“Open banking is the regulatory demolition of the bank’s data moat” the system by which financial institutions must, upon customer request, share account data and payment initiation capabilities with licensed third-party providers via secure APIs. The EU’s PSD2 directive (2018) created the first mandatory open banking framework; the model has since been replicated across 60+ countries.
Executive Summary
Open banking separates data ownership from data custody: banks may hold customer financial data, but they do not own it. When customers consent, banks must share that data with accredited third parties, enabling new fintech applications to build on top of existing banking relationships without forcing customers to switch accounts.
The UK’s Open Banking Implementation Entity (OBIE) reported 7 million active open banking users in 2023, generating over 1 billion API calls per month. Brazil’s Open Finance framework, the world’s most expansive, had registered 40 million active consents by mid-2024, enabling interoperability across banking, insurance, pensions, and foreign exchange sectors that most open banking frameworks address separately.
The Strategic Mechanism
Open banking operates through three regulatory models:
- Mandatory API Model (EU PSD2, UK OBIE): Banks are legally required to provide APIs to licensed third-party providers at no charge, with technical standards set by a designated body. Third parties are split into AISPs (account information) and PISPs (payment initiation).
- Industry-Led Model (Australia CDR, U.S.): Voluntary or industry-negotiated data sharing frameworks, sometimes backed by sector regulator guidance. The U.S. CFPB issued Section 1033 rulemaking in October 2024 requiring banks to support open banking data sharing.
- Government-Mandated Ecosystem (Brazil, India): Comprehensive open finance frameworks that extend data portability across multiple financial sectors simultaneously, creating interoperability between banking, insurance, credit bureaus, and pension funds.
- Account-to-Account Payments (A2A): Open banking enables direct bank-to-bank payments that bypass card networks, reducing merchant acceptance costs. UK A2A volumes reached $57 billion in 2023 and are growing at 30% annually.
Market & Policy Impact
- UK open banking users surpassed 7 million in 2023, with API call volumes exceeding 1 billion per month proof of concept that customer data portability drives adoption when user experience is prioritized.
- Brazil’s Open Finance framework, launched in 2021, registered 40 million customer consents across banking, insurance, and pensions by mid-2024 the world’s most expansive financial data portability implementation.
- The U.S. CFPB’s Section 1033 rule, finalized in October 2024, requires banks to support standardized open banking data sharing by 2026-2030, depending on institution size the U.S.’s first mandatory open banking framework.
- Mastercard acquired open banking platform Finicity for $825 million in 2020; Visa acquired Plaid (valued at $13.4 billion in 2021) signaling card networks’ strategic response to A2A payment competition.
- Australia’s Consumer Data Right extended open banking data portability to energy and telecommunications sectors, creating a sector-neutral data portability framework applicable beyond finance.
Modern Case Study: Brazil Open Finance Implementation, 2021-2024
Brazil’s Banco Central do Brasil launched Open Finance in 2021 as the world’s most ambitious data portability initiative, extending mandatory data sharing requirements across banking, insurance, pension funds, and foreign exchange simultaneously. Unlike the EU’s PSD2, which addressed only bank accounts and payments, Brazil’s framework created interoperability across the entire financial system from launch.
By mid-2024, the system had registered 40 million customer consents and processed over 3 billion API calls, making it the largest open banking implementation by transaction volume. The framework enabled new fintech entrants to offer personalized loan comparisons, investment recommendations, and insurance products to customers who shared their full financial history, compressing the pricing advantage that incumbent banks had derived from information asymmetry. The World Bank and IMF have cited Brazil’s Open Finance as the leading emerging market model for financial sector competition policy.