Open banking is transforming finance in Europe, yet open banking providers are often overlooked. They are at the forefront of the ecosystem, enabling secure and seamless application of the technology.
In this guide, we’ll explore the role of open banking providers in Europe, the benefits they bring, and what sets them apart in a PSD2-regulated and competitive landscape.
What Is an Open Banking Provider?
An open banking provider is a technology company that facilitates the secure sharing of bank data between banks through APIs (Application Programming Interfaces). Open banking providers act as intermediaries, allowing businesses to connect directly with customer bank accounts for services like payments, financial insights, and identity verification.
In Europe, open banking providers must comply with strict regulations under the Second Payment Services Directive (PSD2), which ensures that customer data is processed securely and that users maintain control over their information.
How Open Banking Providers Work
Open banking providers use APIs to access bank data. Here’s a quick breakdown of how they operate:
- Customer Consent: A user authorises a third-party application, such as a financial app or e-commerce site, to access data from their bank account or initiate a payment on their behalf.
- Secure Data Transfer: The provider uses APIs to facilitate this data transfer securely, ensuring data security.
- Service Delivery: The third-party app uses the bank data to provide services, like budgeting, payment processing, or financial planning, giving users access to a range of personalised tools.
Key Benefits of Open Banking Providers in Europe
Open banking providers offer a range of benefits for consumers, businesses, and the financial industry as a whole. Here are some of the key advantages:
Faster, Cost-Effective Payments
By enabling direct bank-to-bank transfers, open banking providers allow payments to bypass traditional card networks, leading to faster processing and reduced transaction fees. This is particularly beneficial for businesses that rely on quick cash flow and for consumers who want immediate access to their purchases or services.
Security
Security is a top priority for open banking providers in Europe. They use encryption, multi-factor authentication, and fraud detection systems to protect customer data. Users must authorise each transaction or data request.
Better Finances
Open banking providers give users a unified view of their finances by connecting multiple accounts within a single app. This makes it easier to manage money, track spending, and stay on top of financial goals.
Data-Driven Insights
By analysing financial data (with customer permission), open banking providers can deliver personalised insights, such as budgeting tips, spending patterns, or tailored loan offers.
Reduced Chargebacks
Direct payments through open banking providers are typically more secure and transparent, reducing the risk of chargebacks, since no card networks are involved.
Core Services of Open Banking Providers in Europe
To meet the needs of banks, businesses, and consumers, open banking providers offer a variety of services. Here are some of the primary features they provide:
- Account Information Services (AIS)
AIS allows users to access their financial data across different bank accounts in one place. They aggregate this data, offering users a full overview of their finances. AIS powers services like budgeting tools, financial planning apps, and credit analysis.
- Payment Initiation Services (PIS)
With PIS licence, open banking providers enable direct bank-to-bank payments (often called pay-by-bank), bypassing card networks and reducing transaction fees. Payment initiation is popular in e-commerce, where fast and cost-effective transactions are essential.
Why Businesses Partner with Open Banking Providers
Many merchants choose to work with open banking providers for the flexibility, security, and efficiency they bring. Here’s how these providers help businesses thrive:
Improved Payment Options
For businesses, offering multiple payment methods is essential to meet customer expectations. Open banking providers enable direct bank payments (pay-by-bank), which are faster and cheaper than traditional card payments. This can improve conversion rates and reduce shopping cart abandonment.
Access to Data Insights
Open banking data allows businesses to gain insights into customer behaviours and needs, making it easier to tailor products and services. For instance, a lending company can use transaction data to assess a customer’s creditworthiness more accurately.
Reduced Operational Costs
By automating payment processes and providing data insights, open banking providers can help businesses save time and resources. This efficiency is particularly valuable for high-volume businesses, which can benefit from streamlined operations and reduced transaction costs.
Final Thoughts
Open banking providers are transforming finance in Europe, enabling secure, fast, and flexible finances. By offering a range of features, from direct payments to financial insights, these providers make it easier for businesses to offer better, more innovative services.