Open Banking

Open banking in Europe is mandated by PSD2, which requires banks to expose standardised APIs to licenced third-party providers (TPPs). Two categories of TPP are defined: Account Information Service Providers (AISPs), which read account data with customer consent, and Payment Initiation Service Providers (PISPs), which initiate payments directly from customer bank accounts. Both require explicit customer authorisation before any data access or payment action.

A PISP-initiated open banking payment works as follows: the customer selects pay-by-bank at checkout, is redirected to their bank's interface (app or web), authenticates using their bank's standard authentication (which satisfies SCA), and authorises the payment. The PISP submits the payment instruction to the customer's bank via the open banking API; the bank executes the payment directly from the account.

Open banking payments bypass card network rails entirely. There is no card, no acquirer in the card-acceptance sense, no interchange fee, and no chargeback mechanism as defined by card scheme rules. Settlement is account-to-account, typically over domestic faster payment rails (UK Faster Payments, SEPA Instant). Settlement timing is faster than card payments in markets with instant payment infrastructure.

Open banking is at different maturity levels globally. The UK has the most developed ecosystem, with a dedicated regulatory body (Open Banking Limited) and high API quality across major banks. Europe is maturing under PSD2. The US has no mandated open banking framework; data sharing occurs through commercial agreements. Australia, Brazil (via PIX infrastructure), and other markets have national open banking initiatives at various stages.

Zero interchange is the core cost advantage: open banking payments carry no interchange fee and no scheme fee. For merchants with high card payment costs, particularly those with commercial card volumes or cross-border transactions, open banking payments can reduce payment acceptance costs materially.

No chargeback mechanism is also a risk trade-off: card payments give consumers a chargeback right enforced by the card scheme. Open banking payments have no equivalent, dispute resolution falls to the merchant's refund policy and any protections offered by the PISP. For merchants with elevated chargeback exposure, this changes the risk dynamic.

Conversion depends on bank API quality: the open banking payment experience is only as good as the bank redirect flow the customer goes through. Bank authentication UIs vary significantly in quality. In markets with mature open banking (UK), conversion on open banking payment flows is competitive with card. In markets with inconsistent bank API implementations, conversion is lower.

Open banking is not yet a global standard: the absence of a mandated open banking framework in the US means open banking payments cannot be offered to US cardholders in the same way as EEA customers. Global merchants need to plan open banking as a market-specific offering rather than a global checkout option.