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How payments use open banking

Antonis Kazoulis
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Last editedMay 20234 min read

As the world becomes increasingly digitised, payments are evolving at a rapid pace. Open banking is a financial technology that allows third-party providers to access financial information from banks through APIs, which can be used to initiate transactions on behalf of the user. 

This technology has revolutionised the payments industry by making transactions faster, more convenient, and more secure. In this blog, we will discuss the importance of understanding how payments use open banking and how it can benefit you as a consumer.

Faster and more convenient transactions

Open banking has made it possible for consumers to complete transactions faster and more conveniently. Third-party providers can access bank accounts through APIs, which means that they can initiate transactions on behalf of the user. This eliminates the need for consumers to manually input their bank details each time they make a purchase, making the checkout process faster and more convenient.

Improved security

The technology also offers improved security for consumers. The technology allows for more secure transactions, as the user's financial information is encrypted and transmitted securely through APIs. This makes it more difficult for fraudsters to steal sensitive information and carry out unauthorised transactions.

Increased competition

Open banking has also led to increased competition in the payments industry. Third-party providers are now able to offer their payment solutions, which means that consumers have more options to choose from. This has forced traditional financial institutions to improve their services and offer more competitive rates, which benefits consumers in the long run.

Better financial management

It has made it easier for consumers to manage their finances. Third-party providers can access a user's financial information through APIs, which means that they can offer personalised financial management solutions. This can include budgeting tools, investment advice, and more. By having access to this information, consumers can make more informed financial decisions and manage their money more effectively.


Open banking has made payments more cost-effective for both consumers and businesses. Traditional payment methods often involve high transaction fees, which can add up quickly. With open banking, however, fees are significantly reduced or eliminated. 

This is because open banking APIs enable direct bank-to-bank transfers, eliminating the need for intermediaries and reducing transaction costs. Businesses that accept payments through open banking can pass on the cost savings to their customers, making it an attractive option for cost-conscious consumers.

Financial inclusion

Finally, open banking has the potential to increase financial inclusion. Traditional payment methods often require customers to have a bank account or credit card, which can be a barrier for those without access to traditional banking services. 

With open banking, however, customers can make payments using their mobile phones, even if they don't have a traditional bank account. This opens up new opportunities for those who may have been excluded from the traditional banking system, enabling them to participate fully in the digital economy.

Open banking challenges in the payments space

While this has opened up new opportunities for innovation, there are also significant challenges that must be addressed, especially in the area of payments. In this blog section, we will discuss some of the key challenges facing open banking in the payments space, and how they can be overcome.


As open banking systems enable third-party access to sensitive financial data, security becomes a top concern. With payment data being highly valuable, banks and other financial institutions must implement strong security measures to protect against cyber threats and unauthorised access. 

Payment service providers must ensure that their systems are compliant with data protection regulations such as GDPR and CCPA. By deploying multi-factor authentication, encryption, and monitoring tools, payment providers can mitigate risks and ensure the safety of their customer's financial data.


Open banking creates a complex ecosystem of financial data sharing, with multiple payment providers, banks, and other stakeholders involved. This can result in a lack of interoperability between systems, leading to payment delays, errors, and other issues. 

To overcome this, payment providers need to ensure that their systems are compatible with each other, as well as with existing legacy systems. Standardised protocols like ISO 20022 can facilitate seamless communication between different payment providers, enabling faster and more efficient payment processing.

Customer experience

With the increasing popularity of mobile payments, customers expect fast, reliable, and user-friendly payment solutions. Open banking providers must ensure that their systems are designed with the customer in mind, offering a seamless payment experience across different devices and platforms. 

Payment providers need to focus on providing real-time payment updates, easy payment tracking, and a hassle-free payment process, reducing friction and enhancing customer satisfaction.

Regulatory compliance

Open banking providers must adhere to regulatory standards and guidelines, including PSD2 and GDPR, which govern data sharing, privacy, and security. This can create additional compliance costs and complexities, which can impact the bottom line of payment providers. Payment providers must stay up-to-date with changing regulations, ensuring that their systems are compliant and that they have appropriate risk management and monitoring frameworks in place.

Data management

With open banking, payment providers have access to a wealth of financial data, including customer transaction history, account details, and other sensitive information. Payment providers must implement robust data management policies and procedures, ensuring that data is collected, stored, and processed securely and ethically. Providers must also obtain explicit customer consent for data collection and usage, adhering to strict data privacy regulations.

Use cases for open banking payments

In this blog section, we will discuss some of the most popular use cases for open banking payments.

Instant payments

One of the most significant benefits of open banking is the ability to make instant payments. With open banking, customers can transfer money from their bank account to any other account within seconds. This feature is particularly useful for businesses that need to make urgent payments, such as paying suppliers or settling invoices.

P2P payments

Peer-to-peer (P2P) payments are another popular use case for open banking. P2P payments enable individuals to transfer money to their friends and family members directly from their bank accounts. This is an excellent option for those who do not want to use traditional payment methods such as cash or checks.

Merchant payments

Open banking can also be used for merchant payments. With open banking, customers can make payments directly to a merchant's bank account without the need for an intermediary such as a card issuer. This can help to reduce the fees associated with traditional payment methods and provide greater convenience for customers.

Subscription payments

Subscription payments are becoming increasingly popular, particularly in the digital age. Open banking can help to simplify the subscription payment process by enabling customers to set up recurring payments directly from their bank account. This can help to reduce churn and increase customer loyalty.

Digital wallets

Digital wallets are becoming more prevalent as consumers increasingly use their mobile devices for payments. Open banking can be used to link a customer's bank account directly to a digital wallet, enabling them to make payments directly from their bank account.

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