Once an obscure European concept, open banking is now a familiar buzzword to consumers and businesses worldwide. However, each region has taken its own unique approach to open banking, meaning it works slightly differently between the EU and the US. We’ll cover the key differences between open banking in Europe and the United States below.
What is open banking?
Before diving into the finer regional differences, let’s start with a quick rundown of how open banking works. This term describes the infrastructure put in place that allows consumers to better share their data with regulated providers. Consumers retain full control over open banking, allowing banks to share data with third parties for mutual benefit, using an opt-in process.
Financial service providers benefit from the ability to provide more targeted innovations to their customers.
Consumers benefit from the ability to access more relevant products and services from financial providers.
Businesses benefit from streamlined payment methods, automated processes, and other open banking innovations.
Open banking Europe PSD2 regulations
The EU’s PSD2 regulation is often used synonymously with the UK’s Open Banking Standard. They’re closely related, because PSD2 was put in place to remove the monopoly on customer data that banks once had. Instead of banks retaining all the data, other businesses can now access this data with the customer’s permission. Like open banking, Europe PSD2 regulations offer a way for customers to opt into sharing their data with third parties. The Open Banking Standard in the UK differs slightly in that it requires that banks use a standard format and procedure.
Open banking in the US
There’s the Open Banking Standard in the UK and PSD2 in Europe. But how does open banking work in the US? Here, the approach differs slightly in that it’s more market-led, free from strict regulations or government oversight. One of the early adopters of open banking in the US is Plaid, a financial services provider with its own data transfer network.
Most open banking services in the US are currently limited to account information products using screen scraping to extract data. This isn’t as secure as open banking in Europe, nor does it include the wider array of services you’ll find across the Atlantic.
Open banking in Europe
When looking at Europe’s PSD2 standard and the state of open banking within the US, there are several key differences to be aware of:
Approach: The US uses a more industry-led approach with innovators looking for ways to fill existing market gaps and adapt to changes in customer needs.
Regulation: European open banking is highly regulated according to the PSD2 standard, with a unified vision to move this technology in a certain direction.
Popularity: Open banking is still brand-new in the US market, with only a handful of companies like Plaid driving the technology forward. The open banking network is small in comparison to Europe.
Security: US businesses are using techniques like screen scraping and password sharing to drive forward services, which are much less secure than European methods.
The future of international open banking
While the concept of open banking is the same between the US and Europe, there are several differences in approach. But what about the future, as the world moves forward with this technology? There is less consumer awareness of the open banking concept in the United States when compared to Europe, but as these financial products grow in popularity, we could see this shift significantly in the years to come.
In the meantime, European open banking continues to grow with more fintech companies joining the network. The main challenge within the EU is trying to find a way to manage the wider regional block while adhering to the needs of 27 different countries. In any case, open banking remains in its early stages with plenty of room for growth across the globe.
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