Open Banking is a financial technology framework that allows third-party providers to access banking information and initiate payments securely, using standardized application programming interfaces (APIs). It enables a more seamless and integrated financial experience for customers while ensuring high levels of security and regulatory compliance.
What Does Open Banking Enable?
With Open Banking, customers can:
Make payments directly from their bank accounts without needing a card.
Stay on the merchant’s webpage throughout the payment process, ensuring a smooth checkout experience similar to traditional bank link payments.
Share account information (with consent) to access services like budgeting tools, credit scoring, or loan applications.
These features enhance the payment experience by removing unnecessary redirects and making transactions faster and more transparent.
The Role of PSD2 in Open Banking
Open Banking in Europe is driven by the Revised Payment Services Directive (PSD2), an EU regulation that promotes innovation, competition, and security in the financial services sector.
PSD2 defines two key types of third-party services:
Account Information Service (AIS) – Allows third parties to access consolidated account data, helping users view all their banking information in one place.
Payment Initiation Service (PIS) – Enables third parties to initiate payments directly from the customer’s bank account on their behalf.
To ensure these services are secure, PSD2 mandates:
Strong Customer Authentication (SCA) – Customers must verify their identity using at least two factors (e.g., something they know, have, or are).
Explicit customer consent – Third-party providers must obtain clear, informed permission before accessing account data or initiating a payment.
Why It Matters
Open Banking is transforming the way people interact with financial services. It gives customers more control over their financial data and opens the door for better tools and faster, safer payments. For merchants, it enables a streamlined checkout process that reduces cart abandonment and improves conversion rates.
Tip: Open Banking payments are especially useful for businesses looking to offer a card-free, low-fee payment alternative directly embedded into their checkout flow.