Open banking has revolutionised the world of payments, providing users with a range of hassle-free instant payment options and a number of tools to make managing their finances easier. It also involves benefits for businesses, making collecting payments more efficient and cutting costs by automating what were previously manual processes. And by making sure the payment process is no longer a headache, open banking is making it more likely that people actually go ahead with their purchases and become repeat customers.
Let’s take a look at what open banking actually is and run through three examples of how firms are using it to the benefit of their customers.
What exactly is open banking?
Open banking is a new way for people to manage and spend their money, and in turn for banks and other financial institutions to provide a much-enriched range of digital products and services. It enables banks and other institutions to access the financial information of customers who give their consent more easily than has ever previously been possible. This exchange of data takes place through Application Programming Interfaces. Better known as APIs, they’re essentially computer programs that make it easy for banks to communicate with each other.
Now let’s consider three ways open banking is helping businesses make their customers’ lives easier.
Three ways open banking can help you improve your customers’ payment experience:
Quicker transaction times
Consumers hate problems when they’re checking out online. One report suggests that the cart abandonment rate on mobile devices is a massive 84%. Clearly, anything that helps businesses reduce this figure could provide a big boost to their sales.
Open banking has a big role to play in making the online payment process smoother for everyone. Customers no longer need to type in their card details – all they need to do is click on a secure link or QR code from the firm they’re buying from, select their bank and approve the payment.
With open banking payments just requiring a few clicks they’re a doddle on a mobile, so the big benefit for businesses is that conversion rates are much higher. They also cut costs as there are no card processing charges to pay, and they generally settle instantly – unlike card payments, which normally take 1-3 days to settle.
Extra security to give your customers peace of mind
Consumers are understandably eager to protect their finances, to the point that many are even unsure whether to actually shop online. In fact, a recent survey found that 83% of UK shoppers are concerned about their payment security when shopping online. By using open banking, businesses can provide their customers with the peace of mind that they need to pay online confidently. That’s because open banking gives customers full control over how their financial data is used, and who has access to it.
Single-use mobile payment methods, such as those that generate a link or QR code to receive payments instantly from customers, are a great example of open banking in action. They prevent the risk of human error that manual processes can involve, and businesses sending these payment links and codes have no access to the recipient’s log-in credentials or any of their personal bank account information. These methods enable customers to make instant online payments in a completely secure environment. Businesses can also use them to send payments such as refunds back to their customers without the need to know their bank account details.
Most businesses that offer online banking options still give their customers the choice of paying by card, and those who decide to use their card are much less likely to send money to the wrong account thanks to another open banking innovation – confirmation of payee. This helps prevent fraud and money being transferred to the wrong account by verifying whether the bank account details the customer inputs match those of the intended recipient before they make their payment.
Variable recurring payments - the open banking alternative to direct debits and subscription payments
Direct debits are regular, automated payments that are managed by a provider, not the customer. They’re a popular way for people to pay their bills, but they do involve some drawbacks – customers need to manually fill in a direct debit mandate to set them up and they have no control over how much is taken out of their account. What’s more, they’ll need to contact their bank or the business they’re buying from if they want to amend or cancel the direct debit, which can take some time.
Meanwhile, people often subscribe for things like gym memberships or streaming services using their card. In itself that’s easy enough, but it can be hard to keep up with what’s going out of their account because banks are unable to provide a list of all the subscriptions they’re paying for by card.
Variable recurring payments (VRPs) are a new open banking payment innovation that get around some of these problems. There’s no manual form-filling, saving customers time and reducing the risk of sending payments to the wrong account. Customers can control the maximum amount that can be taken from their account over a particular time period (whether that be per day, per month or per year) and also the date in the future when payments should stop. They can change these parameters or cancel the regular payment whenever they want, right up until the instant before a payment is made. And unlike subscriptions paid for by card, they’ve got full oversight of what’s leaving their account and the pre-defined limits.
The bottom line
Open banking has turbocharged the financial industry’s digital transformation, with customers increasingly expecting instant, secure and error-free payments as standard. Businesses need to satisfy their customers’ demand for fast, frictionless checkout experiences and novel payment options such as VRP to build trust and foster long-term relationships with them. This, in turn, should help them increase their sales, which means adopting open banking is a win-win for everyone.
Eligibility criteria and fees apply. You will need to sign up to Payit terms and conditions and hold an account with us. Fees are based on the volume and average value of e-commerce transactions. Speak to a NatWest Relationship Manager (where relevant) for further information, or request a call back.