As digital payments evolve, Open Banking is transforming digital financial services. Open Banking is a global practice which uses application programming interfaces (APIs) provided by DFSPs to authorized third parties to enable customer-permissioned data sharing and account-to-account (A2A) payment initiation. This report explores how Brazil, Europe, India, and Australia approach open banking and third-party payment initiation in instant payment systems (IPS).
- Different global models – Some markets designate an Open Banking regulator, while others let market-led initiatives or efforts drive it.
- Models vary – Payment initiation technical infrastructure can either be centralized, where the payments systems acts as a central switch, shuttling messages between Participants, or decentralized which requires third-party payment initiators to connect to all DFSPs for which it would like to initiate payments.
- Centralized: A single entity processes payments (e.g., India’s UPI).
- Decentralized: Connections between financial institutions are direct or through an aggregator (e.g., PSD2 in Europe).
- Some decentralized approaches have created a unified API standard to simply integration for third-party providers and promote faster innovation. When the APIs are standardized, third parties can easily interact with all connected DFSPs, leading to faster innovation.
Understanding best practices in Open Banking will help design efficient, inclusive, and competitive digital payment ecosystems.