Behind Open Banking’s Growing Appeal to Consumers, Merchants—And Card Networks

Open banking has been attracting the attention of bankers, merchants, and card networks. It’s also drawing notice from regulators. The concept of making a payment through a direct transfer from a bank account can appeal to consumers because it’s fast and easy, and to merchants because the transaction is reportedly less expensive than one with a card.

That’s moving more banks and service providers to adopt open banking, a healthy sign, experts say. “Increased competition will help consumers and drive innovation,” said Andrew Gomez, a director at Lipis Advisors GmbH, a Berlin-based consultancy. “Merchants don’t have to worry as much about fraud. Once that payment has been made, it’s irrevocable, and consumers can’t claim they never made the transaction.”

Gomez spoke Wednesday at the Smarter Faster Payments conference held in Miami and sponsored by Nacha, the regulatory body for the automated clearing house network.

More familiar in Europe than in the United States, open banking is starting to win some prominent U.S. adherents, including card networks, some of which may see open banking as an alternative to card-based payment flows. Visa Inc. said last month it plans to introduce an open-banking network in the U.S. market, using Tink AB, a technology company it acquired in March 2022 for more than $2 billion.

In buying up open-banking technology, Visa was catching up with archrival Mastercard Inc., which paid $825 million late in 2020 to pick up the open-banking platform Finicity Corp.

But the extensive consumer-to-merchant data-sharing that open banking depends on has already drawn the attention of regulators. The Consumer Financial Protection Bureau in October released a proposed Financial Data Rights Rule, which would require companies to release financial data at the consumer’s direction, prohibit them from “wrongfully” monetizing “sensitive “ data, and ban junk fees and misuse of consumer data. Comments on the proposed rule were due Dec. 28.

Still, compared to Europe, “the U.S. regulatory market is relatively light,” Gomez said. “We have it really easy in the U.S.”

Indeed, privacy fears don’t seem to be deterring consumers. Even at this relatively early stage, Gomez said Wednesday, open banking has drawn an estimated 80 million users in the U.S. market who are attracted by the ease of making purchases, particularly online. The concept has got to the point, he said, where “a bank account without open banking is limited.” Banks that resist adding the capability, he warned, risk a slow but steady decline in their user base. “You can do nothing, and in 15 years you’ll see customers leave,” he predicted.