PSD2 vs Open Banking: What Should Businesses Know?

Many merchants believe that PSD2 and open banking are part of the same shift in modern payments. While they’re closely related, they serve different roles and address different problems in the way financial systems operate.

Understanding the difference between PSD2 and open banking is necessary as it affects how easily a business can reach consumers, move money across borders, and reduce friction in payment flows.

What is open banking?

Banks were traditionally closed systems. In other words, customers’ financial data and payment rails were locked inside their vaults, making it difficult for businesses and fintech providers to build unified financial experiences.

Open banking changes the structure using APIs that enable licensed third-party providers (TPPs) to access a customer’s financial data and initiate payments securely, provided they have the customer’s consent. The result is new financial products and services that leverage open banking data, giving consumers greater visibility and control over their finances.

What is PSD2?

PSD2 (Payment Services Directive) was introduced by the European Banking Authority (EBA) to reshape how payments and banking data can be accessed. It mandates open banking for financial institutions operating across the EU, requiring banks to grant licensed TPPs regulated access to customer accounts with the customer’s explicit consent.

Why open banking matters for businesses?

Open banking gives businesses a more direct connection to the banking system, enabling greater control over how money moves.

• Better onboarding: Financial data access with customer consent supports more accurate affordability checks, credit decisions, and customer verification
• Deeper customer understanding: Businesses can analyse real-time financial data to understand their customers better and make informed decisions
• Lower transaction costs: Payments can be processed directly from bank accounts, reducing reliance on card networks and associated fees in many markets
• Smarter credit assessments: Open banking data provides a more comprehensive picture of a customer’s financial health, empowering businesses to make informed and accurate creditworthiness assessments
• Higher success rates: Bank-authorised payments help address common card issues, such as declines, expired cards, or credit limit restrictions in some regions
• Automate repetitive tasks: Open banking automates financial data reconciliation across platforms, saving valuable time and resources
• Faster settlement times: Funds move directly between bank accounts, which, in certain cases, leads to quicker access to cash than traditional card settlement cycles
• Enhanced fraud detection: Businesses can identify inconsistencies and suspicious patterns by analysing real-time transaction data to implement fraud prevention mechanisms
• New revenue streams: Open banking opens doors for businesses to explore new revenue streams, such as customised financial management tools or personalised investment advice.

How does PSD2 safeguard business data?

Alongside opening up payments in Europe, PSD2 also ensure increased connectivity between banks and third-party providers doesn’t come at the expense of security or data protection.

• Customer consent is mandatory: No third-party provider can access account data or initiate payments without the customer’s authorisation
• Regulation of TPPs: Only licensed and regulated entities that meet strict operational, financial, and security requirements can act as payment initiation or account information providers
• Strong Customer Authentication (SCA): PSD2 requires multi-factor authentication for most electronic transactions, reducing the risk of fraud by verifying sensitive actions with at least two independent authentication methods
• Secure API-based access: Banks provide secure APIs for data sharing, replacing older, less secure methods such as screen scraping, reducing exposure of sensitive credentials and limiting unnecessary data access
• Data minimisation principles: Third-party providers may access only the data required to perform a service, limiting the overexposure of financial information and reducing the risk surface
• Ongoing regulatory oversight: PSD2 establishes clear accountability between banks and third-party providers, so when something goes wrong, responsibility is assigned to the party responsible for the failure, creating stronger incentives for compliance and security.

How PSD2 and open banking fuel innovation?

PSD2 and open banking work together to reshape how financial services are built and delivered, creating room for new products, new business models, and faster experimentation across the financial ecosystem.

• They break the bank’s monopoly: By allowing regulated third parties to access accounts (with consent), PSD2 removes the traditional exclusivity banks had over financial data and enables fintechs and businesses to build services directly on top of bank infrastructure
• They enable new payment experiences: Open banking enables account-to-account payments at scale, allowing businesses to design checkout experiences that bypass card networks and open the door to faster, simpler, and often cheaper payment flows
• They support data-driven financial services: Access to real-time banking data allows companies to build more accurate lending models, better fraud detection systems, and more personalised financial products based on actual transaction behaviour rather than static data
• They encourage competition in financial services: Since banks are no longer the only institutions controlling payments and account data, the competitive pressure pushes them and fintechs to improve speed, pricing, and service quality
• They accelerate ecosystem-based finance: Financial services are increasingly embedded in non-financial platforms, such as marketplaces and SaaS tools, because open banking provides a standardised way to access financial infrastructure.

Expand into new markets with Unlimit 

Today, global businesses have more ways than ever to connect with customers, greater control over how money flows, and greater flexibility in incorporating financial services into their products. However, the challenge is navigating the complexity that comes with it.

Unlimit helps businesses navigate that complexity by unifying fragmented local payment ecosystems, open banking capabilities, and global settlement flows into a single, programmable financial layer. Instead of managing multiple integrations and providers, businesses can access a global stack that handles localisation, compliance, and settlement within a single system.

Talk to our team to explore how Unlimit can simplify global expansion.

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