Financial Management, Lending, Mortgage, Open Banking, Payments
Open Banking 2025 Thoughts & Trends
As we head into the new year, we are highlighting a few topics that are top of mind for Mastercard Open Banking, and how we see the Open Banking landscape evolving over the next 12-24 months.
At a Glance
- Open Banking adoption continues to gain traction across the globe – This is a result of increased consumer, merchant, and biller appetite, regulations, borrower demand for a digital mortgage experience, and an increase in account-to-account (A2A) payments usage. As momentum accelerates, there is more emphasis on safeguarding consumer information and protecting against fraud in Open Banking.
- A2A and alternative payment methods are increasing in usage all over the world – Open Banking enables a more seamless A2A experience, particularly in verticals like bill pay, disbursements, and recurring payments. However, there are some barriers that are preventing A2A from scaling.
- Looking ahead, we see 4 key themes that are rising in importance in Open Banking – We anticipate that Open Banking will unlock opportunities for consumers and businesses to benefit from their data and allow companies to power next-generation personalized financial services by improving the financial experiences of small businesses, leveraging technology such as Generative AI which powers innovative new use cases (e.g., categorization, security/privacy), integrating closely with Real-time Payments (RTP), and enabling value-added services and personalization with the transition to Open Finance.
Mastercard’s strategy is centered on the trends we are seeing, where we think the Open Banking market is headed, and being a valued and trusted partner to our customers by enabling them to provide enhanced financial experiences to their end users.
What we’re seeing in the market
- Open Banking is on the rise around the world, driven by different tailwinds. Consumers want more automated and digitized ways to move money, to manage their finances (e.g., by viewing their financial data and unlocking actionable insights), and more transparency and control of their data. They are using Open Banking for topping up their investment accounts, funding their wallets, and applying for mortgages. Regulations, Open Banking players pushing forward innovative solutions, and the desire for seamless, enhanced financial experiences are all drivers of Open Banking. In Europe, Open Banking use is expected to double by 2027 and in the UK, 70% of consumers connect their financial accounts directly to tools to conduct financial tasks. In the U.S., 80% of consumers also already link their financial accounts. Open Banking in Australia is still relatively nascent, but 89% of B2B users report using Open Banking today. Brazil has been a trailblazer in Open Finance – there were 4.8B API calls in June 2023 in Brazil, four times the number of calls in the UK. We are cognizant that as Open Banking matures, more and more markets will adopt and accelerate its usage. At Mastercard, market expansion opportunities are evaluated where there is greatest demand, and we will innovate and test concepts in markets that are maturing.
- Regulations are changing the landscape for Open Banking. Open Banking regulations are at different stages in key global markets. While Europe and the UK were some of the first to introduce Open Banking regulation with the Payment Services Directive (PSD2) and later, Payment Services Regulation (PSR), other countries around the world are putting their own regulatory frameworks in place. For example, Canada’s Department of Finance (DoF) and the Financial Consumer Agency of Canada (FCAC) are also working on elements of Open Banking regulation in the country. Several countries in Africa are adopting frameworks for Open Banking, and Saudi Arabia and Bahrain are launching innovative measures to test Open Banking solutions. Mexico and Brazil led the way in Latin America in establishing Open Banking regulations, with a particular focus on Open Finance and leveling the playing field between fintech startups and incumbent banks. We will continue to work across the ecosystem to support our customers, consumers and small businesses in navigating regulatory changes.
- Borrower demand for digital mortgage experiences is increasing. Homebuyers in the U.S. are indicating that they are more interested in leveraging digital channels for mortgages. Those surveyed cited process acceleration (75%) and making the process easier (71%) as the top benefits of a digital mortgage process. Open Banking is key to powering these experiences – it allows lenders to securely collect financial data digitally, conduct more comprehensive assessments of an applicant’s financial health, and make more informed loan decisions. To meet consumer demands and streamline the lending process, Mastercard has collaborated with U.S. government sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac in connection with certain digital verification of asset, income and employment solutions. These new mortgage solutions are driving more demand for Open Banking and alternative data sources in lending.
- A2A payment flows are becoming a more common way to pay. While there are multiple payment options available to consumers and businesses today (credit cards, debit cards, BNPL, cash, etc.), A2A payments are the second-most preferred payment choice for bill payment in the U.S. and are increasingly being adopted worldwide. On a global level, A2A payments for e-commerce are expected to grow at a 14% CAGR (compound annual growth rate) through 2027. Government-led schemes for A2A are proliferating its usage in countries including India (Unified Payments Interface), Brazil (PIX) and Thailand (PromptPay). Open Banking-powered A2A payments can transform the A2A experience by making it a seamless and secure way to pay – in particular, we’re seeing Open Banking powered payments pick up in verticals like bill pay, disbursements, recurring payments – where paying by ACH (traditional A2A method) has already been popular in the U.S., for example. Recognizing this market demand, we are partnering with players like JPMC and Worldpay in the U.S. to scale A2A for their customers. We are also continuing to explore innovative solutions that would enable the scaling of A2A globally – for example, Mastercard’s approach to Open Banking helps protect the ecosystem to make OB-enabled A2A payments seamless and secure.
- Fraud and identity risk are top of mind. While Open Banking will provide new opportunities, like with any exchange of personal data online, there are also risks. As more people use digital channels for financial experiences, there is the possibility for fraudsters to find new ways to attack businesses and consumers. It is estimated that the worldwide costs of cybercrimes will reach $12T in 2025 and 94% of consumers surveyed say that it’s important that financial institutions keep consumer financial data secure. To ensure consumers feel safe using Open Banking and the experiences it powers, fraud mitigation plays a significant role – for example, leveraging identity verification and device intelligence at account opening, multi-factor authentication at sign in1, and predictive risk signals for payments. At Mastercard, we remain committed to maintaining best-in-class security and data privacy for our Open Banking assets. This is why we are leveraging our rich network of global identity insights and device verification, and integrating them with our Open Banking offering. We believe Open Banking and fraud mitigation will continue to go hand-in-hand as the ecosystem matures.
Spotlight on A2A Trend
What are A2A Payments?
- Account-to-Account (A2A) payments are electronic money transfers from one bank account to another. A2A payments can be initiated in two ways, either as a push payment — initiated by the party making the payment — or as a pull payment — initiated by the party collecting the payment. Many consumers already use A2A payments by simply sending money between their own bank accounts or transferring money to someone using platforms like PayPal or Cash App. The 4 main use cases for A2A are Bill Payments, Me2Me, Person to Merchant (P2M), and Person to Person (P2P):
Growth in A2A is being driven by a number of factors:
However, A2A payments are still experiencing some challenges to widespread adoption:
- Suboptimal A2A checkout process: A2A payment methods have either required consumers to input bank account numbers or login to their bank’s portal for each purchase, which can be time consuming and error prone. In countries where A2A has gotten more traction (e.g., India, Brazil), it has been primarily through QR code which is a suboptimal experience.
- Inadequate consumer purchase protections compared to card: Many A2A payment methods lack the same protections that card payments have, and that both consumers and merchants want.
- Lack of trust: There is a lack of trust from some consumers towards A2A payments, because they have a familiarity with methods like credit and debit payments and are accustomed to their reliability and ubiquity.
- Lack of scaled use by merchants: Merchants face certain risks with traditional A2A payments, including declines due to insufficient funds, unauthorized returns, etc.
How does Open Banking enhance A2A?
Without Open Banking: Traditional A2A is a clunky experience, as consumers need to either initiate bank transfers through their bank account directly or manually enter their banking account and routing number through a suboptimal checkout experience. In some markets, there is also limited transparency in payment settlement timing and risk of payment, for merchants/billers who are offering A2A to their customers. For example, merchants must manually verify customer bank accounts with micro-deposits, and there may be a multiple day delay for a successful A2A payment. Lastly, traditional A2A lacks the rich data insights to verify identity, and to prevent fraud/ non-sufficient funds returns.
With Open Banking: Open Banking makes A2A payments seamless for consumers. Instead of the error-prone process of finding and manually entering account details – consumers can now leverage the latest technology to easily share their bank data. Powered by Open Banking, A2A payments can be made quickly, with extremely rich insights – such as account owner verification, balance checks, risk indicators, tokenization and fraud signals. In any market, Open Banking makes A2A payments easier, faster, and convenient. Additionally, Open Banking can help in the fight against fraud. For example, when a consumer initiates an account-based payment from their bank account, Mastercard enables account validation to confirm account ownership and validate identity details in real-time through Mastercard Open Banking, drawing on the safe exchange of consumer-permissioned data to facilitate frictionless and secure payments.
Illustrative US A2A Payments flow (powered by open banking)2
What will it take to make A2A payments more mainstream?
We believe that there is a positive trajectory for A2A payments. For A2A adoption to scale in use cases like ecommerce, it is important that consumers feel as secure using A2A as they do with other payment methods. Consumers also prefer a more user-friendly and streamlined user experience which removes friction from the A2A journey. Merchants and digital players are looking to provide consumers with a range of payment options, so helping to integrate A2A payments into their existing platforms will improve merchant acceptance and be vital in adoption. Lastly, we believe the scaling of A2A payments will be contingent on value-added services, which leverage consumer data (with consent) to create a secure and seamless payments ecosystem. We believe Open Banking can power many of these enhancements to A2A, to help scale.
Looking Ahead
In addition to A2A, there are a number of market forces and themes that we think will be prominent in the Open Banking landscape over the next 12-24 months. A few are highlighted below –
- There is untapped potential in Open Banking use cases for small businesses. We believe more small businesses will use Open Banking to easily and safely share their banking information, paving the way for an easier lending process and customized financial recommendations to help them with their cashflow. 92% of businesses surveyed believe that it is somewhat to very important to have the latest technology for risk decisioning and credit scoring. Mastercard already offers a comprehensive solution set for small businesses – including real-time business account data, rich cash flow and balance analytics, smarter credit decisioning, etc. and we are continuing to enhance based on what is priority for SMBs.3
- Use cases for AI in Open Banking will continue to evolve, enabling more personalized financial services experiences. For example, Generative AI can power financial assistants that can make investment recommendations, help with data categorization to give a comprehensive picture of finances, enable more inclusive lending processes, as well as power smarter payments systems with predictive capabilities. We believe AI is a powerful tool for Open Banking, and this is why we’ve been leveraging it to categorize and extract insights from transaction data, which feed into downstream AI models that power our payments and lending solutions. We’ve also partnered with players like bunq, the second largest neobank in Europe, to power spending insights for users – leveraging AI. However, we recognize that data transparency, security, and protecting against bias will become even more important, as Open Banking and AI are intertwined to solve for new and innovative use cases.
- Real-time payments (RTP) will accelerate, led by the launch of FedNow in the U.S., and the SEPA Instant Payments Mandate in Europe. RTP has already seen strong success in other countries around the world like PIX in Brazil, UPI in India, etc. For consumers, RTP provides the option for swifter bill payments and near instant payouts, especially important for gig economy workers. Businesses are afforded faster settlements, improved payroll, and reduced disputes due to more efficient reconciliation and refunds. Bank adoption and use of RTP rails in the U.S. are still emerging, due to issues such as coverage/interoperability, irrevocable funds, and fraud risk. However, government pushes for RTP in Europe and the U.S. may catalyze adoption. Open Banking providers have an opportunity to build out use cases that accommodate RTP and mitigate the fraud risks that come with it. For example, Open Banking can provide risk insights and recommendations around the timing of payment and rail choice. In the U.S., Mastercard Open Banking is providing merchants, fintechs and banks rail agnostic risk signals, enabling payment decisioning across payment methods, and supporting consumer choice and flexible merchant usage.
- Open Banking will move towards Open Finance, as more expansive datasets are used to offer more personalized and actionable insights and value-added services for consumers. Open Finance moves beyond Open Banking by covering more financial data inputs (e.g., payroll, insurance, investment/brokerage data). The European Commission is working to establish an Open Finance framework that would outline clear rights and obligations to manage customer data sharing in the financial sector beyond payment accounts. In Australia, the CDR is expanding to Open Finance with non-bank lenders and BNPL product providers set to be brought into scope in early 2025 (with first compliance obligations to commence in mid-2026). We believe regulation and consumer demand will serve as a foundation for the expansion into Open Finance, and will create further innovation for services like employee benefits, wealth advisory, etc. Mastercard is already supporting Open Finance in the U.S. – we have connections to payroll and investment data, as well as mortgage data and auto loan data, and are continuing to expand datasets.
Mastercard’s role in the Open Banking journey
Our vision in Open Banking is driven by many of the trends we’re seeing in the market and enabling enhanced financial experiences for our customers. We remain diligent in advancing our four primary use cases: payments, account opening, lending, and small business, while leveraging the broader Mastercard ecosystem to provide incremental value to our customers. We are enabling an Open Banking future that empowers consumers and small businesses to share their data for their own benefit and allows all parties in the ecosystem to thrive. To learn more about our Open Banking solution set – please click here. You can also see how Mastercard Open Banking creates priceless possibilities for all here.
Footnotes
1 – Strong customer authentication (SCA) under the EU’s Second Payment Services Directive (PSD2), mandates multi-factor authentication (MFA) to prevent unauthorized access (link); MFA is not mandated in the US, but FI’s can implement MFA according to their own discretion; Australia’s CDR governs MFA.
2 – Mastercard partners with companies to enable A2A payments in the US; payments flow shown may be supplemented with additional steps from Partner.
3 – Mastercard US Open Banking for Business solutions (illustrative, not comprehensive).