Open Banking is a payment method that came into existence after the Payment Service Directive (PSD2). It does not require the transferring of any sensitive data and allows customers to make secure account to account payments.
Open banking, came about from PSD2, it is a financial services term that refers to the use of open APIs that enable third-party developers to build applications and services around the financial institution. It allows users to make account to account payments and provides a secure and cheaper way for merchant to accept payment.
Open banking is a result of the revised Payment Services Directive (PSD2). Which is European regulation that requires banks to create mechanisms that enable third-party providers to work securely, reliably and rapidly with the bank’s services with the consent of their customers.
Due to the growth of online shopping and online payments, the European Union created legislation in order to protect consumers and merchants. That legislation has recently been updated and is called The Payment Services Directive Two (PSD2). This legislation ensures payment providers (card providers, banks, payment facilitators, and more) improve customer authentication processes. Find out more information here (link to PSD2 glossary entry)