# A new era of open banking is here: A look at the future of payments 
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2023-08-08
Category: BANKING
Category URL: https://financedigest.com/category/banking
Meta Title: The Future of Payments in Open Banking: A Look Ahead
Meta Description: Discover the latest in open banking payments and how they provide a faster, safer, and more cost-effective option for businesses and consumers. Learn about the
URL: https://financedigest.com/a-new-era-of-open-banking-is-here-a-look-at-the-future-of-paymentshtml

![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/istock-1049658908-1736813686332-compressed.jpg)

# **A new era of open banking is here: A look at the future of payments**

![](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/eric-shoykhet-1736813686275-compressed.jpg)

_By_ **_Eric Shoykhet,_** _CEO of Link Money, a US-based open banking payment platform._

Open banking – the system enabling seamless sharing of financial data between banks and third-party service providers via APIs – has stepped into the global spotlight in recent years. Following the EU’s [Second Payment Services Directive](https://www.ecb.europa.eu/paym/intro/mip-online/2018/html/1803_revisedpsd.en.html) decision to mandate data sharing in Europe, open banking has been top of mind for leading innovators across the world. While the past five years have seen tremendous progress, a new era of open banking payments is just around the corner.

Just this year, the third Payment Services Directive (PSD3) announced its grand arrival in the EU. The legislation will focus on regulating electronic payments and the banking ecosystem as a whole. Through a deepened commitment to security and consumer rights, PSD3 will further expand the influence of open [banking and transform the future](https://www.financedigest.com/what-is-the-future-of-banking-in-the-metaverse.html "What is the future of banking in the metaverse?") of payments.

## **State of Open Banking in the US**

While the EU has made tremendous progress regulating and mandating open banking, where does the US stand?

The market-driven approach in the US has led to plenty of open [banking innovations for preparing taxes](https://www.financedigest.com/italy-pm-meloni-takes-full-responsibility-for-bank-tax.html "Italy PM Meloni takes ‘full responsibility’ for bank tax"), applying for loans, and payments without government mandates. In fact, over 80% of Americans have used [open banking to connect a bank account to a third party](https://www.insiderintelligence.com/content/consumers-superior-trust-banks-pivotal-role-us-open-banking), yet most couldn’t define [open banking](https://www.paymentsjournal.com/whats-behind-open-bankings-slow-burn-in-the-u-s/).

This level of adoption has caught the attention of regulators. In June, the US Consumer Financial Protection Bureau (CFPB) [announced](https://www.consumerfinance.gov/about-us/blog/laying-the-foundation-for-open-banking-in-the-united-states/#:~:text=The%20CFPB%20is%20working%20to,enacted%20by%20Congress%20in%202010.) that it is accelerating the shift to open banking through formalized regulatory requirements that will be finalized in 2024. These regulations will prioritize [financial privacy and help break down barriers to open banking](https://www.financedigest.com/new-research-indicates-confusing-bank-jargon-could-be-fuelling-financial-vulnerability.html "New research indicates confusing bank jargon could be fuelling financial vulnerability") adoption.

However, to understand the opportunities in open banking payments, it is important to understand the motivations behind the technology and the array of barriers that the US has faced to date. So what exactly can open banking technology do?

## **Open Banking Payments: Quicker, Easier, and More Secure**

Currently, open banking payments in the US present a swifter, more convenient, and highly secure alternative to traditional [card payments](https://www.financedigest.com/chinese-payment-giants-revive-effort-to-accept-foreign-credit-cards.html "Chinese payment giants revive effort to accept foreign credit cards"). These payments work by leveraging [open](https://www.financedigest.com/late-payments-not-just-a-smaller-business-issue.html "Late payments not just a smaller business issue") banking to enable consumers and businesses to authenticate transactions directly from their bank accounts. US businesses, burdened by exorbitant [credit card](https://www.financedigest.com/mastercard-launches-global-plan-to-recycle-credit-cards.html "Mastercard launches global plan to recycle credit cards") processing fees, can save up to 70 percent on payment processing by embracing open banking payments. Furthermore, consumers enjoy enhanced security, convenience, and a healthier approach to [personal finances](https://www.financedigest.com/gen-z-finance-banking-on-success-with-personalized-outreach.html "Gen Z & Finance – Banking on success with personalized outreach "), reducing their reliance on debt.

## **Driving Adoption**

Despite the evident advantages, and Americans’ comfort with linking their bank accounts for other use cases, the US has encountered resistance when it comes to the implementation of open banking payment technology. This opposition can be attributed, in part, to the fact that some [consumers associate open banking](https://www.financedigest.com/why-challenger-banks-need-to-capture-the-hearts-and-minds-of-todays-consumers-to-become-the-number-one-choice-in-the-retail-banking-sector.html "Why challenger banks need to capture the hearts and minds of today’s consumers to become the number one choice in the retail banking sector") payments with security risks; sharing banking data _feels_ inherently different than authorizing money movement. In actuality, open [banking payments incorporate robust](https://www.financedigest.com/banks-need-better-model-risk-management-heres-how-to-build-a-robust-framework.html "Banks need better model risk management – Here’s how to build a robust framework") security measures that far surpass those of traditional payment methods, including password protection, multi-factor authentication, and biometrics.

The US’ entrenched reliance on incumbent, and even antiquated payment methods contributes to the sluggish pace. The US continues using magstripe cards far past their relevance, despite massive security risks, and while other countries are [phasing out check payments](https://www.pymnts.com/news/2023/australia-wants-to-end-check-payments-by-decades-end/) in the digital age, they still [account for 20 percent of payment volumes](https://www.federalreserve.gov/paymentsystems/fr-payments-study.htm) in the US.

The deceleration in [adopting payment technology](https://www.financedigest.com/good-loop-adopts-seenthis-streaming-technology-to-minimise-carbon-footprint-of-its-purpose-led-ad-units.html "Good-Loop adopts SeenThis’ streaming technology to minimise carbon footprint of its purpose-led Ad units") is not coincidental. These payment methods are immensely profitable for incumbent players. Ultimately, there is little incentive for them to offer new, innovative solutions, even as the rest of the world embraces more advanced payment methods.

## **A Path Forward: Innovate, Educate, and Empower**

So how can we forge a better path for the [future of open banking payments](https://www.financedigest.com/what-does-the-future-hold-for-corporate-payments.html "What Does the Future Hold for Corporate Payments?")? While legislation and regulations like that of the CFPB will be instrumental, it will not achieve progress on its own. Innovation from new players and education of [consumers and merchants will be instrumental in driving broader adoption](https://www.financedigest.com/sales-revenue-of-tpms-battery-market-to-soar-in-the-near-future-owing-to-growing-consumer-adoption.html "Sales Revenue of Tpms Battery Market to Soar in the Near Future Owing to Growing Consumer Adoption"). Understanding its promise, as well as the risks associated with continuing to utilize outdated payment methods, will help to overcome resistance to adoption.

## **The Bottom Line**

We are stepping into a new and exciting [era of payments](https://www.financedigest.com/combating-payment-fraud-in-the-era-of-contactless-everything.html "Combating payment fraud in the era of contactless everything") in the US. The technology is in a position to thrive with an ideal macroeconomic backdrop – from [rising costs](https://www.financedigest.com/harley-davidson-profit-drops-on-rising-costs-and-chip-shortages.html "Harley-Davidson profit drops on rising costs and chip shortages") of living and inflation. With the right innovators and challengers in place, open [banking payments will transform financial](https://www.financedigest.com/the-transformative-power-of-technology-in-banking-and-finance.html "The Transformative Power of Technology in Banking and Finance") security, health and convenience for millions of consumers and merchants, and put billions of dollars back into the economy.


---
This blog is powered by Superblog. Visit https://superblog.ai to know more.
---