Background

Open banking continues to evolve rapidly across the globe (see Figure 1) with adoption spreading to many new geographies. In the European Union (EU) the stage is now set for the introduction of the third Payment Services Directive (PSD3). The first two directives have been transformative; the first in creating payment institutions and the foundation for non-bank firms to flourish in the payments market; and the second in providing the foundational framework for open banking.

Figure 1: Open Banking Map

For open banking, PSD2 requires account servicing payment service providers (ASPSPs) to provide third-party payment service providers (TPPs) with access to payment accounts and sets a framework for structured interaction between ASPSPs (mainly banks) and TPPs. In terms of innovation, the introduction of open banking has paved the way for new payment methods and business models. It introduced Payment Initiation Services (PIS) and Account Information Services (AIS), which have made it easier for consumers to manage their finances and make payments.

In the EU we now have five years of open banking under our belts, so it makes sense to take stock of what we have achieved and then also consider what we need in PSD3 to support the long-term future growth of open banking and the foundation for broader open finance^[1] and open data.

In the UK the next stage of open banking will progress under the umbrella of the ‘Recommendations for the next phase of open banking in the UK,’ a roadmap that over the coming two years will enhance the current open banking ecosystem and set the foundation for a long-term central entity and a viable commercial framework.

The objectives of PSD2 were to drive competition and innovation (through a more integrated and efficient European payments market and a more level playing field for payment service providers), to make payments safer and more secure, and to better protect consumers.

The recent study by VVA and CEPS on the application and impact of PSD2 details the progress in meeting these objectives. It found greater competition, choice, and innovation as new payment businesses and business models emerged; improved security of payment transactions through strong customer authentication (SCA); a drop in certain types of fraud; and an increased adoption of electronic means of payments and improvements in consumer rights. However, there remains plenty of room for further improvement.

Within the EU, open banking has evolved from a few firms accessing accounts via screen scraping to the majority of the EU’s 5,100+ banks providing access via dedicated Application Programming Interfaces (APIs) that prioritise security, consumer choice, and data privacy.

Despite successes, there are ...

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