Europe’s banking landscape today looks significantly different than it did just a few years ago, largely defined by new regulations that have emerged in response to consumers’ shifting financial behaviors. 

Payment Services Directive 2 (PSD2) and its successor, Payment Services Directive 3 (PSD3), for example, have transformed open banking from a niche capability into a mainstream use case that millions of consumers are now using to gain better visibility into their personal data and finances. Further, the updated Single Euro Payments Area (SEPA) rules were adopted to meet customer and merchant demand for safe and secure real time payments. 

Meanwhile in the U.S., similar demands for new digital financial experiences have caught regulators’ attention. Increased adoption of instant payments, for instance, led to the launch of FedNow in July 2023. In introducing the country’s first federally-regulated instant payments network, banks and financial institutions can now compete against unregulated fintech offerings. 

But while this represents a significant step forward in U.S. finance, the country hasn’t yet seen the same rate of adoption of new financial capabilities that are taking hold of Europe and other global markets. And there is still work to be done from a regulatory perspective as well, with regulations around open banking still under development through the end of 2024 at least.

Fortunately, U.S. banks and financial institutions that want to get ahead of emerging trends—and resulting regulations—are not without a roadmap. By looking across the pond at the financial experiences that are currently taking shape in Europe, these organizations not only have a preview into what’s to come, but can gain insights into the most efficient ways to go about their transformation strategies.

Below are three of the leading trends already promising to transform U.S banking, and what banks can learn from similar experiences in Europe in order to prepare:  

Open Banking Lays the Foundation for Larger Banking Transformation Across the U.S. 

Open banking demand in the U.S. has primarily been driven by market need—not regulations. As it stands now, banks and financial institutions have to work with fintech partners or other third parties to integrate open banking into their offerings, since there is no regulated system that allows them to offer it on their own. 

But this may soon change. Recent discussions around the CFPB's Personal Financial Data Rights proposal are aiming to accelerate the shift to open banking by establishing strong financial data rights and protections that will enable banks and consumers to securely share financial data between parties.

In doing so, consumers will be able to more easily and securely share their data between any organization—whether that’s a bank, financial institution, fintech or other third-party financial services provider. Banks and financial institutions, on the other hand, will in turn be able to provide more personalized financial experiences to their customers based on that data—which has historically been inaccessible to them due to regulatory constraints.

Some banks may choose to develop these new financial experiences on their own, while others may prefer to continue their partnerships with fintechs, providing them with the data they need to innovate and create new capabilities and allowing banks to continue focusing on traditional financial services. Based on Sopra Banking Software’s research, 74% of banks around the world see these collaborative models as valuable to their future strategies.

In addition to bringing the U.S. onto a playing field that more resembles that of Europe, where open banking is a regulated service that any bank or financial institution can offer, new open banking regulations and their resulting capabilities can provide U.S. financial institutions with a competitive edge through new capabilities and streams of revenue that offer them a leg up in a crowded market.

FedNow Can Transform Instant Payments At Scale—If U.S. Institutions Get It Right

U.S. consumers are not strangers to instant payments. After all, the current players in this space including  Zelle, The Clearing House’s RTP network, Visa Direct, Mastercard SendTM, Venmo, Paypal and Square process more than $900 billion in annual real-time transaction volume. 

Still, these transactions are facilitated through third parties (separate from the consumer’s main banking provider) and lack the direct security and compliance oversight that holds federally-regulated banks to a higher standard than fintechs and other financial service providers. The emergence of FedNow changes this by providing an opportunity for all U.S. banks to offer real-time payments directly to their customers through a central, regulated system. 

The challenge, however, is getting consumers to transition away from the services they’ve become accustomed to in order for FedNow to see the same level of adoption as these other services. And because integrating with FedNow means that banks have to offer instant payments themselves, rather than handing them off to a third party, many are facing various technological challenges in building new capabilities on top of their internal legacy systems.  

In Europe—where offering instant payments is now federally-mandated practice for all banks and financial institutions—organizations are finding that digital, cloud-based infrastructures offer them the flexibility that they need to make instant payments part of their core offerings.

Compared to legacy systems that require routine downtime and manual oversight, these modern architectures provide autonomous, around-the-clock services that enable consumers and businesses to transact in real-time at any time, from anywhere. They’re also highly scalable, which means that organizations can easily accommodate more and more transaction volume through SEPA, FedNow, or any other service as they increase in adoption.

U.S. banks and financial institutions will need to undergo these same transformations as they work to adjust to evolving regulations—and ultimately, outpace the instant payments offerings of other banks, as well as their non-bank competitors.

Businesses and Banks Alike 

The ability to transfer funds directly from one account to another through pay-by-bank is another payment option that’s seeing far less adoption in the U.S. than overseas. European financial service provider Klarna, for example, recently launched a new pay-by-bank feature that enables consumers to bypass card networks and pay directly from their bank account with the click of a button.

One of the main reasons for the quieter landscape in the U.S. is the lack of standardized open banking frameworks that has made it difficult to share data and account information between institutions, and then enable quicker and more effective payments directly from bank accounts. 

Once these systems are in place, banks and financial institutions will be able to demonstrate to their customers how pay-by-bank presents a more attractive offering than other payment methods for consumers and businesses alike, thanks to its ability to eliminate card processing fees and lengthy transaction approvals. 

From there, they can leverage open banking to streamline processes and make pay-by-bank a secure, and compliant offering that customers can leverage for their everyday expenses, bill pay and more. 

Taking a look at the experiences of banks and financial institutions in Europe and other global markets can offer U.S. organizations tangible evidence of the financial capabilities that are on the horizon 

Making internal preparations to capitalize on the latest open banking, instant payments and pay-by-bank capabilities isn’t just a matter of staying ahead of trends—but protecting financial institutions’ overarching market share, reputation and compliance standing.