APIs: OPEN BANKING
Shuffling the payments pack Ossama Soliman, Chief Product Officer at TrueLayer, on why open banking payments will replace cards online Open banking is set to have a big impact on online payments, and 2021 could be the turning point. The convergence of technology, regulation and economic conditions is giving open banking the momentum it needs to offer a mass-market alternative to card payments. As more customers have turned to digital channels to manage every aspect of their lives, they have experienced a poor payments service. The problem is cards, which weren’t designed for use online and have been retrofitted into current online payment flows. Newer, digital approaches, such as Google Pay or Apple Pay, paper over those cracks but don’t change the fundamentals. The introduction of strong customer authentication (SCA) adds another layer of friction to cards, with workarounds that deliver a poorer customer experience. Some studies have suggested that the impact on conversion could see Europe’s online economy lose €57billion. But with open banking payments, authentication is integrated into the payment flow, with the consumer often using biometrics such as fingerprint or face ID to identify themselves in their banking platform.
BUILDING A HEAD OF STEAM Digital banks were among open banking’s earliest adopters, using it to provide money management services to customers. It is adding value to a much wider range of businesses, from
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app-based investment and trading platforms, foreign exchange and remittances, to e-commerce and online gaming services – where card processing fees and manual bank transfers are stinging merchants. Open banking-enabled payments will become the default way to pay online, replacing debit cards and benefitting businesses and consumers. In our experience, they are already comfortable using open banking payments and they are increasingly displacing cards in customer checkouts. The open banking adoption figures in the UK speak for themselves. In mid-February 2021, the UK Open Banking Implementation Entity (OBIE) announced that more than three million people and businesses are using open banking-enabled apps and services in their daily lives. In 2020, the number of open banking users doubled to two million: it’s taken just five months to surge by another million.
Speed is also a big benefit. In many industries, slow payments are a long-standing source of frustration, complaints, bad reviews – and, ultimately, customer churn. A 2020 study from YouGov and TrueLayer, found that 60 per cent of customers are more likely to trust a provider that offers instant payments. In the case of services like online trading and investment platforms, around half of customers are likely to switch to a provider that offers instant withdrawals. There are, of course, challenges in introducing a new payment method that consumers aren’t used to. However, our clients typically find that open banking payments reach 30 per cent share of checkout within three months of launch. Customers paying this way also deposit 30 per cent more in value, and three times more often, than those using other methods.
BENEFITS TO THE CONSUMER The economics for the consumer are simple: it doesn’t cost anything but provides them with a lot more. How many times have you got to a payment step and realised you need to grab your card because you can’t remember the full number or CVV (card verification value) code? We’ve all been there. Open banking removes the need for customers to know their card details. Instead, payments are authenticated with their face or fingerprint on their mobile device, instantly and securely. Plus, they’ll never need to update stored details if their card is lost, stolen or expires. There’s also more protection as they’re less likely to be the victim of fraud, since open banking payments use bank-grade security. www.fintechf.com
