Key takeaways
- Open Banking gives regulated providers secure, consent-based access to bank accounts through APIs.
- Payment initiation lets a customer pay straight from their bank account without typing in bank details.
- The customer approves every payment inside their own bank, using the bank's own authentication.
Open Banking is one of those terms that gets used a lot and explained very little. At its core it is a simple idea: with the customer's permission, regulated companies can connect to a bank account through secure APIs instead of screen scraping, manual uploads or card networks.
For payments, that idea changes a lot. It means a customer can pay a business directly from their bank account, approve the payment in the banking app they already trust, and the business can see the result in seconds.
Where Open Banking comes from
In Europe, the foundation is the second Payment Services Directive, PSD2. It required banks to give licensed third parties access to customer accounts, with the customer's consent, through dedicated interfaces. It also introduced two new types of regulated provider:
- Account information service providers (AISPs), which can read account data such as balances and transactions when the customer allows it.
- Payment initiation service providers (PISPs), which can start a payment from the customer's account on their behalf, once the customer approves it.
Banks expose these capabilities through APIs. Providers connect to many banks, handle the differences between them, and offer businesses a single way to use them.
From bank APIs to payment initiation
Payment initiation is the part of Open Banking that powers Pay by Bank. Here is what happens when a customer chooses it at checkout:
- The business creates a payment with the amount, currency and a reference.
- The customer picks their bank from a list.
- They are redirected to their bank's app or website, where the payment details are already filled in.
- They log in and approve the payment with the bank's usual security, such as Face ID, a PIN or a card reader.
- The bank executes the transfer, and the customer returns to the business with a confirmed status.
The customer never shares their bank login with the business or the payment provider. Authentication happens entirely inside the bank.
The customer approves the payment where they already manage their money: inside their own bank.
Why the regulation matters
Because access is regulated, every party has clear responsibilities. Providers must be licensed or registered, banks must offer reliable interfaces, and every payment requires strong customer authentication. That combination is what lets businesses offer bank payments with confidence, and what gives customers a reason to trust them.
What it means for businesses
For a merchant, PSP or fintech, Open Banking turns the bank account into a payment method that can sit next to cards and wallets. Payments are initiated with the correct details every time, confirmed quickly, and can settle as instant transfers where the banks support them.
Open Banking is not a single product. It is infrastructure. The interesting part is what businesses build on top of it, and payments are one of the clearest places where that infrastructure already makes a difference.