Open banking is transforming how consumers access financial data and how businesses design secure, API-driven payment solutions. This resource explores open banking frameworks, use cases, benefits, and its role in shaping the future of financial services.
What is open banking?
Open banking is a financial framework that allows banks and other financial institutions to securely share customer-approved financial data with authorized third-party providers using APIs (application programming interfaces). This data can include transaction history, account balances, income information, and other relevant financial details.
In addition to data sharing, open banking enables instant bank-to-bank payments between customers and merchants. These payments are facilitated by regulated third-party providers, including Account Information Service Providers (AISPs), which access and analyze financial data, and Payment Initiation Service Providers (PISPs), which initiate secure payments directly from a user’s bank account.
By enabling secure data access and real-time payments, open banking is transforming how consumers and businesses interact with financial services. It is reshaping industries such as payments, ecommerce, lending, and fintech by changing how financial information is accessed and how goods and services are paid for.
Learn more: Open Banking 101: Guide for Businesses
The History of Open Banking
Open banking in Europe began with the introduction of PSD2 in 2018, which required banks to share payment and account data with third-party providers via secure APIs. Before this, payment solutions like GiroPay and SOFORT had already begun offering alternative ways to make online payments by facilitating bank transfers in real-time, laying the groundwork for the shift towards open banking. However, these systems were proprietary and limited in scope, whereas PSD2 opened the door to a broader ecosystem of third-party fintech providers.
Building on this, the evolving regulatory landscape has pushed further innovation with PSD3, which is expected to address emerging challenges such as enhanced security, new customer protections, and better consumer choice. New fintech providers like Ivy — the next generation of open banking in Europe — are challenging traditional banks and established players like GiroPay and SOFORT by delivering a more flexible, user-friendly approach to open banking payments for both merchants and customers.
How does Open Banking Work?
Open banking leverages APIs to securely transfer data between financial institutions (like banks and credit unions) and authorized third-party providers. Data is encrypted every step of the way. The three kinds of APIs that are most commonly used in open banking include:
Data APIs: These provide read-only access to data like transaction history and account balances.
Transaction APIs: These enable the initiation of payments, such as funds transfers or direct debit setups.
Product APIs: These are used by third-parties (like comparison websites and marketplaces) to collect and display information about products, rates, and terms.
Explore exactly how open banking works with Ivy’s interactive open banking demo.
Open Banking APIs Explained
Open banking APIs are the technical foundation that make open banking possible. APIs (application programming interfaces) allow banks and authorized third-party providers to securely connect systems and exchange financial data in a standardized way. Instead of sharing login credentials, APIs enable controlled, permission-based access to specific data and payment functionality.
Through open banking APIs, providers can access account information such as balances and transaction history, or initiate payments directly from a user’s bank account, depending on the permissions granted. All API access requires explicit customer consent and is protected by encryption, authentication protocols, and regulatory security standards.
Open banking APIs are typically used by regulated third parties such as Account Information Service Providers (AISPs) and Payment Initiation Service Providers (PISPs). These APIs support a wide range of use cases, including personal finance management, account verification, instant payments, lending decisions, and embedded financial services.
By standardizing how financial data and payments are accessed, open banking APIs improve interoperability, reduce reliance on legacy integrations, and enable faster innovation across the financial ecosystem. As adoption grows globally, open banking APIs continue to evolve, supporting more advanced use cases and deeper integration across industries.
What are Third Party Providers (TPPs) in Open Banking?
Third Party Providers (TPPs) are authorized organizations that use APIs to access customers' financial information in order to provide a range of services. They typically fall under two categories:
Payment InitiationService Providers (PISPs)
These are authorized third parties that facilitate payments directly from a customer's bank account to a merchant, without requiring a card or separate account setup.
Account Information Service Providers (AISPs)
These are authorized third-party services that aggregate and provide customers with access to their financial data from multiple accounts, enabling better financial management and insights.
Open Banking Security
Open banking security risks are an important consideration as financial data becomes more connected, but they are addressed through robust technical standards and regulatory oversight. Open banking is designed to minimize risk by allowing data to be shared only through secure, encrypted APIs and only with authorized third-party providers. Access is granted with explicit user consent, limited to specific data types, and can be withdrawn at any time.
Regulations such as PSD2 and Open Banking standards require strong customer authentication (SCA), ongoing compliance checks, and continuous monitoring to detect and prevent fraud. By eliminating insecure practices like screen scraping and replacing them with permission-based access, open banking reduces exposure to data misuse while improving transparency, control, and trust across the financial ecosystem.
Learn more: Is Open Banking Safe?
How is Open Banking Used?
Open Banking enables instant, account-to-account transfers, reducing the need for costly intermediaries like credit card networks and digital wallets. This streamlined approach helps businesses lower transaction fees and enhance payment efficiency.
Recurring Payments
Open Banking enables automated setup of SEPA Direct Debit mandates, streamlining payment processing by eliminating manual IBAN entry, reducing fraud risk, and minimizing chargebacks. This automation accelerates payment initiation and enhances security, making recurring payments more efficient for businesses and consumers alike.
Open Banking enables faster and more secure payouts by facilitating direct account-to-account transfers. This approach reduces reliance on traditional intermediaries, streamlines processing times, and minimizes transaction costs, offering businesses an efficient solution for disbursing funds to customers or partners.
Payment Reconciliation
Open Banking can simplify the payment reconciliation process for businesses by giving third-party applications access to customers’ financial information, allowing them to easily match incoming payments with invoices. This reduces administrative burden and reduces the risk of manual errors.
Identity Authentication
Businesses can use Open Banking to authenticate customer identities by verifying their bank credentials. This helps mitigate the risk of identity theft and fraud, especially in online transactions.
Financial Management
Open Banking enables third-party providers to develop applications that support a range of financial management activities, including budgeting, saving, and expense tracking. These services enhance financial transparency and empower individuals to make more informed financial decisions.
How Different Industries Use Open Banking
Open banking is used across a wide range of industries to enable secure data access, real-time payments, and more efficient financial workflows. While the underlying infrastructure is the same, each industry applies open banking differently based on regulatory requirements, customer needs, and transaction models.
Open Banking in Crypto
In the crypto industry, open banking is commonly used to enable secure fiat on- and off-ramps. Exchanges and wallets use open banking payments to allow users to fund accounts directly from their bank, often with faster settlement and lower fees than card payments. Open banking can also support compliance checks and transaction verification, helping crypto platforms meet regulatory and risk requirements.
Explore: Open Banking for Crypto.
Open Banking for Payment Service Providers (PSPs)
Payment service providers use open banking to offer account-to-account payments as an alternative to traditional card networks. By leveraging payment initiation, PSPs can provide faster settlement, reduced transaction costs, and improved payment reliability for merchants. Open banking also enables PSPs to build value-added services such as real-time balance checks and enhanced fraud prevention.
Explore: Open Banking for PSPs.
Open Banking in Trading and Investment Platforms
Trading and investment platforms use open banking to streamline account funding, withdrawals, and user verification. Instant bank payments improve the customer experience by reducing delays, while access to financial data can support suitability checks, risk assessments, and portfolio insights. Open banking helps platforms deliver faster, more transparent financial interactions.
Explore:Open Banking for Trading.
Open Banking in Ecommerce
Ecommerce businesses use open banking to offer fast, secure checkout experiences through direct bank payments. These payments reduce reliance on cards, lower processing fees, and minimize chargebacks. Open banking can also support account verification and recurring payments, making it attractive for both merchants and consumers.
Explore: Open Banking for E-Commerce.
Open Banking Benefits
For businesses
Open banking offers significant benefits for businesses that deal in both physical goods (i.e., eCommerce and retail) as well as digital goods and services like crypto, gaming, and financial services.
Unlock Instant Payments: By cutting out expensive intermediaries like credit card networks and digital wallets, open banking enables businesses to save up to 90% on every transaction.
Expanded Payment Options: Open banking gives businesses a way to offer a safe, reliable, and convenient payment method for customers who may not have access to credit cards and digital wallets.
Resilient Payments Infrastructure: Open banking provides businesses with a resilient payments infrastructure by enabling direct, bank-to-bank transactions that reduce dependency on traditional payment networks and enhance system reliability.
Operational Agility: Open banking enhances cash flow by enabling faster, direct payments that reduce processing delays and improve fund availability for businesses.
For Consumers
It isn’t just businesses that stand to benefit from open banking. Consumers have a lot to gain too.
Simplified Finances: With open banking, consumers can simplify their finances by decreasing their dependence on several different accounts, payment methods and third-party apps. All financial transactions are securely carried out through their primary bank accounts and banking app.
Greater Convenience: Open banking removes many of the inefficiencies associated with traditional payment methods, such as manual data entry at checkout or disruptions due to credit card limits. By simplifying these processes, open banking enhances convenience and delivers a smoother customer experience.
Less Risk: Open banking offers a significantly safer alternative to traditional card and wallet payments, as consumers are not required to input card details or rely on third parties to securely store sensitive information. Additionally, Open banking legislation empowers consumers with full control over their financial data, allowing them to decide precisely who has access and for what purpose, enhancing both security and transparency.
Open Banking Trends
Open banking trends reflect the rapid global shift toward more connected, data-driven, and user-centric financial services. What began as a regulatory initiative has evolved into a core foundation for innovation across payments, lending, fintech, and digital commerce.
One of the most significant trends is global adoption. Today, more than 70 regions across the world are rolling out open banking infrastructure, signaling strong regulatory and market alignment. While early momentum came from Europe and the UK, open banking frameworks are now expanding across North America, Latin America, Asia-Pacific, and parts of Africa, each adapting the model to local regulatory and market needs.
Another major trend is the accelerated growth of open banking payments. Open banking–enabled payments are seeing 69% year-on-year growth, driven by demand for faster settlement, lower transaction costs, and improved checkout experiences. Merchants are increasingly adopting bank-to-bank payments as an alternative to cards, while consumers benefit from real-time transfers and reduced friction.
User adoption continues to rise sharply, particularly in Europe. In 2024, there were an estimated 63.8 million open banking users in Europe, and that number has continued to grow. As consumers become more familiar with consent-based access and real-time financial tools, adoption is expected to expand beyond early fintech use cases into everyday banking, ecommerce, and financial management.
Looking ahead, open banking trends point toward deeper integration with embedded finance, open finance, and real-time payments. As standards mature and infrastructure scales globally, open banking is set to play a central role in shaping the future of digital financial services, for consumers, businesses, and financial institutions alike.
What are the Factors that are Driving Open Banking Adoption?
For Consumers
The reasons consumers opt for open banking payments is convenience, speed and security.
Convenience: Unlike credit cards and digital wallets, there is no need to manually enter payment details at checkout or create an account. All consumers have to do is choose their bank at checkout to initiate the transaction.
Speed: Once the consumer has selected their bank, they’re redirected to their primary banking app from where they can authorize the payment in seconds. The transaction is immediate: funds are transferred instantly from the consumer's bank account to the merchant’s.
Security: Because all transactions are securely authorized from a consumer's bank app using passwords, pins, or biometric identification, they don't have to worry about third-party websites storing their credit card or account information.
For Businesses
For businesses, open banking offers a few major advantages, including:
Cost-effective: Credit cards and digital wallets have high add-on fees for every transaction. Open banking is significantly cheaper, offering merchants up to 90% cost savings when compared to cards and wallets.
Reduces chargeback risk: There is no chargeback mechanism with open banking payments. Funds are transferred instantly from the customer’s bank account to the merchant’s.
Improved cash flow: Because funds are transferred instantly, merchants have improved access to cash flow.
Open Banking Regulations
Open banking regulations establish the legal and technical frameworks that govern how financial data is shared securely and with customer consent. These regulations define who can access data, how APIs must operate, and the security standards providers must meet, ensuring trust, transparency, and consumer protection across the open banking ecosystem.
PSD2, PSD3 & PSR - Europe
The EU’s PSD2 directive mandates secure, standardized access to consumer banking data for authorized third-party providers. PSD2 also enforces Strong Customer Authentication (SCA) to reduce fraud. PSD3 and PSR are a new set of legislative proposals that are the evolution of PSD2. Their purpose is to further harmonise the European payments landscape and reduce regional variance.
CDR (Consumer Data Right) - Australia
Australia's Consumer Data Right gives consumers control over their data across various sectors, starting with banking (Open Banking). The Australian Competition and Consumer Commission (ACCC) oversees CDR, which mandates that authorized data recipients use secure APIs for access and data sharing.
Open Banking Standards - United Kingdom
Initiated by the UK’s Competition and Markets Authority (CMA), Open Banking standards require the nine largest UK banks to provide secure APIs for customer data access and payment initiation. These standards are supported by the Open Banking Implementation Entity (OBIE) and align closely with PSD2.
Ley Fintech (Fintech Law) - Mexico
Mexico’s Fintech Law regulates open banking by requiring banks to establish APIs for secure data sharing with third-party providers, promoting financial inclusion and competition. The law is enforced by the Comisión Nacional Bancaria y de Valores (CNBV).
CFPB Section 1033 - United States
The Consumer Financial Protection Bureau (CFPB) has proposed regulations under Section 1033 of the Dodd-Frank Act, which will provide consumers with rights to access their financial data and authorize secure data sharing. While formal rules are still evolving, several U.S. banks have voluntarily adopted secure APIs.
Open Finance Framework - Brazil
Brazil’s Open Finance framework, developed by the Central Bank of Brazil, expands beyond traditional open banking to include insurance, pensions, and investments. The regulation establishes mandatory API-based data sharing for financial institutions, aiming to increase competition and financial accessibility.
Open Banking Companies
Open banking companies play a central role in enabling secure data sharing and account-to-account payments across the financial ecosystem. These providers include banks, fintechs, technology platforms, and regulated third-party providers that build and operate open banking infrastructure. Depending on the use case, open banking companies may specialize in data aggregation, payment initiation, compliance, identity verification, or industry-specific solutions.
As open banking adoption expands globally, the number and diversity of providers continues to grow across regions, industries, and business models. From consumer finance and ecommerce to lending, payroll, and embedded finance, open banking companies support a wide range of applications.
Explore: Ivy’s Open Banking Providers database gives you a comprehensive overview of providers across regions, use cases, and industries.
