferred immediately. This is particularly helpful for consumers who are looking for fast or instant fulfilment options, such as downloading digital entertainment, purchasing a travel ticket and many other uses. 

Trust:  Whether they’re buying their groceries or repaying a loan, customers feel more secure when they can select a familiar, trusted route to make a payment. Research shows that 70% of European adults access their online bank account at least once a month and in some European countries as many as 90% of adults use Online Banking Payments - highlighting how familiar this route is for the vast majority of consumers.


"Topping the list of expectations among today’s consumers are convenience, speed and trust. They are digitally-savvy, know what they want – and they will shop around to get it".


Open Banking - a great business 

Offering the right payment methods and a slick, trusted customer experience can certainly give merchants a competitive edge, as well as encourage customer loyalty – and from the evidence so far, it’s clear that Online Banking Payments help to tick those boxes. As Online Banking Payments gain popularity and become a strongly preferred payment method, merchants may be able to increase conversion and payments acceptance rates by enabling consumers to pay by automated Online Banking Payments at the checkout.

However, Open Banking has even more to offer merchants. By supporting Online Banking Payments, merchants can lower payment processing costs by reducing the number of card transactions, which typically incur higher costs as they process through card schemes and acquirers.

Online Banking Payments that use instant payments capabilities can also help merchants improve cash flow, as well as reduce the risk of fraud and chargebacks.

Lastly, for those with ambitious plans, by working with a specialist PISP provider, merchants can implement a standardized approach to online banking payments across Europe, without having to enable multiple payment methods in each country. This could be a huge enabler for cross-border growth.

1. Worldpay, “Global Payments Report,” 2018
2. https://money-gate.com/europeans-top-online-banks/

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Open Banking around the world

Open Banking is a growing global phenomenon. But, why is this? In this article, we go through the Open Banking landscape across various regions to see how it’s all shaping up.

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Unlocking the True Value of Bank Payments

Download our white paper designed to give payments professionals an introduction to the difference between various Payment Initiation Services and a deeper understanding of what these differences mean for coverage and quality.

Download now

The future of Open Banking

Listen to our CEO, Oscar Berglund, give a presentation on the future of Open Banking.

Watch the video