The Open Banking Paradox: Why Italy's Banking Oligopoly Remains Unbroken

Regulatory frameworks often look revolutionary on paper but mundane in practice. The Second Payment Services Directive (PSD2) was sold to the European public as the great equalizer—a mechanism to shatter the opaque fortresses of traditional banking and foster a pan-European ecosystem of agile financial predators. Italy, with its historically fragmented yet top-heavy banking sector dominated by giants like Intesa Sanpaolo and UniCredit, should have been the prime testing ground for this disruption. Yet, halfway through 2026, the data suggests that open banking has not dismantled the oligopoly; rather, it has allowed incumbents to reinforce their position by monetizing their own infrastructure while maintaining a stranglehold on customer relationships.

Myth: Standardized APIs Guarantee a Level Playing Field

The pervasive narrative assumes that once banks were forced to open their APIs (Application Programming Interfaces), the market would automatically flatten. The reality in Italy is far more complex. Compliance with PSD2 does not equate to openness in spirit. While the Banca d'Italia confirms that over 98% of payment service providers have met the technical regulatory standards, the quality of access remains a decisive bottleneck.

Third-party providers (TPPs) report significant disparities in API performance compared to the banks' proprietary interfaces. According to the European Banking Authority’s 2025 monitoring report on PSD2, Italian ASPSPs (Account Servicing Payment Service Providers) consistently show higher latency rates and lower uptime for third-party access than for their own internal applications. This "slow lane" strategy subtly degrades the user experience for fintech apps, nudging customers back to the native banking environments where data retrieval is instantaneous. The regulation mandates access, but it does not effectively mandate performance parity, allowing incumbents to technically comply while strategically obstructing.

The Illusion of Market Fragmentation

On the surface, the Italian fintech landscape appears vibrant. The number of authorized payment institutions and electronic money institutions has tripled since 2020. However, volume does not equal competition. A granular look at the market share data reveals that the vast majority of these new players are not originating loans or holding deposits; they are offering thin wrappers around banking services provided by—guess whom—the traditional banks.

Many of these "competitors" rely on Banking-as-a-Service (BaaS) agreements where the underlying balance sheet remains with the legacy institution. This creates a symbiotic, rather than adversarial, relationship. The fintech acquires the customer interface, but the incumbent retains the interest rate spread and the data control. Consequently, the Herfindahl-Hirschman Index (HHI), a standard measure of market concentration used by the European Commission, has remained stubbornly high for Italian retail lending, barely budging from pre-PSD2 levels.

Interest Rate Margins Remain Untouched

If open banking were truly driving competition, one would expect to see compression in the net interest margins for Italian households, as smaller players compete for deposits and offer cheaper credit. This has not materialized. While the European Central Bank has navigated a volatile rate cycle, the spread between the deposit facility rate and the average lending rates in Italy remains among the widest in the Eurozone.

Traditional banks utilize open banking data not to lower prices, but to enhance credit scoring precision, thereby increasing the profitability of their loan books with reduced risk. They use the data feeds from account information service providers (AISPs) to cross-sell their own insurance and investment products, effectively turning the open banking mandate into a lead-generation tool for their existing sales engines. The result is a smarter bank, not a cheaper one for the consumer.

Consumer Behavior: The Trust Deficit

Regulation can change technical protocols, but it cannot easily rewrite cultural behaviors. Italians exhibit a high degree of loyalty and trust toward established local banks (banche locali) and historical brands. Despite the digitization push, physical branches remain a critical touchpoint. Data from ABI (Associazione Bancaria Italiana) indicates that over 60% of new mortgage origination in Italy still involves at least one face-to-face meeting at a branch.

Fintechs, regardless of their UI sophistication, struggle to replicate this trust factor. Open banking requires the user to grant explicit consent to share their financial data across platforms. Privacy concerns are acute. A 2025 survey conducted by the European Commission’s Directorate-General for Justice and Consumers found that Italian respondents are among the most hesitant in the EU to authorize third-party data access, viewing it as a security risk rather than a convenience. This behavioral friction acts as a natural moat around the incumbents.

The PSD3 Precedent: More Regulation, Same Outcome?

Policymakers in Brussels are already gearing up for PSD3 and the Financial Data Access (FiDA) framework, aiming to close the loopholes of the previous iteration. The hope is that stricter rules on "screen scraping" versus "dedicated interfaces" and liability frameworks will finally unleash competition. However, viewing Italy's track record, increased regulatory granularity often benefits large institutions that have the legal and compliance budgets to adapt, while squeezing smaller innovators.

Just as we have seen in other sectors where regulatory goals diverge from market incentives, the sheer volume of compliance costs can cement the position of large players. If the transaction costs of adhering to the new FiDA specifications are prohibitive for a fintech with €5 million in revenue but negligible for Intesa Sanpaolo, the regulation inadvertently reduces competition by acting as a barrier to entry.

The Verdict on Italy's Fintech Experiment

The structural issue in Italy is not a lack of data access; it is the lack of separation between infrastructure and commerce. As long as the incumbents own both the pipes (the bank accounts) and the services (the loans and investments), open banking serves primarily as an efficiency tool for the dominant players rather than a disruption mechanism. True competition would require aggressive enforcement of data reciprocity and potentially unbundling the account layer from the credit layer—a political non-starter in Rome. The open banking revolution, in the Italian context, has been less of an overthrow and more of a palace renovation.

Sources

To dig deeper and verify the data, see:

• European Banking Authority
• European Commission
• Wikipedia