What is open banking, and how is it being rolled out around the world?

Open banking – the practice of consumers sharing their financial data with regulated third party providers (TPPs) via APIs – is establishing itself in all corners of the globe. But how, exactly, is it being rolled out? Does it operate to an agreed set of global standards? What open banking use cases are emerging? And are businesses and consumers realising its benefits?

Understanding Open Banking

We’ll unpack answers to each of these questions, but first: a plain English definition of ‘open banking’. In its broadest sense, open banking means permissively ‘opening up’ your banking data to a licensed business, in order for that business to provide a service. This data could concern:

• Your transactions. A mortgage provider, for example, could analyse balance and transaction data to better understand a borrower’s finances – ultimately leading to a more accurate, and more personalised, offer
• Your account holder data. An online auction website may use micro-deposits to verify a new seller’s bank account. Aside from being slow, the onus is on the seller to confirm the micro-deposit amount. Open banking as an account verification tool is faster and eliminates any room for error; the seller simply logs into their banking app and taps to confirm that they’re happy to securely share their data with the auction website

AIS and PIS: Key Components of Open Banking

The above use cases both fall under the ‘account information’ side of open banking (or, to give it its official UK term: Account Information Services, or AIS). The other side is ‘payment initiation’ (Payment Initiation Services, or PIS), where data – namely account holder and account balance – is used to initiate a payment from the consumer’s bank account to the account of the business they’re paying.

PIS: A challenge to cards’ decades-long dominance?

These open banking payments are generating a lot of hype, and rightly so. For the first time, ecommerce isn’t reliant on card payments. Consumers can instead check out directly from their bank account, which means no manually inputting card numbers and CVV codes, and no worrying that their card details could be stolen.

An example of the hype: according to Juniper Research, open banking payment transactions’ combined global value will grow to more than $330bn by 2027. In 2023, by contrast, their value stood at $57bn. We’re talking real hockey-stick growth.

Commercialising account-to-account payments

Because open banking payments are account to account, minus any intermediaries, they’re fast. Near-instant, in fact – hence ‘real time’. This speed is also down to the rails real-time payments run on, such as Faster Payments in the UK, SEPA Instant in the EU, and Pix in Brazil.

These rails, however, aren’t inherently designed for consumer-to-business payments. They’re great when you need to initiate a bank transfer to pay back friends or settle an invoice, but prior to PSD2 – the EU regulation that paved the way for open banking – real-time payments were never truly compatible with ecommerce.

Open Banking Payments vs. Real-time and Account-to-Account Payments

In an ecommerce context, open banking payments, real-time payments and account-to-account payments are essentially the same thing. It’s why the terms are so often used interchangeably.

Beyond ecommerce, though, they have subtle differences:

Open banking payments describe transactions initiated from a user’s bank account, but which are facilitated by a TPP. A direct bank transfer, where a user manually enters an account number and sort code, wouldn’t therefore be an open banking payment.

Real-time payments describe payments that settle in real time (in other words, near instantly). This applies to open banking payments, hence why they’re often referred to as real-time payments. But it also applies to other use cases: supplier payments from one business to another, for example.

Account-to-account payments describe any transactions initiated directly from one bank account to another. This could be an open banking payment, a manual bank transfer or a B2B real-time payment.

The Benefits of Open Banking

Because open banking payments are literally account to account (essentially, automated bank transfers), there aren’t any costly intermediaries.

Online retailers that offer them, via a ‘Pay by Bank’ option at checkout, therefore receive customer funds in real time (so a few seconds, rather than a few days), and at a fraction of the cost of card payments.

And, because payments take place within a customer’s online banking environment, they inherently benefit from bank-grade security. There’s no worrying about card fraud.

The Role of Open Banking APIs

We mentioned them at the top of the article, but APIs are the facilitators of open banking – the means by which TPPs connect to banks and access consumer data. We’ve written about them in more detail here, but in essence they’re made up of codes and protocols that allow two software types to connect and share information with one another.

So, whenever an open banking-powered service is initiated, there are two APIs at play: one created by the consumer’s bank (note that, across the European Economic Area and UK, banks are required to create open banking APIs), and one created by the TPP, which requests consumer data from the bank API. This data, which consumers must always give explicit permission to share, is always encrypted.

Global Rollout of Open Banking: A Fragmented Landscape

That, then, is broadly what open banking is and how it works. But how is it being implemented around the world? Before we dive in, it’s worth highlighting one important point: open banking is a global phenomenon with global reach, but its rollout is taking place on a domestic level. How open banking works in Brazil is not the same as in Germany. Domestic ‘schemes’ – of which there are more than 80 – are inherently disparate. They’re not designed to work together.

This lack of interoperability is a real problem for global businesses that want to capitalise on the open banking revolution, but which must have multiple integrations to multiple schemes to do so. Aside from this being unwieldy, it has wider ramifications in terms of a) creating a harmonised payment experience for users, and b) being able to efficiently handle cross-border settlements.

Turning challenges into opportunities

There’s the further issue of bank APIs being of varying quality. In the UK, they’re created to a set standard. Elsewhere in the world, they’re not. Connections to poorer-quality bank APIs is among the main reasons why open banking payments fail. It’s therefore not just a case of how open banking works that varies, it’s the fact that schemes’ reliability and resilience varies too. At Volt, we’re building something that overcomes both these interoperability and resilience challenges – but more on that later.

Before we take a deep dive into the world’s open banking schemes, a caveat: because there are too many to go into, we’ve concentrated on those that a) have served as a blueprint for success and b) reflect the two different approaches, namely:

• Regulatory-led, where a government devises a scheme’s rules and roadmap, banks are obliged to act, and TPPs are given a framework by which to develop products and solutions
• Market-led, where banks recognise the commercial potential of API-based collaboration with TPPs and, in the absence of government directives and support, create their own rules

We’ve also attempted to showcase at least one open banking initiative from each continent.

With that, it’s time to jump in.

Open banking in the UK: Leading the Charge

The UK’s open banking scheme is helpfully titled Open Banking. Ushered in by the country’s Competition and Markets Authority (CMA), and to all intents and purposes the UK’s version of Europe’s second Payment Services Directive (PSD2), it required nine of the country’s biggest banks to launch open APIs to a common standard by 2018.

Herein lies the biggest difference between Open Banking and PSD2. While both require banks to create APIs as a means of opening up customers’ financial data to TPPs, Open Banking makes it compulsory for banks to do so to the standard we mentioned earlier. This project was overseen by the Open Banking Implementation Entity (OBIE), which, now that it has effectively completed its mission, is due to be replaced by a “future entity”.

Rapid Growth of PIS Adoption

From a PIS perspective, Open Banking has been a resounding success. According to the OBIE’s October 2023 Impact Report, 9.7 million open banking payments were initiated, on the Faster Payments rails, in June 2023 – an 88% increase from June 2022. The report also revealed that:

• The volume of open banking payments made in the first half of 2023 was double the volume recorded in the first half of 2022
• The average transaction value of an open banking payment is £450; collectively, their total monthly value is approximately £4.5bn
• More than one in nine UK consumers actively use open banking

What comes next? Well, the Joint Regulatory Oversight Committee (JROC) – made up of the CMA, the Treasury and the Financial Conduct Authority – set out its vision for Open Banking’s next phase in April 2023. Aside from the OBIE’s transition to a future entity, one proposed development really stands out: non-sweeping Variable Recurring Payments (VRPs).

The Impact of VRPs on UK Payments

In a nutshell, non-sweeping (also known as commercial) VRPs introduce the concept of long-lived consent to open banking. Think of them as the natural successor to card-on-file or direct debits; bank-account-on-file, if you will. By setting parameters (such as transaction frequency and amount) with a TPP working on behalf of a merchant, consumers effectively pre-authorise payments of variable amounts.

What does a commercial VRP use case look like? A great example is online grocery shopping. A customer sets up a VRP with their supermarket of choice and, once their parameters are set up, all future transactions can go through in a single click or tap. They’re not as rigid as direct debits (the value and frequency of payments aren’t fixed), and they’re safer and less clunky than recurring card payments (no compromising details, such as card numbers and CVV codes, are stored – and unlike cards, bank accounts don’t expire).

There’s a strong argument that this is what online payments, not just open banking payments, should have always looked like – an embedded experience that prioritises ease, speed and safety for consumers, and faster settlements, lower costs and increased conversion for merchants.

Open Banking in Europe: From PSD2 to PSD3

When PSD2 – a European Union (EU) directive designed to drive innovation in online payments – came into force in January 2018, open banking was born. Part of its remit was making it compulsory for banks to create APIs that TPPs could connect to, in order to provide AIS and PIS services for consumers.

This marked a huge step because banks, for the first time, were no longer in complete control of their customers’ data. More power was given to end users; now, they could share their data with TPPs in order to find a mortgage better suited to their financial circumstances, or use their bank account as means to pay.

Navigating a Fragmented Competitive Landscape

Because there’s no bloc-wide equivalent of the OBIE in Europe – its remit would simply be too large and impractical – it’s worth flagging two things. First, the quality of bank APIs varies across Europe because, unlike the UK, there’s no single standard. Country-level governments and regulators go about things slightly differently, which creates a fragmentation problem.

Second, it’s much more difficult to source continent-wide end-user adoption statistics – for the same reason of fragmentation, but also because open banking payments have direct competition in terms of domestic account-to-account payment schemes, such as iDEAL in the Netherlands and BLIK in Poland. What we do know, however, is that, according to Statista, there will be almost 64 million users of open banking in Europe in 2024 – which represents an increase of more than 400% since 2020.

What comes next? Well, there are three developments worth keeping tabs on:

1. The launch of PSD3: The European Commission announced in June 2023 its intention to evolve PSD2 into PSD3, and introduce new Payment Services Regulation. The broad aims of both are better-performing APIs, the removal of obstacles to payment initiation, and more consistent user experiences
2. The move to continent-wide instant payments: In February 2024, the EU formally adopted regulation that will make instant payments fully available to businesses and consumers across the Single Euro Payments Area (SEPA), with the new rules due to take effect after a transition period
3. The advent of Dynamic Recurring Payments (DRPs): Europe’s version of VRPs have the potential to be transformative, but the lack of an OBIE equivalent makes their becoming a reality a challenging prospect. Continent-wide bank participation, and a readiness to work with TPPs on DRP pilot initiatives, will be key

Open Banking in Brazil: Pix and Open Finance

In November 2020, the Central Bank of Brazil launched Pix – an open payments scheme that’s essentially the country’s PIS equivalent. To say it’s been a success would be a huge understatement.

With all financial and payment institutions over a particular size obliged not only to participate, but to deliver a “safe, simple and intuitive user experience” for consumers and businesses across use cases – person-to-person, person-to-business and business-to-business are all accounted for – it’s little wonder that adoption rates have been so high.

Benefits of Pix Payments

Consider also Pix’s inherent benefits: instant settlements, full-time availability and low fees for businesses. It’s why, by summer 2023, Pix had more than 150 million active users. At around the same time, monthly transaction volumes began hitting the three billion mark, with person-to-business payments accounting for almost half.

So popular has Pix become that it’s now Brazil’s preferred payment method, having overtaken debit and credit cards. It’s also now the world’s second most-used real-time payment system, behind only India’s United Payments Interface (UPI).

Open Finance: The Next Step

Away from payments specifically, and following hot on the heels of Pix, is Brazil’s Open Finance initiative. Launched a few months after its ‘big brother’ in February 2021, Open Finance is the infrastructure powering “the sharing of data, products and services between regulated entities” – in other words, its version of open banking.

It’s still in its relative infancy, but Open Finance’s longed-for integration with Pix will almost certainly spark a wave of payment product innovation. The aforementioned regulated entities – TPPs by another name – are now able to optimise Pix checkouts for specific commercial use cases, such as ecommerce checkouts and loan repayments. Other countries, in LATAM and beyond, are sure to sit up and take notice.

Open Banking in Australia: Integrating NPP and PayTo

Australia’s open banking initiative – which, like the UK’s, is also known as Open Banking – is focused squarely on data. In other words, AIS. There is no payment initiation remit. There are parallels to Brazil though in that its rollout has coincided with the launch of the New Payments Platform (NPP) which, like Pix, facilitates real-time payments for consumers and businesses 24/7.

Comparing PayTo and PayID

The NPP has two bank-direct payment methods: PayTo and PayID. The former is arguably more interesting from an ‘open banking’ perspective because it enables TPP-initiated payments from consumers’ bank accounts. It’s what users see at checkout alongside legacy payment methods – and, as you’d expect, it delivers the same benefits in terms of the speed and security of settlements as equivalent real-time rails elsewhere.

Rich data, a key tenet of open banking, is central to PayTo’s potential. An interesting possible use case is consumers viewing their transaction data in their banking app, and seeing a receipt or invoice – from the merchants they’ve bought from – attached to each purchase. Such a scenario, which would never be possible with cards, only highlights how transformative PayTo will be.

Open Banking in the US: The Role of FedNow and RTP

In November 2023, US regulators unveiled measures to enable consumers to share their financial data more easily. The Personal Financial Data Rights rule, put forward by the Consumer Financial Protection Bureau, will require – like in the UK and Europe – banks to create open APIs for TPPs to connect to.

Data sharing has actually been prevalent in the US for a while, with this form of ‘open banking’ driven by industry and supported by bi-latteral agreements between banks and data aggregators. The security underpinning data sharing, though, hasn’t been standardised. Screenscraping has been commonplace.

Growing Consumer Demand for Open Banking

Consumer demand for open banking in the US is certainly there. The vast majority – two thirds, in fact, according to Forrester – are willing to share their banking data with third parties. By moving towards secure APIs, and wider bank coverage, the Personal Financial Data Rights rule will surely capitalise on, and help drive, this demand.

The Role of Real-Time Payouts

The FedNow Service – the Federal Reserve’s new instant payments infrastructure – will be key to the future success of open banking-powered payments in the US. Launched a few months before the Personal Financial Data Rights rule was announced, it currently has more than 650 participant banks – though the Federal Reserve has ambitions for 9,000 to eventually support it.

Alongside FedNow, The Clearing House’s RTP rails are growing in terms of both payment volume and the number of participants. Despite taking some time to build momentum – it was launched back in 2017 – RTP has recently been smashing milestones. On 1st March 2024, for example, it processed 1.25 million payments in a single day.

Real-time payouts: A golden opportunity

With both FedNow and RTP being credit or ‘push’-only rails, the current opportunity is around real-time payouts; enabling businesses to deposit funds into consumer bank accounts within seconds. Use cases include gig economy payments, loan disbursements and withdrawing gains from brokerage platforms.

This opportunity becomes more exciting when you consider that Request for Payment (RfP) functionality – which enables businesses to seamlessly initiate real-time payments from consumer accounts to business accounts – is on the horizon.

More widely, research from McKinsey & Company in January 2024 revealed the true potential of account-to-account payments in the US. Arguing that they’ll benefit merchants in terms of giving them more options, and consumers in terms of improved journeys, it estimates their collective worth will be approximately $200bn by 2026.

Open Banking in India: The Success of UPI

In India, open banking payments are used by consumers to pay for pretty much everything – whether that’s a mango lassi at a roadside stall or a new iPad from the Apple Store. ‘Open banking’, though, isn’t a familiar term. To locals, they’re UPI payments (an abbreviation of the aforementioned United Payments Interface).

Developed by the National Payments Corporation of India (NPCI) in 2016, and regulated by the Reserve Bank of India (RBI), UPI enables everyone with a smartphone – and a bank account with a participant bank – to send payments directly to the account of the business they’re paying. Users simply create a UPI profile and link their bank account to get going.

UPI’s Merchant Benefits

For merchants, the benefits are equally as manifest. Instant settlements are of course a huge plus, but what makes UPI such a standout solution is that the overwhelming majority of transactions are free. Fees only kick in for higher-value transactions, and even then they’re far lower than card scheme charges.

There’s no denying that UPI has been a resounding success. According to RBI data, for every Rs100 spent using debit cards in the 12 months to 31st March 2023, Rs1,900 was spent using UPI. Cards simply aren’t an attractive proposition for Indian consumers, who resoundingly prefer the ease and availability of account-to-account payments.

Becoming the Leading Account-to-Account Payment Method

More recent data from the NPCI revealed that, in January 2024, Rs18.4tn was transacted using UPI – a new monthly record, and a 52% increase from the figure recorded in January 2023. It would be no exaggeration to say that UPI has transformed India’s retail landscape. In doing so, it’s become the world’s most-used account-to-account payment scheme.

UPI is the real-time payments element of India Stack, a government initiative to boost financial inclusion and essentially the country’s approach to open banking. Its two other elements – identity and data – have broad similarities to AIS use cases elsewhere.

Open Banking in Singapore: The Role of PayNow

The Monetary Authority of Singapore (MAS) has embraced a market-led approach to open banking. In other words, it believes that TPP proactivity and innovation will drive the microstate’s ecosystem forward, rather than specific legislation.

That said, the MAS has worked with Singapore’s Association of Banks (ABS) to publish guidance on how to develop and use open APIs, while also encouraging collaboration between them and fintechs. This, according to Finastra, has helped position the country first in APAC for open banking readiness.

PayNow: Singapore’s Equivalent to UPI

As part of its remit, the ABS has been keen to launch an account-to-account payment network that integrates directly with banking systems. In 2017, it launched – with the full support of the MAS – PayNow, Singapore’s answer to UPI. The two schemes are so similar, in fact, that they were integrated in 2023 – enabling users of either to send money between the two countries.

PayNow’s person-to-business use case typically starts with a QR code (or sometimes by entering a business’s Unique Entity Number, or UEN). Participant banks have a ‘scan and pay’ function within their apps; when this is selected, and the merchant’s QR code is scanned, the user is served their payment details ready for approval and initiation.

With around five million users – including more than 80% of Singaporean consumers and businesses – PayNow has quickly become a mainstay in Singapore’s payment ecosystem, and something of a blueprint for other real-time payment schemes in APAC to follow.

Open Banking in Bahrain: Pioneering Open API Schemes

In November 2018, the National Bank of Bahrain (NBB) unveiled regulatory mandates that all banks in the card-dominated kingdom were required to adopt – thus setting the wheels in motion for the Middle East’s first open banking scheme.

A year later, Bahrain’s open banking platform – designed for personal financial management use cases – went live. Its capabilities – powered by fintech Tarabut Gateway – centre on account aggregation. In other words, NBB customers can access a consolidated view of their finances across all of their accounts.

Strategies for Success

Use cases soon extended to open banking payments. In 2021, Tarabut Gateway partnered with telecommunications firm Zain Bahrain to enable customers to purchase credit directly from their bank account – in real time. Further partnerships – most notably with crypto platform Rain – followed.

Should more partnerships and use cases emerge, alongside consumer adoption, then open banking payments have a clear path to success in Bahrain. With no domestic real-time payment system in place, BENEFIT – the local card scheme – alongside the major e-wallets – represents the only non-cash competition.

Open Banking in Nigeria: Developing New Infrastructure

In March 2023, the Central Bank of Nigeria approved operational guidelines governing how banks and other financial institutions in Africa’s largest economy access, manage and share their customers’ data – effectively kickstarting the country’s open banking scheme.

The guidelines were the culmination of six years’ work by an open banking working group – now Open Banking Nigeria – and, owing to the thoroughness by which they were created, and the learnings taken from the UK’s implementation of Open Banking, will surely serve as a blueprint for other African countries to follow.

Third parties – now able to securely access customers’ financial data – have been quick to innovate. Mono, for example, has been instrumental in creating account-to-account payments technology for Nigerian ecommerce businesses to plug into. Its product offers an almost-identical value proposition to open banking payments in the UK and Europe.

Striving for a Standardized API

It should be stressed, however, that account-to-account payments in Nigeria are nothing new. Statista research revealed that, in 2022, it was the country’s most popular payment method. The Nigeria Inter-Bank Settlement System’s Instant Payments scheme (NIP) has been hugely successful since its introduction in 2011.

Its issue, however, is the lack of a standard governing integration between banks. In its Case for Open Banking in Nigeria, PwC argued that “a uniform API standard” – which is of course part of Open Banking Nigeria’s remit – would lead to a “more seamless integration with the fintechs, leading to cheaper operating costs and enhanced customer experience”. Mono, it seems, is already leading the way.

Volt’s Role in Shaping Global Open Banking Infrastructure

It’s undeniably exciting that open banking is being embraced by governments, regulators and markets around the world – and that it’s powering payments use cases to the benefit of merchants of all sizes and consumers of all stripes.

By now, however, you’ll have seen how fragmented national-level open banking schemes are. Sure, there are strong parallels between some – Nigeria and Bahrain have clearly adopted learnings from the UK, while Pix in Brazil and UPI bear strong similarities – but they’re not, as we’ve explored, designed to be interoperable.

Introducing our world-first open banking platform

At Volt, this is our reason for existence. We’ve built a platform that unites these schemes to a single standard and point of access; it is, in effect, the world’s first global real-time payment network. Via one integration, it gives merchants the ability to offer Pay by Bank at checkout – and to deliver the same secure, seamless payment experience – everywhere.

Why’s this a game changer? Well, it brings open banking payments a giant step closer towards parity with card payments. When a shopper checks out using their Visa or Mastercard, the experience is the same wherever they are. Volt is doing the same for real-time account-to-account payments.

If you’re interested in finding out more about how we do it, or how you stand to benefit, we’d love to hear from you. Simply fill out the form below and a member of the team will be in touch.