Six common open banking mistakes to avoid

2025 03 31 · 8 min read

Open banking has transformed the financial landscape, enabling banks to innovate, grow, and deliver more personalized services. Yet, despite its potential, European and US banks often stumble into avoidable pitfalls.  

In the EU, regulations like PSD2 and PSD3 drive open banking, ensuring consumer protection and data-sharing standards. The US takes a more market-driven approach, where adoption varies by institution and state regulations. Each model has its challenges, but certain mistakes exist across both regions. 

This blog post explores these open banking mistakes and compares how they play out in both the EU and US markets. 

What does open banking mean to financial institutions and banks? 

Open banking enables financial institutions to securely share customer data with authorized third parties through APIs. It fosters innovation by allowing fintech companies rand banks to collaborate on new products and services. This helps to improve customer experience and expand revenue streams.  

For banks, it presents an opportunity to move beyond traditional banking models. Open banking provides personalized financial solutions, enhanced payment systems, and new business models like embedded finance. However, realizing these benefits depends on effective implementation and avoiding common mistakes. 

Mistake 1. Treating open banking as compliance rather than a strategy 

Open banking is an opportunity for financial institutions and banks to grow strategically. Many European banks strictly adhere to PSD2 rules without leveraging them for business expansion. While U.S. banks have historically been cautious about adopting open banking due to concerns over ROI and the absence of regulatory mandates, recent regulatory developments, such as the Consumer Financial Protection Bureau (CFPB)’s new rules, are creating a clearer path for wider adoption. 

Why it matters? Banks that treat open banking as just a compliance task miss out on innovation, investment, and growth, leaving customer needs unmet. 

According to a McKinsey survey, nearly half of respondents expect to reduce costs by more than 10% through their API initiatives. In comparison, one-third anticipate revenue growth exceeding 10%. This proves that banks can drive efficiency and profitability with a well-thought-out strategy. 

Potential missed opportunities: 

How to solve it? 

Taking a proactive and strategic approach changes open banking from a compliance task into a competitive advantage. 

Mistake 2. Poor-quality APIs and developer experiences 

APIs are the building blocks of open banking. Still, if poorly designed, they frustrate and discourage third-party providers and fintech integration, limiting adoption.  

European banks often develop APIs to meet the minimal compliance requirements and lack advanced functionalities. On the other hand, US banks struggle with consistent API solutions due to the absence of standard guidelines. 

One of the examples of advanced API functionality is real-time payment initiation and confirmation. It allows fintech apps to execute and verify transactions instantly, enhancing user experience. Other advanced features include personalized financial insights that analyze spending habits, smart authentication flows with biometric login, and Variable Recurring Payments (VRP) for flexible, user-approved transactions. These go beyond compliance, driving fintech adoption and innovation. 

Why it matters? Without developer-friendly APIs, fintech companies and developers may hesitate to integrate or avoid them altogether. This results in damaging banks’ reputations and stifling future partnerships. 

How to solve it? 

Delivering high-quality APIs increases fintech adoption, encourages innovation, and positions banks as technology leaders. 

Mistake 3. Weak cybersecurity and consent management 

Open banking requires robust security and clear consent management, yet many banks struggle with the following: 

Why it matters? Expanding API access without proper vetting can expose banks to cybersecurity threats. Just because open banking encourages third-party integration does not mean all providers should be granted access. Weak screening processes can introduce vulnerabilities. This increases the risk of data breaches and regulatory violations. For example: 

How to solve it? 

Here are some examples illustrating the implementation of advanced security measures in open banking:​ 

Prioritizing cybersecurity not only fosters trust but also ensures the long-term adoption of services. It helps to protect sensitive data and maintain the integrity of systems. 

Mistake 4. Failing to modernize legacy banking systems 

Outdated core systems limit banks’ capacity to deliver innovative open banking solutions. EU banks frequently encounter expensive modernization costs, while US banks struggle to connect modern APIs with legacy platforms. 

Why it matters? Antiquated systems hamper flexibility, slow innovation, and increase operational costs, making banks less competitive. 

How to solve it? 

Banks investing in modern infrastructure can quickly deploy innovative services and remain competitive in a digitally driven market. 

Mistake 5. Overlooking real-time payments and data sharing 

Instant transactions and timely data updates are now industry standards, yet banks still depend on outdated batch processing.  

European PSD2 implementations often lack real-time capabilities, and SEPA Instant adoption remains uneven across the EU. In the US, real-time payment options are similarly fragmented. While FedNow (US) was introduced to enable instant payments, adoption has been slow due to high implementation costs, ongoing fees, and fraud concerns.  

Many banks still rely on solutions like Zelle (US), which, despite its growth, operates on legacy infrastructure and is not fully real-time. 

Why it matters? Delayed payments and outdated data can lead to frustration for customers, as they may not have access to real-time transaction information. This can affect their ability to make timely financial decisions and can diminish the overall experience of using banking services. 

How to solve it? 

Real-time capabilities improve customer satisfaction by offering instant transactions and up-to-date account information. It nurtures the trust and loyalty of the customers. 

Mistake 6. Neglecting customer experience 

A complex and frustrating user experience is one of the biggest barriers to open banking adoption. In the EU, banks often overcomplicate consent flows due to strict regulations. While in the US, some banks fail to clearly communicate how customer data is used, leading to distrust.​ 

A report by Mastercard highlights that building trust is crucial in open banking. The survey delves into open banking usage, drivers and barriers to adoption, and emphasizes that transparent data usage policies and simplified consent processes are essential for fostering trust and encouraging wider acceptance of open banking services. ​ 

Why it matters? Poor user experiences lead to a reduction in trust, lower adoption rates, and decreased engagement. 

How to solve it? 

A positive, clear customer experience is critical to increasing user adoption and trust in open banking. Simplified consent flows, transparent data usage policies and user-friendly interfaces enhance the experience.  

Final thoughts on open banking  

Banks that proactively address these six common mistakes can fully leverage open banking’s potential. Financial institutions can stay ahead in an increasingly digital industry by prioritizing strategic growth, robust security, modern technology, real-time capabilities, and user-friendly experiences. 

Let us navigate open banking together. Get in touch today to explore how your institution can implement secure, scalable, and future-ready open banking solutions.