European open banking: Rewiring European finance

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  Quantumrun Foresight
• September 23, 2024

Insight summary

Open banking in Europe aims to transform the financial industry by allowing secure, third-party access to bank data. This change enables new financial services that promise more control and better consumer rates but also raises concerns about privacy and data security. As traditional banks and fintech companies navigate these new waters, they face challenges in balancing innovation with the need to protect consumer data and ensure trust.

European open banking context

European open banking is deeply embedded in the European Union (EU)'s regulatory framework, mainly through the Revised Payment Services Directive (PSD2). This directive, initiated by the European Commission in 2015, mandates banks to open their data systems to third parties via secure Application Programming Interfaces (APIs). The primary goal is to foster a more integrated, efficient, and competitive financial environment. This regulatory push has resulted in new financial services, enabling non-banking entities to provide payment services and access financial information that was typically a domain monopolized by traditional banks.

The operational mechanics of open banking are grounded in APIs, which allow third-party providers (TPPs) safe access to financial data upon customer consent. This system supports the development of new financial services and applications, ranging from enhanced account management tools to innovative payment solutions. For instance, companies like the UK-based Open Banking Implementation Entity (OBIE) have been pivotal in shaping the standards and operational frameworks that guide this integration. Their work ensures that the interaction between banks and third parties is seamless and secure, underpinning the broader objectives of PSD2.

Despite the clear frameworks and potential benefits, the open banking landscape in Europe faces challenges and developments that continuously shape its trajectory. Security concerns, privacy issues, and the technological capacity of banks to manage data sharing responsibly are at the forefront of ongoing debates. Moreover, the push towards open banking has spurred a competitive dynamic between traditional banks and FinTech companies, each striving to harness the advantages of this digital evolution. The balance between fostering innovation and ensuring consumer protection remains a delicate task for regulators and participants in the open banking ecosystem.

Disruptive impact

The widespread adoption of open banking in Europe offers significant advantages, such as enhanced control over financial data and the potential for more personalized financial services. Consumers can benefit from more competitive rates and services customized to their financial behaviors and needs. However, the increased reliance on digital platforms raises concerns about data privacy and the security of personal financial information. If not properly managed, there could be an elevated risk of data breaches, leading to monetary loss and identity theft for consumers.

Companies can leverage open banking to streamline operations and offer more tailored financial services to their customers. For example, businesses can integrate financial services directly into their existing platforms, enabling smoother transactions and potentially reducing costs associated with traditional banking fees. This trend can enhance customer satisfaction by providing more efficient and integrated services. Yet, it also requires businesses to invest heavily in cybersecurity measures and compliance with regulatory standards to protect customer data and maintain trust.

For governments, open banking presents an opportunity to strengthen the financial services sector's regulatory framework and foster a more competitive market environment. By enabling more players to enter the market, it can reduce the dominance of traditional banks and stimulate innovation in financial products. However, this also requires governments to update and enforce regulations that address the complexities of data sharing and privacy in the digital age. Additionally, open banking may require international cooperation to manage cross-border data flow and fraud prevention, challenging governments to align their policies with global standards.

Implications of European open banking

Wider implications of European open banking may include: 

• Enhanced competition among financial service providers, leading to more affordable and diverse financial products for consumers.


• Increased financial literacy and management tools, enabling consumers to make more informed decisions about their finances.


• Reduced operating costs for small businesses through easier access to efficient banking services, improving their profitability.


• Greater vulnerability to cyber-attacks with more entities handling sensitive financial data, necessitating improved security measures.


• Accelerated shift in labor demand towards tech-savvy professionals in the banking sector, reducing roles for traditional banking staff.


• Decreased environmental impact from reduced physical bank infrastructure, contributing to lower carbon footprints in the financial sector.


• Increased social equality as financial services open up to unbanked individuals or those living in rural areas without any physical banks.


• A shift in demographic investing patterns, with younger consumers likely embracing tech-driven financial services more quickly.


• Political challenges in managing cross-border data flows and cooperation between countries to regulate and secure open banking systems.

Questions to consider

• How could enhanced access to financial services through open banking change your personal budgeting and savings habits?


• What measures can be implemented in your community to educate and protect those without digital skills from being left behind in the open banking era?