Payments glossary · Methods
Open Banking
Open banking lets customers give regulated third parties secure, consent-based access to their bank accounts through APIs, either to share account data or to initiate payments directly from the account without using a card.
How Open Banking works
In the EU and UK, open banking rests on PSD2, which requires banks to let authorised third parties access payment accounts with the customer's explicit consent. It created two regulated roles: account information service providers (AISPs), which read balances and transactions, and payment initiation service providers (PISPs), which instruct a payment from the customer's account. In the UK, a 2017 order from the Competition and Markets Authority also required the nine largest current account providers to build common API standards, delivered through Open Banking Limited.
For merchants, the main use is pay by bank. The customer selects their bank at checkout, is sent to their banking app to authenticate, and approves a payment that usually travels over an instant payment rail such as Faster Payments in the UK or SEPA Instant Credit Transfer in the euro area. Fees are often lower than for cards, funds arrive quickly and there is no card chargeback process, although some customers are less familiar with the flow and refunds must be sent separately.
Account data has merchant uses too, such as verifying account ownership before payouts, checking affordability or speeding up onboarding. Variable recurring payments (VRPs) extend payment initiation to repeat payments within limits the customer sets; in the UK they are mandated for sweeping money between a customer's own accounts, while commercial uses are being introduced gradually.