Given adverse macroeconomic conditions, sluggish growth and heightened geopolitical uncertainties, Europe’s fragmented banking system is expected to go through a rough patch. Mergers between the biggest cross-border players – long considered a taboo – are increasingly seen as a necessity to maintain the sector’s competitiveness. But there is one potential antidote to this stagnation which is not gaining the attention it deserves.
Open banking is a revolution in how financial data is shared and used. By allowing third-party providers access to customer data— with their consent—European banks can offer more personalised, competitive, and efficient services, as free flowing data can fuel access to faster, smarter financial services. Through secure APIs, banks enable customers to easily access a range of financial products, from budgeting tools to loans, all integrated in one place.
This shift is giving consumers more control and choice over their finances and pushing banks toward greater transparency and collaboration. But this transformation comes with challenges.
For European banks to fully embrace the future of open banking, they must view the proposed Financial Data Access (FiDA) regulation and the amended Payment Services Directive (PSD3) as an opportunity to transform their business models. By moving beyond outdated systems, they can adopt technology that fosters transparency and innovation.
Success in this new landscape will depend on investment in digital infrastructure, data management, and flexible systems. European banks that act now—building strong APIs and refining their data strategies—will gain a competitive edge, and open banking offers them a unique opportunity to turn these challenges into growth. Those that fail to prepare for open banking will be left behind in a customer-focused landscape that demands seamless, real-time integration.
Regulations – A solid foundation
The concept of open banking began gaining traction in 2018. The introduction of the revised Payment Services Directive (PSD2) was the first crack in banks’ overwhelming ownership of financial user data, bringing new regulations that improved customer authentication and opening the door to third-party involvement. This shift created a massive new market and set the open banking sector on an upward trajectory – a market expected to surge from $13.9 billion in 2020 to a staggering $123.7 billion by 2031.
The primary goal of recent regulatory measures is to improve access to financial data and enhance the customer experience. This is understandable given that electronic payments within the EU have steadily increased in recent years, reaching €240 trillion in value in 2021 (up from €184.2 trillion in 2017).
However, the EU banking sector has not been able to meet its full potential in recent years. The sector’s net interest income is to grow at a modest compound annual growth rate (CAGR) of 3.38% from 2024 to 2029. By comparison, the US banking sector is expected to grow at a much faster rate, with a CAGR of 4.70% during the same period.
Europe needs to move fast
Several factors contribute to this slower pace in Europe. First, the European banking market remains highly fragmented, with a patchwork of national regulations and authorities overseeing the industry. This fragmentation leads to inconsistencies in banking services, with significant variations in service quality, digital adoption, and customer experience across different EU countries. Additionally, Europe’s regulatory environment is complex, with upcoming frameworks like Basel IV, which will introduce stricter rules for capital requirements and risk management, potentially slowing innovation and expansion in the short term.
Furthermore, the EU’s financial sector is in the process of advancing its digital transformation efforts. While open banking has unlocked new opportunities, the pace of technological adoption and infrastructure integration remains uneven, particularly for smaller banks and financial institutions.
FiDA could significantly accelerate growth by further democratising the financial industry. And it’s not just customers who stand to benefit. This technological shift opens doors to entirely new business models, not only for fintech firms that aggregate information from multiple accounts but also for banks that can explore new revenue streams.
The possibilities are endless
One promising example is the potential for banks to monetise their data through APIs, following in the footsteps of internet companies like Reddit, which charges third-party providers for access to data.
Banks could be tapping into this vast trove of data to provide anonymised insights, market analysis, customised financial products, or risk management tools for businesses. For instance, banks could offer advanced API packages that give fintechs, insurance companies, or even investment firms data-driven insights into market trends, risk assessments, or consumer spending habits—creating valuable partnerships and new revenue streams. This shift could also enable more personalised, data-driven products for customers, such as tailored lending options or dynamic financial planning tools.
Beyond new revenue streams, open banking can also be a game-changer for compliance costs across the EU. For large global banks and major brokers with more than 20,000 employees, the costs associated with compliance can reach over $200 million every year. By enabling standardised, automated data-sharing through secure APIs, open banking reduces the need for banks to rely on siloed, costly systems to meet regulatory demands. Instead of duplicating efforts for each compliance task, banks could access real-time, verified customer information from other regulated institutions—cutting down on the complexity of Anti-Money Laundering (AML) and Know Your Customer (KYC) checks overnight. This streamlined approach not only simplifies compliance but also drives down costs tied to data management, audits, and even potential fines. With open banking, banks could finally break free from the web of fragmented compliance systems, allowing them to shift resources toward growth and innovation rather than regulatory upkeep.
Looking ahead, Europe’s banks are well-positioned to become the central gateway to the evolving financial landscape. Through open banking, they can seamlessly integrate a broad range of financial services, making themselves the primary access point for customers seeking everything from loans to investments. Rather than competing with the growing number of fintech solutions, banks can leverage open banking to collaborate with these players, ensuring that they remain the go-to platform for all financial needs. This model allows banks to offer customers a unified, efficient experience, where it doesn’t matter how services are delivered—whether through the bank itself or external partners. The bank, as the interface, remains the trusted entry point to a diverse and ever-expanding ecosystem of financial solutions, boosting customer loyalty and satisfaction. By adopting this open approach, banks will not only survive the shift to new technologies but will thrive as the essential bridge between customers and a wide array of financial services.
By Bjorn Ebert, financial services leaders at PwC Luxembourg
