Direct Bank Integration vs Open Banking: What’s the Difference?

Banks and payment institutions evaluating A2A infrastructure face a fundamental choice: implement a universal payment standard, rely solely on open banking APIs, or use both?

The answer shapes everything: payment capabilities, implementation approach, operational complexity, competitive positioning, and long-term scalability.

But most organizations misunderstand the actual differences. They hear “open banking” and assume it’s the modern, superior approach. Or they hear “direct integration” and assume it means custom implementations for each bank.

Both assumptions are wrong.

Here’s the complete breakdown of universal payment standards vs open banking for A2A payments - what they are, how they work, their fundamental differences, and why leading payment networks use both approaches.

Understanding the Two Approaches

Universal Payment Standards (Direct Integration)

What it is: Standardized payment infrastructure that banks adopt and integrate with directly, independent of regulatory mandates.

How it works:

Payment network designs universal standard with comprehensive protocol
Banks choose to implement the standard (technical partnership)
All banks use the same standardized API/protocol
Payment requests route directly from payment network to bank
No intermediary layer between network and bank

Example (payware’s architecture):

Merchant’s customer initiates payment via QR code
payware routes request to customer’s bank (e.g., Deutsche Bank)
Deutsche Bank (having implemented payware standard) receives payment instruction
Bank authenticates customer via banking app (SCA)
Bank settles payment via SEPA Instant
Bank confirms settlement to payware
payware confirms to merchant

Key characteristics:

Standardized implementation (same protocol for all participating banks)
Technical partnerships required (banks choose to adopt)
Rich feature set (designed by payment network, not regulators)
Direct communication channel
Innovation-driven (enables capabilities beyond regulatory minimum)

What this enables:

All seven payment initiation methods: QR code, NFC contactless, BLE proximity, payment links, SMS, barcode, soundbite audio
App-to-app flows: Optimized UX with banking app opening automatically
Innovative contexts: Drive-through BLE proximity, live event audio triggers, walk-through checkout
Rich transaction data: Enhanced reconciliation, analytics, reporting

Why all methods work: The universal standard is designed to support all initiation methods. Banks implementing the standard gain access to the full capability set, not just regulatory minimums.

Real-world example:
Festival using soundbite audio to enable payments triggered by live music. Customer’s banking app detects audio signal, payment request opens, customer authenticates, payment completes. This requires bank support for audio-triggered payment initiation - built into universal standards like payware, not specified in open banking regulations.

Open Banking (Regulatory APIs)

What it is: Standardized APIs mandated by regulation (PSD2 in Europe) that banks must provide for third-party account access.

How it works:

Regulation requires all banks implement standardized APIs
Third-party providers register as licensed PISPs (Payment Initiation Service Providers)
PISPs access banks’ open banking APIs
Payment requests go through regulatory-compliant endpoints
Banks authenticate and process through mandated interfaces

Example flow:

Merchant’s customer initiates payment via payment link
PISP sends payment initiation request to bank’s open banking API
Bank authenticates customer (SCA required)
Bank settles payment via SEPA Instant
Bank returns standardized confirmation to PISP
PISP confirms to merchant

Key characteristics:

Standardized across all banks (regulatory requirement)
Mandatory implementation (banks must provide)
Fixed feature set (defined by regulation, not innovation)
Intermediary layer (PISP between merchant and bank)
Compliance-focused design (minimum requirements)

What this enables:

Primary method: Payment links (URL-based initiation)
Secondary methods: QR codes (if bank supports), redirect flows (e-commerce checkout)
Web-based flows: Customer redirected to bank’s interface
Basic transaction data: Standard status updates and confirmations

Why limited: Open banking APIs were designed primarily for payment links and e-commerce redirects - contexts where customers actively navigate to their bank’s interface. Initiation methods requiring bank behavior beyond regulatory specifications (soundbite, BLE proximity, optimized app-to-app) aren’t mandated.

Real-world example:
E-commerce checkout with “Pay with Bank” button. Customer clicks button, redirects to bank’s open banking interface, authenticates, payment settles, returns to merchant. Works well for this use case. Doesn’t support ambient payment experiences like drive-through BLE detection or audio-triggered payments.

Key Differences

The practical differences between universal payment standards and open banking span architecture, capabilities, economics, and governance.

1. Architectural Approach

Aspect	Universal Payment Standard	Open Banking
Governance	Designed by payment network	Defined by regulation
Adoption	Banks choose to implement	Mandatory for all banks
Standardization	Protocol-based (like SMTP, HTTP)	Regulation-based (compliance)
Evolution	Network evolves standard	Regulatory process changes spec
Innovation	Enables beyond regulatory minimum	Limited to mandated features

Analogy: Universal standard is like SMTP for email (industry protocol enabling innovation). Open banking is like regulatory compliance requirement (minimum functionality mandate).

2. Payment Capabilities

Capability	Universal Payment Standard	Open Banking
Initiation methods	All seven methods (QR, NFC, BLE, links, text, barcode, soundbite)	Primarily links; QR if supported
User experience	App-to-app optimized flows	Web redirect flows
Use contexts	Retail, events, drive-through, ambient	E-commerce, invoicing
Transaction data	Rich metadata and analytics	Standard status updates
Settlement	Instant (SEPA Instant)	Instant (SEPA Instant)

Key difference: Both enable instant settlement. Universal standards enable richer initiation methods and optimized UX. Open banking provides baseline payment functionality.

3. Coverage and Reach

Aspect	Universal Payment Standard	Open Banking
Bank coverage	Banks that adopt the standard (10-15 strategic banks = 60-75% volume)	All banks (regulatory requirement)
Geographic scope	Works globally (independent of PSD2)	EU/regions with open banking regulation
Implementation approach	Incremental (bank by bank adoption)	Immediate (regulatory mandate)

Trade-off: Universal standards cover willing banks with rich features. Open banking covers all banks with basic features. Combined approach delivers both breadth and depth.

4. Implementation Economics

Factor	Universal Payment Standard	Open Banking
For banks to implement	€40,000-100,000 + 2-4 months	Regulatory requirement (already implemented)
For payment networks	Develop and maintain standard	PISP licensing: €20,000-50,000
Ongoing maintenance	Standard evolution, bank support	Compliance reporting, API updates
Scaling	Per-bank partnership cost	Low incremental (same API for all)

Cost reality: Developing universal standard requires investment. Open banking leverages existing regulatory infrastructure. Most payment networks combine both for optimal economics.

5. Regulatory Position

Aspect	Universal Payment Standard	Open Banking
Regulatory status	Fully compliant (banks choose to offer)	Regulatory requirement (PSD2 mandate)
Licensing	Payment institution license	PISP license
Compliance burden	Bank-level standards	Open banking compliance + audits
Future regulation (PSD3)	Can exceed regulatory minimums	Must meet enhanced requirements

Important: Universal payment standards are NOT prohibited by regulation. Banks can offer both open banking (compliance) and universal standard integration (differentiation).

Real-World Implications

How do these approaches perform in actual payment contexts?

E-commerce Checkout

Scenario: Customer buying €150 online, clicks “Pay with Bank”

Universal standard:

Banking app opens automatically with payment details
Customer authenticates (biometric/PIN)
Payment settles in seconds
Returns to merchant with confirmation

Open banking:

Redirect to bank’s open banking interface
Customer authenticates (SCA)
Payment settles in seconds
Returns to merchant with confirmation

Result: Both work well. Open banking has slightly more redirect friction, but functionally equivalent for e-commerce. Winner: Tie

In-Store Retail (QR Code)

Scenario: Customer scanning QR code at checkout

Universal standard:

Scan QR → Banking app opens automatically → Payment details populated → Authenticate → Settles in 8 seconds

Open banking:

Scan QR → Redirect to web interface (may not open banking app) → Authenticate → Payment settles

Result: Universal standard provides seamless app-to-app flow. Open banking QR support varies by bank implementation. Winner: Universal standard (better UX)

Drive-Through (BLE Proximity)

Scenario: Customer’s phone detects payment opportunity when entering drive-through zone

Universal standard:

Phone detects BLE beacon → Banking app opens with payment request → Customer confirms while pulling forward → Payment settles before pickup window → Hands-free experience

Open banking:

Not supported (BLE proximity not in open banking specification) → Would require manual payment link entry → Incompatible with drive-through context

Result: Universal standard enables the use case. Open banking doesn’t support ambient proximity payments. Winner: Universal standard (only option)

Live Event (Audio Trigger)

Scenario: Concert venue broadcasts audio signal, phones detect and initiate payment

Universal standard:

Phone detects audio → Banking app opens with payment request (tickets, merchandise) → Authenticate → Payment settles → Confirmation displayed

Open banking:

Not supported (audio-triggered initiation not in specification) → Would require manual payment link → Defeats purpose of ambient experience

Result: Universal standard enables innovative payment trigger. Open banking wasn’t designed for media-triggered payments. Winner: Universal standard (only option)

Recurring Subscriptions

Scenario: Monthly €49 SaaS subscription renewal

Universal standard:

Merchant initiates via stored mandate → Bank validates → Settles automatically → Customer notified

Open banking:

Merchant initiates via open banking API → Bank processes per mandate → Settles automatically → Customer notified

Result: Both handle recurring payments equivalently. Winner: Tie

Summary: Universal standards excel in innovative contexts (proximity, audio, optimized app flows). Open banking works well for basic e-commerce and recurring payments. Combined approach serves all contexts.

How payware Implements Both

payware operates as a neutral universal interoperability standard while also supporting open banking APIs - delivering both innovation and comprehensive coverage.

The Hybrid Architecture

Universal standard (primary):

Enables all seven payment initiation methods
Rich transaction data and optimized UX

Why banks adopt payware:

Volume concentration (reaching most transactions)
Innovation appetite (differentiation beyond open banking minimum)
Technical capability (can implement standardized protocol)
Merchant value (offer richer payment capabilities than competitors)

Open banking (comprehensive coverage):

Remaining 25-40% of accounts covered via open banking APIs
Smaller regional banks, credit unions, specialty institutions
Basic payment link functionality
Regulatory compliance (PSD2)
Fallback for banks not yet implementing payware standard

How It Works Together

When customer pays at merchant:

Payment network identifies customer’s bank
If bank implements payware standard: Route via payware protocol → Enable all seven methods → Rich transaction data → Optimized UX
If bank only has open banking: Route via open banking API → Payment link method → Standard transaction data → Basic UX
Customer experience: Seamless (doesn’t know which approach was used)
Merchant experience: Payment settles either way

The value:

Merchants get 100% bank coverage (every customer can pay)
60-75% of volume uses payware standard (rich features, all seven methods)
25-40% of volume uses open banking (basic but functional)
payware can evolve universal standard without sacrificing coverage

Analogy: Airlines have direct partnerships with major carriers (rich interline benefits, seamless experience) and code-sharing agreements for comprehensive route coverage (basic connectivity). Hybrid model delivers both depth and breadth.

Roles in the Ecosystem

payware’s role:

Develops and maintains universal payment standard
Signs banks as implementation partners
Provides APIs, SDKs, and integration support
Evolves standard with new features

Banks’ role:

Choose to implement payware standard (or not)
Integrate with payware’s standardized protocol
Offer payware-enabled payments to their customers
Must provide open banking APIs (regulatory requirement)

Important distinction: payware doesn’t “integrate with banks” (implying custom work per bank). Banks integrate with payware’s universal standard (standardized implementation, same for all).

Decision Framework: When to Use Which Approach

For organizations evaluating A2A payment infrastructure:

Adopt Universal Payment Standard When:

You are:

Payment network building differentiated A2A infrastructure
Bank wanting to offer capabilities beyond open banking minimum
Large merchant needing multiple payment methods

Your requirements:

Multiple payment initiation methods (QR, NFC, BLE, audio, etc.)
Innovative use contexts (drive-through, events, ambient payments)
Optimized user experience (app-to-app flows)
Rich transaction data and analytics
Competitive differentiation in market

Your capabilities:

Resources to develop or adopt universal standard
Technical sophistication to implement protocol
Strategic focus on specific markets (10-15 banks = 60-75% coverage)

Example: Payment institution serving retailers, events, and QSR merchants needing QR codes, NFC tap, BLE proximity, and audio triggers. Universal standard delivers these capabilities; open banking doesn’t.

Rely on Open Banking When:

You are:

Payment service provider needing quick market entry
Small merchant requiring basic A2A payments
Fintech testing A2A before major investment

Your requirements:

Basic payment links for e-commerce/invoicing
Comprehensive bank coverage immediately
Regulatory compliance (PSD2)

Your constraints:

Limited resources for standard development
Need coverage across all banks (not just strategic 15)
Acceptable to have limited payment methods

Example: E-commerce platform adding “Pay with Bank” option to checkout. Payment links via open banking work well for this use case without needing universal standard capabilities.

Implement Hybrid Approach When:

You are:

Payment network building for long-term market position
Bank balancing innovation and comprehensive coverage
Large payment institution serving diverse merchant base

Your strategy:

Start with open banking for immediate 100% coverage
Develop or adopt universal standard for differentiation
Incremental rollout (strategic banks first, expand over time)

Your scale:

Sufficient volume to justify both approaches
Multiple verticals (some need innovation, some need basic coverage)

Example: payware’s model - universal standard for 60-75% of volume (rich features), open banking for remaining 25-40% (comprehensive coverage). Merchants get 100% coverage with maximum innovation where volume concentrates.

Common Questions

”Isn’t open banking the future? Why invest in universal standards?”

Open banking is the compliance baseline, not the innovation ceiling.

PSD2 mandated minimum functionality. Banks implemented what regulation required. But regulatory minimum ≠ maximum capability.

Universal payment standards enable:

Innovative payment contexts (ambient payments, media-triggered, proximity-based)
Optimized user experiences (app-to-app flows, rich notifications)
Advanced merchant features (all seven payment methods, enhanced analytics)
Faster innovation (no waiting for regulatory approval)

Analogy: SMTP is the email protocol standard. Regulatory frameworks define minimum requirements. But SMTP enables innovation beyond regulation - rich email clients, attachments, encryption, advanced features. Same dynamic: open banking is regulatory baseline; universal standards enable innovation.

Reality: Open banking will evolve (PSD3 coming). Universal standards evolve faster because they’re not dependent on regulatory consensus. Both will coexist - open banking for compliance, universal standards for differentiation.

”Can’t open banking APIs be extended to support more features?”

Theoretically yes. Practically slow.

Extending open banking standards requires:

Industry consensus on new features
Regulatory approval or clarification
All banks implementing extended specifications
Third parties adapting to changes

Timeline: 2-5 years from proposal to widespread implementation.

Universal standards enable innovation now:

Payment network evolves standard with new features
Banks implement updated standard in 2-4 months
Merchants start using new capabilities immediately
No waiting for regulatory process

Historical precedent: NFC contactless payments were technically possible years before widespread open banking support. Apple Pay and Google Pay used direct bank partnerships (universal standard approach) to deploy faster than regulatory standards.

”What happens when customer’s bank only supports open banking?”

Payment works, but with basic features:

Customer at merchant using payware-enabled payment methods:

If customer’s bank implements payware standard: All seven methods available (QR, NFC, BLE, links, SMS, barcode, soundbite)
If customer’s bank only has open banking: Payment link method available

Merchant configuration:

POS or checkout displays all payment methods
If customer’s bank doesn’t support chosen method, fallback to payment link
Customer can still pay (may need different method)

Coverage reality:

60-75% of transactions: Full feature set (payware standard banks)
25-40% of transactions: Basic payment links (open banking only)
0% of transactions: Blocked (every bank accessible via one approach or both)

“Is universal standard more risky than open banking?”

Different risk profiles, not higher/lower risk:

Universal standard risks:

Partnership dependency (if bank partnership ends, need alternative) - Mitigated by diversifying partnerships
Standard evolution (banks need to update implementations) - Mitigated by standardized protocol (same for all banks)
Adoption pace (coverage grows incrementally) - Mitigated by hybrid approach with open banking

Open banking risks:

Regulatory changes (PSD3 could alter requirements) - Applies to all market participants
API performance variability (some banks’ implementations unreliable) - Mitigated by having universal standard alternative
Feature limitations (can’t differentiate) - Mitigated by hybrid approach

Mitigation strategy: Hybrid approach reduces dependency on either approach. If universal standard partnerships change, open banking provides fallback. If open banking proves limiting, universal standard provides differentiation.

Risk reality: Both approaches are production-grade infrastructure. The question is strategic fit and business model, not risk avoidance.

Conclusion

Universal payment standards enable innovation, rich features, and differentiated payment experiences beyond regulatory minimums. They require investment in standard development (or adoption) and bank partnerships but deliver competitive advantages through protocol-based interoperability.

Open banking provides compliance-driven baseline functionality and automatic comprehensive coverage. It leverages existing regulatory infrastructure and supports basic payment use cases effectively.

Hybrid approach combines both: universal standard for strategic banks (60-75% volume, rich features), open banking for comprehensive coverage (remaining 25-40%, basic functionality). This delivers 100% bank coverage with maximum innovation where volume concentrates.

Most payment networks building for long-term market position benefit from hybrid architecture. The question isn’t “which one?” but “in what proportion and sequence?”

Next Steps by Stakeholder

For payment networks:
Evaluate merchant needs and competitive positioning. If serving merchants requiring only basic payment links, open banking may suffice. If serving sophisticated merchants or targeting specific verticals (retail, events, QSR), developing or adopting a universal payment standard adds material value.

For banks:
Understand strategic positioning. Open banking provides regulatory compliance. Implementing universal payment standards (like payware) enables differentiation, richer merchant services, and innovative payment experiences beyond regulatory minimum. Both approaches can coexist.

For merchants:
Understand your payment provider’s approach. Open banking only = comprehensive coverage but limited methods. Universal standard implementation = richer features. Hybrid = both coverage and innovation. Choose providers aligned with your payment contexts.

For the industry:
Payment infrastructure is evolving. Open banking baseline will expand (PSD3). Universal payment standards enable innovation beyond regulation. Both will coexist. Partner with organizations investing in standards-based approaches that drive the industry forward.

About payware

payware is the neutral universal interoperability standard for instant account-to-account (A2A) payments worldwide. The platform enables payment institutions, merchants, ISVs, and developers to join a network where every connection multiplies value for all participants. With 7 innovative payment initiation methods - QR code, NFC, BLE, soundbite, text, link, and barcode - payware delivers exceptional end-user experiences while offering fees as low as 0.5% and instant settlement. Founded in 2019, payware creates unprecedented value through universal domestic interoperability.

Learn more: payware.eu
Contact: Get in touch