Open banking is a framework that allows customers to securely share their banking data and authorise payments through regulated third-party providers using application programming interfaces (APIs).
Instead of relying on traditional banking channels, open banking enables authorised providers to access account information or initiate payments directly from a customer's bank account, with the customer's consent.
Open banking is designed to increase competition, innovation, and consumer choice in financial services while giving customers greater control over how their financial data is used.
Open banking connects banks, customers, and authorised third-party providers through secure APIs. When a customer chooses to use an open banking service, they are redirected to their bank to authenticate themselves and provide consent. The bank then shares the requested information or processes the payment instruction through a secure connection. Customers can revoke access at any time, and providers can access only the data or services the customer has authorised.
Open banking payments and card payments both allow customers to pay electronically, but they use different payment infrastructures. With an open banking payment, funds move directly from the customer's bank account to the merchant through account-to-account (A2A) payment rails. The customer authenticates the payment through their bank, and no card details are required.
With a card payment, the transaction is processed through the card network infrastructure, such as Visa or Mastercard. The customer provides card information, and the payment is routed through the card payment ecosystem before being authorised by the issuer.
Because open banking payments bypass traditional card networks and enable direct bank-to-bank transfers, they are often considered a form of A2A payment.
Open banking has expanded the range of payment and financial service options available to consumers and businesses. For merchants, it can provide an alternative payment method that allows customers to pay directly from their bank accounts. For fintechs and payment providers, it creates opportunities to develop new products focused on account information, payment initiation, personal finance, lending, and financial management.
For consumers, open banking can simplify payments while providing greater transparency and control over how their financial data is shared.
