Understanding Open Banking: From PSD2 to Global Adoption

Open banking has significantly gained popularity in recent years, and customers have become more willing to adopt it. The latest UK Open Banking Impact report, for example, revealed that in the six months to June 2023, over 11% of British consumers were active users of open banking, an increase from 7% in 2021.  

But what is open banking, and where did it come from? It all started with the enforcement of the PSD2 regulation in Europe in 2018, which ended traditional banks’ monopoly over customer data. PSD2 mandated banks to share customer information with licensed third-party providers through secure application programming interfaces (APIs). This can only happen with customer consent, of course.   

Data sharing has versatile applications across industries and operations, from lenders and payment platforms to budgeting apps, KYC and compliance. Fintech companies can use the data to innovate and create tailored products.   

With the debate on the benefits of open banking now largely resolved in favour of this new paradigm, several industry experts have shared their insights on the expansion of the service. 

“The increase in consumer demand for open banking is due to several factors,” Lasma Kuhtarska, Co-founder & Chief Strategy officer at Noda. “First, open banking offers a more personalised and convenient banking experience, which users prefer. Second, open banking encourages competition, which means better products and services. In the past years, it enabled the emergence of new business models and boosted financial inclusion.”  

Lasma emphasised that collaboration among banks, fintech companies and regulators will play a key role in the further adoption of open banking. “For example, in 2024, the new PSD3 in Europe will be finalised. Regulations in other markets, for example, in the US, will also serve as the decisive factor on the global expansion of open banking.”