Open Banking vs Credit Card Processing: The Future of Payments

Open banking payments are highly secure — arguably more secure than credit card transactions. They use bank-level Strong Customer Authentication (SCA) where customers authenticate directly through their banking app using biometrics or PIN. Unlike card payments, no sensitive financial data is shared with the merchant, eliminating the risk of card data breaches. The payment is also non-reversible, which eliminates chargeback fraud for the merchant.

Consumer adoption of open banking payments is growing rapidly, particularly in the UK and EU where PSD2 has been in effect since 2018. As of 2025, over 10 million UK consumers actively use open banking services. Adoption is highest among younger demographics and for high-value purchases where the cost savings are meaningful. However, consumer awareness remains lower than credit cards, which benefit from decades of established trust and rewards programs.

Unlike credit cards — which have a built-in chargeback mechanism — open banking payments settle in real time and are non-reversible once confirmed. For refunds, the merchant must initiate a manual bank transfer back to the customer. This means merchants need a reliable refund process in place. For returns-driven businesses, this is typically handled through an automated refund system that the open banking provider integrates into the merchant's dashboard.

Yes, but with some limitations. In the UK, Variable Recurring Payments (VRPs) allow consumers to authorize regular payments up to a predefined cap without re-authentication for each transaction. However, VRPs require the customer to re-authenticate if the payment amount changes significantly or the mandate expires. Credit cards offer a more seamless recurring payment experience with tokenization and network-level recurring billing support.

Open banking payments are most widely available in the UK and European Union under PSD2/PSD3 regulations. Australia has a Consumer Data Right framework enabling similar functionality. The US has no federal open banking mandate, though market-driven initiatives like the Financial Data Exchange (FDX) are gaining traction. Brazil and India also have active open banking ecosystems. Coverage is expanding, but credit cards remain essential for global e-commerce outside regulated markets.

PSD3 (proposed as the next evolution of PSD2) is expected to further strengthen the open banking ecosystem by mandating improved API performance, extended data sharing requirements, and better consumer protections. This will likely accelerate merchant and consumer adoption of account-to-account payments across the EU, putting additional pressure on card networks to reduce fees and improve value propositions in European markets.