According to Rivero and Vives (2023), open banking (OB) “refers to those actions that allow third-party firms, either regulated banks or non-bank entities, to have access under customer consent to their data through application programming interfaces (API)”. In other words, open banking allows customers to easily, swiftly, and freely transfer their own payment information to any authorised third party of their choice, thus increasing the set of financial intermediaries they can use for their transactions and limiting rent extraction by incumbent banks.

The latest issue of European Economy: Banks Regulation and the Real Sector discusses the implications of these developments in financial markets.

Where does open banking come from? The kick start comes from regulation. In the EU, the starting point was the approval in 2015 of Directive (EU) 2015/2366, known as PSD2, which requires that financial institutions open up their data in favour of account information service providers (AISPs), payment initiation service providers (PISPs), and card-based payment instrument issuers (CBPIIs). In the UK, PSD2 was transposed into legislation with the Payment Services Regulation of 2017, leading to the foundation in the same year of the Open Banking Implementation Entity (OBIE), an independent organisation of the nine largest retail banks in Britain and Northern Ireland. Similar legislations were introduced for example in South Korea (Beck and Park 2021) and Australia, favouring the diffusion of open banking. Clearly, the transmission of financial information to other intermediaries was possible also before open banking, and it has become even more relevant with the entry of new fintechs, which may be able to provide to their customers better services than incumbent banks (Boot et al. 2020). But regulations like PSD2 make such processes faster and less costly, with potentially disruptive effects.