Paying the future forward: Open banking takes centre stage
“Open banking is transforming how businesses and customers interact with financial data. Customers have more control over who has access to their personal data, and greater visibility on their transactions and account balance,” writes Donal McGuinness, CEO of Prommt
Businesses and customers share a common goal at checkout – they both want speed, security, convenience and control. The old way of banking is not aligned with these expectations. Merchants send their bank details in a PDF asking customers to set them up as a payee, and then payers manually input lengthy IBANs to complete the transaction. All of this is time-consuming and prone to human error.
In a world where instant gratification is the norm, it’s time for a lasting change. The stage is set, and the spotlight is on open banking.
Hybrid Shoppers want Control and Frictionless Payments
Today’s shoppers don’t want a checkout that feels like a chore. They expect quick payment options as they shop across physical stores, online platforms, and virtual experiences. They have little tolerance for a clunky checkout process, especially one that demands the tedious input of sensitive card or bank details. 51 percent of Millennials and 48 percent of Gen Z will abandon a purchase if their preferred payment method isn’t available. They want ‘invisible’ payments seamlessly integrated into their daily grind, and the freedom to make payments at their convenience, from any location, and using any device.
Customers want to call the shots over their entire shopping experience, including who has access to their financial data at checkout. They are looking for payment options that are user-friendly and mobile-optimised, letting them authenticate with a tap on their banking app without spilling sensitive details. It’s about a payment experience that’s native, trustworthy, and hands them the control they crave.
Beyond Borders: Addressing IBAN Discrimination for Financial Inclusivity
Despite its ban in 2014, IBAN discrimination remains an unwelcome gatekeeper to smooth payments. When banks reject an IBAN for euro payments based on its country code, it leads to discrimination against payers using foreign or payment service provider IBANs. The repercussions ripple through businesses, paytechs, and payers, compelling everyone to tether themselves to local IBANs. This is a huge obstacle for a growing payments ecosystem.
Open banking is leveling the playing field by making IBANs more ‘invisible’, while facilitating instant and secure payments. As easy as sending an email, I don’t need to know the sending and receiving IP addresses. It all happens in the background. I just need to authenticate.
The Rise of Open Banking Payments
Speed, security, convenience and control. Open banking meets these expectations for businesses and customers alike. It eliminates the complexities of sharing IBANs and manually adding payees, replacing them with a straightforward ‘pay by bank’ link or an embedded website button.
With open banking, businesses can enjoy lightning-fast, hassle-free payments directly from their customers’ bank accounts. They are able to cut costs significantly and protect precious margins, by significantly reducing high transaction fees, card fraud and chargebacks, and payment operation costs associated with time-consuming bank transfers, drafts or cheques. The result? Faster settlement and quicker access to funds.
Open banking payments is a game-changer for high-value transactions as it eliminates chargebacks. Projections indicate a 61 percent reduction in fraud by 2024, thanks to advanced encryption and real-time authentication through open banking APIs. We are seeing that the average transaction value (ATV) for an open banking payment (£4,040) is four times higher than the ATV for a card transaction (£990). We’ve had a 100 percent increase in adoption rates in just the past six months, as merchants begin to enjoy substantial cost savings and see a positive response from their customers. Automotive being the top performing industry for open banking transactions, with a highest single transaction value of €72,714.25, followed closely by Luxury Retail, Hospitality and Hardware.
Open banking is transforming how businesses and customers interact with financial data. Customers have more control over who has access to their personal data, and greater visibility on their transactions and account balance. They don’t need to share complex IBANs and account numbers, which reduces the risk of human error and fraud. With open banking, they simply select their bank, log in to their banking app, and confirm the payment in a native environment. On a mobile device, this is just a few clicks.
It’s safe to say that open banking is here to stay. According to Juniper Research, the global value of open banking-powered payments will surpass $330 billion USD by 2027, up from $57 billion USD in 2023. Emerging use cases like bill payments are predicted to contribute over $59 billion USD in global transaction value by 2027, further increasing its potential.
Paytechs meet merchant and payer priorities of control and frictionless payments head-on. With the right payments solution, businesses can drive profitability with smooth bank and card checkouts that follow their customers wherever they are, however they want to pay. Whether this be through SMS, email, web chat, messaging apps or directly on their website.
Innovative paytechs offer businesses a range of controls, allowing them to present open banking, card, and other payment methods to their customers based on location, purchase type, and transaction value. Payment orchestration controls increase open banking adoption, which in turn enables merchants to save on high card processing fees, eliminate chargebacks, and boost payment volumes.
This isn’t just about successful payments; it’s a strategic move for businesses. A paytech toolkit with live tracking, reporting, and comprehensive analytics equips businesses to unravel purchase trends and preferred payment methods. With automated features like chase paths, reminders, recurring and group payments – this insight-driven approach allows you to make better decisions, reduce payments admin, and build lasting customer relationships.
In a nutshell, open banking and paytech innovations are steering us away from tedious bank transfers. The road ahead promises speed, security, convenience and control, turning payments (card or bank) into a natural extension of brand identity.