What Is Open Banking

Open Banking Meaning

Open banking enables financial institutions to share account information and payment capabilities with authorised third parties through standardised APIs. In Europe, this is primarily driven by PSD2, which requires banks to provide access to licensed providers. This allows businesses to initiate account-to-account payments, retrieve financial data, and build services on top of banking infrastructure. Instead of relying solely on bank interfaces, companies can integrate directly with accounts, enabling faster payments, improved data access, and more flexible financial workflows across multiple institutions.

How PSD2 Enables Open Banking in Europe

PSD2 (the Revised Payment Services Directive) established the regulatory foundation for open banking across the European Economic Area.

It requires banks to:

• Provide API access to licensed third-party providers
• Support payment initiation services (PIS)
• Enable account information services (AIS)
• Enforce strong customer authentication (SCA)

This turns bank accounts into programmable infrastructure.

For businesses, it means payments can be initiated directly from a bank account without relying on cards or manual bank transfers.

How Open Banking Payments Work in Practice

Open banking payments are typically account-to-account transfers initiated via API.

A typical flow looks like:

• A user authorises a payment through their bank
• A licensed provider initiates the transaction via API
• Funds move directly between bank accounts
• Confirmation is returned in real time or near real time

There are no card networks involved, and no need for intermediaries beyond the regulated provider.

This makes open banking particularly efficient for domestic payments.

Where Open Banking Fits in Enterprise Payment Infrastructure

Open banking is one part of a broader payment stack.

It is most effective for:

• Domestic account-to-account payments
• Real-time or near real-time bank transfers
• Data access for reconciliation and reporting

However, it has limitations:

• It is primarily regional (e.g., Europe under PSD2)
• It does not solve cross-border settlement on its own
• It depends on local banking systems and rails

For global payment operations, additional infrastructure is required.

How Merge Complements Open Banking Rails

Merge sits alongside open banking rather than replacing it.

In practice:

• Open banking rails handle domestic bank-to-bank payments
• Stablecoin rails handle cross-border settlement
• Local payment rails deliver funds in the destination country

Merge integrates these layers into a single payment flow.

This means:

• Domestic payments can be initiated via open banking
• Cross-border transfers settle on-chain
• Final delivery happens through local rails

The result is a complete payment stack that combines bank connectivity with global settlement infrastructure.