In the UK and EU, Open Banking PSD2 collections, has transformed how businesses collect payments. Instead of relying solely on cards or traditional bank transfers, companies can now offer customers direct bank-to-bank payments that are faster, cost-efficient, and secure.
This article explains what PSD2 is, how Open Banking works for collections, and why it matters for fintechs, platforms, and merchants operating in the UK and EU.
What Is PSD2 and Open Banking?
- PSD2 (Payment Services Directive 2): An EU regulation (effective from 2018) requiring banks to provide secure access to their payment infrastructure through APIs.
- Open Banking: A framework built on PSD2 that allows regulated fintechs and third-party providers to initiate payments and access account data, with customer consent.
In simple terms, banks are required to “open their rails” so that fintechs can build new payment solutions, creating competition and innovation in the payments ecosystem.
How Open Banking Works for Collections
Here’s how a typical Open Banking payment works for collections:
- Payment Initiation: At checkout, the customer selects “Pay by Bank.” The business’s Open Banking provider generates a secure payment link.
- Authentication: The customer is redirected to their own bank’s app to log in and approve the transaction using Strong Customer Authentication (SCA) such as biometrics or a secure PIN.
- Direct Transfer: Once approved, funds move directly from the customer’s bank to the business account, without card networks.
- Confirmation: Both the customer and business receive confirmation, and funds typically settle faster than card payments.
Key Benefits of Open Banking for Collections
- Lower Costs: No card scheme or interchange fees.
- Faster Settlement: Direct bank-to-bank transfers reduce delays.
- Higher Security: SCA and regulated APIs protect against fraud.
- Reduced Fraud Risk: No card numbers or sensitive details exchanged.
- Improved User Experience: Customers pay directly via their banking app.
Open Banking vs. Traditional Card Payments
| Feature | Open Banking (PSD2) | Card Payments |
| Settlement | Faster (direct to bank) | Slower (via card networks) |
| Cost | Lower (no interchange fees) | Higher (merchant service charges) |
| Security | Strong (SCA, no card data) | Card numbers at risk |
| User Flow | Approve in bank app | Enter card details |
| Innovation | API-first, flexible | Rigid, scheme-driven |
Who Benefits The Most?
- E-commerce merchants lowering payment costs
- Subscription platforms reducing chargebacks
- Marketplaces offering instant pay-ins for sellers
- Fintech apps embedding Pay by Bank experiences
- Cross-border businesses leveraging harmonized EU payment standards
Why It Matters for Fintechs
For fintechs, PSD2 is both a compliance requirement and a strategic opportunity. It enables:
- New, lower-cost payment methods
- Improved margins by reducing reliance on card rails
- Enhanced customer trust through bank-grade authentication
Providers like Fincra integrate with regulated payment rails across regions, including Open Banking in the UK and EU, to give businesses a single compliant infrastructure for global collections and payouts.
Conclusion: Open Banking = Faster, Cheaper, Safer Collections
PSD2 has reshaped the European payments landscape, enabling businesses to collect funds directly, securely, and efficiently from customer bank accounts.
For fintechs and platforms, integrating Open Banking collections is now a competitive necessity in the UK and EU offering lower costs, stronger security, and a better payment experience.
Disclaimer: This article is for informational purposes only and does not constitute financial, legal, or compliance advice. Always consult with your compliance team or legal counsel before implementing Open Banking or PSD2-based payment solutions.
