Open Banking and PSD2: How European Regulations Are Reshaping Travel Payments

Understanding PSD2 and Open Banking

The European Union’s Revised Payment Services Directive (PSD2), which came into full enforcement in 2019, is one of the most consequential pieces of financial regulation affecting the travel industry. At its core, PSD2 requires banks to open their customer account data and payment initiation capabilities to licensed third-party providers (TPPs) via secure Application Programming Interfaces (APIs). This regulatory mandate created what is commonly known as “Open Banking”—a framework where consumers can authorize non-bank entities to access their account information and initiate payments directly from their bank accounts.

For the travel industry, Open Banking introduces a fundamentally new payment channel that sits alongside—and in some cases replaces—traditional card-based payments. Instead of entering a credit card number at checkout, a traveler can authorize a direct bank-to-bank transfer, initiated by the travel merchant through a licensed Payment Initiation Service Provider (PISP). This account-to-account (A2A) payment bypasses the card networks entirely, eliminating interchange fees, reducing fraud risk, and settling funds faster.

How A2A Payments Work in Travel Checkouts

The mechanics of an Open Banking payment in a travel booking flow are straightforward from the consumer’s perspective but involve sophisticated backend orchestration. When a traveler reaches the checkout page of a flight or hotel booking, they select “Pay by Bank” alongside traditional options like Visa, Mastercard, or PayPal. Upon selection, the following process occurs:

1. Bank Selection: The traveler is presented with a list of supported banks or a search bar to find their bank. Major European banks are all connected to Open Banking APIs.
2. Authentication: The traveler is redirected to their bank’s secure mobile app or online banking portal, where they authenticate using their existing banking credentials (password, fingerprint, or face recognition). This is Strong Customer Authentication (SCA) as required by PSD2.
3. Payment Confirmation: The traveler reviews the payment details (amount, merchant name, reference) and confirms the payment within their banking app. The bank initiates an instant credit transfer to the merchant’s account.
4. Booking Confirmation: The PISP receives real-time confirmation of the payment from the bank and notifies the travel merchant, who immediately confirms the booking.

The entire process typically takes less than 30 seconds and does not require the traveler to enter any card numbers, CVV codes, or billing addresses. For the merchant, the payment settles via instant payment rails (like SEPA Instant Credit Transfer in Europe), meaning funds arrive in their account within seconds rather than the 2 to 3 business days typical of card settlements.

Cost Advantages for Travel Merchants

The economic case for A2A payments in travel is compelling. Traditional card processing involves multiple intermediaries—the card network, the issuing bank, the acquiring bank, and the payment gateway—each taking a cut. Total merchant costs for card transactions typically range from 1.5% to 3% of the transaction value. For a €500 flight booking, this translates to €7.50 to €15 in processing fees.

A2A payments via Open Banking dramatically reduce these costs. Since the payment moves directly between the customer’s bank and the merchant’s bank, there are no interchange fees or card network assessment fees. The PISP charges a flat fee (typically €0.10 to €0.50 per transaction) or a small percentage (0.1% to 0.3%). For the same €500 booking, the merchant pays €0.50 to €1.50—a reduction of 80% to 90% compared to card processing.

For budget airlines and high-volume OTAs operating on thin margins, this cost reduction is transformational. A low-cost carrier processing 50 million bookings annually could save tens of millions of euros by shifting even a fraction of its payment volume from cards to A2A.

Fraud Reduction and Chargeback Elimination

Beyond cost savings, A2A payments virtually eliminate chargeback risk. Card payments are “pull” transactions—the merchant pulls funds from the cardholder’s account, and the cardholder can later dispute the charge. A2A payments are “push” transactions—the customer actively initiates and authenticates the payment from their own banking app. Because the customer explicitly authorizes each payment with their banking credentials (satisfying SCA requirements), the risk of unauthorized transactions is near zero, and the concept of chargebacks does not apply to bank transfers in the same way it does to card payments.

This is particularly valuable for travel merchants, who face higher-than-average chargeback rates due to the high ticket values, advance purchase nature of travel, and the prevalence of friendly fraud in the sector.

Challenges and the Road Ahead

Despite its advantages, Open Banking adoption in travel remains in its early stages. Key challenges include inconsistent API quality across banks (some banks offer slower or less reliable connections), limited consumer awareness of the “Pay by Bank” option, and the lack of a built-in refund mechanism (refunds must be processed separately by the merchant, unlike card refunds which flow back through the network automatically).

However, as consumer familiarity grows, API standards mature, and Variable Recurring Payments (VRPs) enable more flexible Open Banking use cases (like subscription billing and installment plans), A2A payments are poised to capture a significant share of European travel payment volume over the next five years.