Open Banking is one of the most discussed—and most misunderstood—topics in modern payments.
Some people think Open Banking is simply another payment method.
Others believe it only applies to banks.
Many fintech founders assume that if they have an EMI license, they automatically become an Open Banking provider.
None of these assumptions are entirely correct.
In this first article of our Banking & Payments Myths Series, we’ll explain:
- What Open Banking actually is
- How Open Banking is regulated in Europe
- Whether Open Banking exists outside Europe
- What an Open Banking provider does
- How merchants use Open Banking payments
- How EMIs participate in the Open Banking ecosystem
- Why Open Banking is becoming a key part of modern payment infrastructure
What is Open Banking?
Open Banking is a framework that allows customers to securely share their banking data or initiate payments directly from their bank account through authorised third-party providers.
Instead of manually uploading bank statements, entering card details, or relying on traditional payment methods, customers can securely connect their bank account to a merchant, lender, fintech, or payment provider.
The customer remains in control and must explicitly authorise every connection.
In simple terms: Open Banking creates a secure and regulated connection between banks and financial service providers through APIs (Application Programming Interfaces).
What is an Open Banking Provider?
One of the most common questions we hear from fintech founders is:
“Do you have an Open Banking provider?”
An Open Banking provider is typically a regulated company that connects to multiple banks and provides access to Open Banking services through a single integration.
Instead of building direct integrations with hundreds of banks, merchants and fintechs connect to one Open Banking provider.
The provider manages:
- Bank connectivity
- API infrastructure
- Security
- Consent management
- Data aggregation
- Payment initiation
Think of an Open Banking provider as the bridge between your platform and the banking ecosystem.
What Is Pay by Bank?
One of the fastest-growing Open Banking use cases is “Pay by Bank.”
Traditionally, online payments involve:
Customer → Card Network → Acquirer → Issuer → Merchant
With Open Banking payments, the flow becomes:
Customer → Bank → Merchant
The customer selects their bank, authenticates directly with the bank, and approves the transaction.
No card details are entered.
No card networks are involved.
This is why many merchants are exploring Open Banking payments as an alternative to traditional card processing.
How Is Open Banking Regulated in Europe?
Open Banking in Europe was introduced through
PSD2 (Payment Services Directive 2). PSD2 required banks to provide secure API access to authorised third-party providers.
The regulation created two important categories:
Account Information Service Providers (AISPs)
AISPs access account information with customer consent.
Typical use cases include:
- Financial dashboards
- Lending platforms
- Personal finance applications
- Credit scoring tools
Payment Initiation Service Providers (PISPs)
PISPs initiate payments directly from customer bank accounts.
This powers many “Pay by Bank” solutions available today.
PSD2 laid the foundation for the Open Banking ecosystem, while PSD3 and the future Payment Services Regulation (PSR) are expected to further strengthen and standardise the framework.
Does Open Banking Exist Outside Europe?
Absolutely.
Open Banking is no longer a European-only concept.
United Kingdom
The UK developed one of the world’s most mature Open Banking ecosystems.
Australia
Australia introduced the Consumer Data Right (CDR), enabling Open Banking and broader data sharing.
Brazil
Brazil’s Open Finance framework is rapidly becoming one of the most advanced globally.
Canada
Canada is implementing Consumer-Driven Banking, often referred to as Open Banking.
Singapore and Hong Kong
Both jurisdictions actively support Open Banking initiatives through regulatory guidance and industry collaboration.
Open Banking is becoming a global standard rather than a regional innovation.
Which Merchants Benefit Most from Open Banking?
Open Banking is particularly valuable for businesses that:
- Process large payment volumes
- Experience high card costs
- Operate in cross-border markets
- Handle large-value transactions
- Need customer account verification
Common examples include:
E-Commerce Businesses
Reduce card processing costs and offer additional payment options.
Crypto Platforms
Improve fiat onboarding where permitted by regulation.
Property and Real Estate Companies
Facilitate secure high-value transfers.
Utility Providers
Improve recurring payment collection.
Travel Businesses
Reduce payment friction and increase conversion rates.
How Open Banking Fits Into a Payment Flow
Let’s look at a practical example.
A customer purchases a €1,000 travel package online.
Traditional card flow:
- Customer enters card details
- Card issuer approves transaction
- Merchant receives payment
- Chargeback risk remains
Open Banking payment flow:
- Customer selects Pay by Bank
- Customer chooses their bank
- Customer authenticates directly with the bank
- Payment is initiated instantly
- Merchant receives confirmation
Benefits include:
- Lower transaction costs
- Faster settlement
- Reduced fraud exposure
- Reduced chargeback risk
Can a European Customer Use Open Banking to Pay a Merchant in Hong Kong?
The short answer is:
Yes, provided the payment flow and providers support it.
One of the most common misconceptions is that Open Banking payments are limited to merchants located in the same country as the customer.
That is not necessarily the case.
Let’s consider a practical example.
Example
A customer in Germany wants to purchase services from a company based in Hong Kong.
At checkout, the Hong Kong merchant offers:
- Card payments
- Bank transfer
- Open Banking (Pay by Bank)
The customer selects Pay by Bank.
The Open Banking provider connects to the customer’s German bank, authenticates the customer, and initiates the payment.
The payment may then be settled through:
- A European EMI
- A payment institution
- A correspondent banking network
- A Banking-as-a-Service (BaaS) provider
The merchant receives funds according to the structure established by its payment provider.
From the customer’s perspective, the process is identical whether the merchant is located in Germany, Hong Kong, Canada, or Singapore.
What Matters More Than Merchant Location?
When evaluating cross-border Open Banking payments, the critical factors are:
Bank Coverage
Can the Open Banking provider connect to the customer’s bank?
Supported Jurisdictions
Does the provider support the relevant countries and currencies?
Merchant Acquiring Structure
How will the merchant receive and settle funds?
Regulatory Compliance
Are the payment flows compliant with local payment regulations and AML requirements?
Does Open Banking Move Money Internationally?
This is another common misunderstanding.
Open Banking itself is not a payment rail.
Open Banking facilitates:
- Customer authentication
- Account verification
- Payment initiation
The actual movement of funds still occurs through existing banking infrastructure, such as:
- SEPA
- Faster Payments
- ACH
- SWIFT
- Local clearing systems
- Banking-as-a-Service platforms
Think of Open Banking as the technology that starts the payment, while the underlying banking rails complete it.
Real-World Example
Imagine a Hong Kong-based SaaS provider selling software subscriptions to European customers.
Without Open Banking:
- Customers pay by card
- Merchant pays card processing fees
- Chargeback risk remains
With Open Banking:
- Customers pay directly from their bank account
- Authentication occurs through their bank
- Chargeback risk is reduced
- Settlement costs may be lower
The merchant’s location becomes largely irrelevant as long as the payment infrastructure supports the flow.
Can an EMI Become an Open Banking Provider?
This is one of the most misunderstood areas in fintech.
Many founders assume that holding an EMI license automatically allows them to offer Open Banking services.
The reality is more nuanced.
An EMI may participate in Open Banking in several ways.
Option 1: Partner with an Open Banking Provider
This is the most common route.
The EMI integrates with an existing Open Banking provider and offers the service to its clients.
Advantages:
- Faster implementation
- Lower cost
- Reduced regulatory complexity
Option 2: Obtain Relevant Permissions
Depending on the jurisdiction, an EMI may obtain permission to operate as:
- An Account Information Service Provider (AISP)
- A Payment Initiation Service Provider (PISP)
This requires additional regulatory, compliance, and technical capabilities.
Option 3: Hybrid Model
Many mature EMIs begin with a third-party Open Banking provider and later build proprietary infrastructure as transaction volumes grow.
Common Open Banking Myths
Myth #1: Open Banking Is Just Another Payment Method
Open Banking is an ecosystem that enables both data sharing and payment initiation.
Myth #2: Open Banking Eliminates Banks
Banks remain central participants in the ecosystem.
Myth #3: Open Banking Is Only for Fintechs
Merchants, lenders, insurers, payment providers, and investment platforms all use Open Banking.
Myth #4: Every EMI Is Automatically an Open Banking Provider
Additional permissions, infrastructure, and compliance requirements may apply.
Myth #5: Open Banking Only Works for Domestic Payments
False.
Open Banking can support international merchant models and cross-border commerce when combined with the right payment infrastructure, banking partners, EMIs, or BaaS providers.
The real question is not:
Does the merchant’s payment infrastructure support Open Banking payments and settlement in the relevant jurisdictions?”
Final Thoughts
Open Banking is fundamentally changing how financial institutions, merchants, and consumers interact.
For merchants, it can reduce costs and improve payment efficiency.
For fintechs, it creates new opportunities around payments, account verification, and financial data services.
For EMIs and payment providers, it opens the door to new products and revenue streams.
Most importantly, Open Banking is no longer a future trend.
It is already part of the global payments infrastructure.
The question is no longer whether Open Banking will become mainstream.
The question is how businesses can position themselves to benefit from it.