When European regulators introduced PSD2 in 2018, industry analysts predicted banking Armageddon. Forcing banks to share customer data through APIs would disintermediate incumbents, the thinking went, allowing fintechs to capture the customer relationship.

Seven years later, traditional banks remain the backbone of financial services. Open banking now exceeds 11 million active users in the UK alone. The banks that struggled did not fail because of regulatory mandates. They failed because of internal dysfunction, specifically inadequate pricing governance that left them unable to respond strategically to competitive pressure.

The Open Banking Promise and Reality

Open banking regulation aimed to increase competition by giving consumers control over their financial data. The European Payment Services Directive (PSD2) mandated that banks provide third-party access to customer account data through secure APIs.

Account information service providers and payment initiation service providers gained legitimate pathways into previously walled gardens. The directive introduced transparency requirements and stronger security standards while opening markets to new entrants with innovative value propositions.

Yet the predicted banking apocalypse never materialized. The five largest European banks continue to dominate their markets. UK challenger banks have grown, but primarily by serving segments that traditional banks neglected rather than by displacing incumbents from their core customer bases.

In the United States, where open banking evolved through market forces rather than regulatory mandate, large banks have maintained their positions while selectively partnering with fintechs. The regulatory framework created competition but did not fundamentally alter market structure in the ways critics feared.

What Actually Threatened Banks

The institutions that lost market position or profitability in the open banking era shared common characteristics having nothing to do with API mandates. They lacked visibility into their own cost structures. They priced products without understanding unit economics at the customer or transaction level. They responded to competitive pressure with reactive discounting rather than strategic positioning. They operated without the pricing governance frameworks necessary to make consistent, profitable decisions across channels and customer segments.

These weaknesses existed before open banking and were merely exposed by increased competition.

Consider interchange economics. When competitors introduced low-cost payment alternatives, banks with robust pricing governance could analyze the impact, model responses, and adjust strategically based on data.

Banks without such capabilities either ignored the threat until margins collapsed or panicked into unprofitable price matching that destroyed value. The difference was not technology or regulatory advantage but internal discipline around pricing decisions and the governance structures supporting those decisions.

The Anatomy of Pricing Governance

Effective pricing governance connects multiple organizational functions around a common framework with clear accountability. Finance provides cost visibility and margin analysis. Product teams understand customer value perception and competitive positioning.

Risk management ensures pricing decisions account for credit and operational exposures. Technology enables the data infrastructure necessary for analysis and execution. The UK Financial Conduct Authority has emphasized that open banking should support competition while ensuring consumer protection, and robust pricing governance helps institutions achieve both objectives simultaneously.

Banks with mature pricing governance operate with clear decision rights and escalation paths. They maintain pricing committees with cross-functional representation meeting regularly to review market conditions and competitive dynamics.

They establish approval thresholds that balance agility with control. They create feedback loops, ensuring pricing decisions are monitored for outcomes and adjusted based on market response. This infrastructure existed in well-run banks before open banking and proved essential in navigating the competitive intensity that followed regulatory changes.

The Regulatory Dimension

Pricing governance has become increasingly relevant to regulatory compliance beyond competitive considerations. The Consumer Financial Protection Bureau’s Personal Financial Data Rights rule in the United States requires pricing transparency when consumers exercise their data portability rights.

The upcoming PSD3 framework in Europe will strengthen consumer protections around pricing disclosure. Regulators increasingly view pricing practices as conduct issues requiring supervisory attention and enforcement action when standards are not met.

This regulatory trajectory means pricing governance is no longer merely a competitive advantage but a compliance necessity that cannot be ignored. Institutions must demonstrate they have structures in place to ensure pricing decisions are made consistently, documented appropriately, and aligned with fair treatment principles.

The banks that invested in governance infrastructure before regulatory pressure intensified found themselves well-positioned to respond. Those that treated pricing as an ad hoc activity scrambled to build capabilities under time pressure and regulatory scrutiny.

Case Study: The Governance Gap

The contrast between institutions with and without pricing governance became visible as open banking matured and competitive dynamics intensified. Banks with governance frameworks could evaluate whether to charge for API access, how to price premium data services, and when to match competitor offerings based on sound analysis rather than instinct. They had the analytical capability to understand which customer segments were profitable, which were vulnerable to competitive offers, and which merited defensive pricing investments to retain.

Banks lacking governance frameworks made pricing decisions reactively and inconsistently across the organization. Different business units offered conflicting prices for similar services without coordination.

Relationship managers discounted without visibility into the full customer relationship economics they were affecting. Pricing exceptions proliferated without systematic review or approval. The cumulative effect was margin erosion that had nothing to do with open banking mandates and everything to do with internal dysfunction that open banking competition merely accelerated.

Building Governance for the Open Banking Era

Institutions seeking to strengthen pricing governance should begin with visibility into their current state. Understanding true cost-to-serve by product, channel, and customer segment provides the foundation for defensible pricing decisions that can withstand competitive pressure. This requires investment in data infrastructure and analytical capabilities that many legacy systems cannot support without modernization.

The European Parliament’s payment services framework revisions emphasize the importance of transparent pricing as markets evolve, and institutions need internal capabilities to deliver this transparency to regulators and customers alike.

Governance structures should include clear ownership of pricing decisions, defined approval processes, and regular review cadences that match market dynamics. Pricing committees should include senior representation from finance, product, risk, and commercial functions with authority to make decisions.

Decision documentation should capture the rationale, expected outcomes, and monitoring approach for significant pricing actions. Exception processes should exist but with sufficient controls to prevent erosion of pricing discipline over time.

The Competitive Imperative

Open banking created competitive intensity that exposed institutional weaknesses that had accumulated over decades of stable market conditions. The winners were not necessarily those with the best technology or most innovative products. They were institutions with the pricing governance capability to respond strategically rather than reactively to new entrants and changing customer expectations. They maintained margins while growing relationships. They priced defensively where necessary and captured premium where possible.

As open banking evolves into open finance, extending data sharing beyond payments into investments, insurance, and pensions, pricing governance will become even more critical to institutional success. Organizations must manage pricing across an expanding product set with increasing transparency requirements and customer sophistication. Those without governance infrastructure will find competitive disadvantage compounding as the scope of data sharing expands.

Conclusion

Open banking did not kill banks. Poor pricing governance did. The institutions that struggled shared common weaknesses in their ability to understand costs, make consistent pricing decisions, and respond strategically to competition. Building pricing governance capability is no longer optional for financial institutions seeking long-term viability. It is the prerequisite for surviving and thriving in markets where data flows freely and competition intensifies continuously.