Open Banking is a massive opportunity for marketplaces

Online marketplaces may be the greatest business success story of the last twenty years. Perhaps the most well known are Amazon – revenue $477 billion last year, up 14% – eBay (2021 revenue $10.27 billion) and AirBnB ($4.7 billion).

Despite their stratospheric growth, a new white paper from leading Open Banking network and payments platform Plaid argues that Open Banking presents an opportunity for marketplaces to further boost their growth ambitions.

The white paper, How Open Banking is forging a new era in payments in Europe identifies two features enabled by Open Banking that it says will accelerate revenue growth by making payment faster, easier and more secure, while facilitating merchant onboarding and account verification.

Open Banking: from concept to reality

Launched in 2018 under the banner of the EU’s second payments directive (PSD2), Open Banking aims to democratize financial services by mandating banks to share their customer data, and open up their Application Programming Interfaces (APIs) to third parties, enabling better customer authentication, faster and easier payments, improved security and above all a whole new range of innovative services for customers.

Open Banking services are now exploding across Europe, with the number of users in the UK alone growing by 20% per month, and full Open Banking infrastructures being implemented across the Nordics, France, Germany and other markets.

Account Information Services: reduced friction, easier onboarding

Account Information Services (AIS) are one of the new features enabled by Open Banking that will be of particular interest to marketplaces, principally when it comes to onboarding new merchants and/or resellers.

A marketplace’s bank or PSP can use AIS services to streamline the due diligence process by verifying a new merchant’s account details via an open banking call on their bank. This practice reduces laborious online or physical form-filling and also cuts the time taken to confirm user identity.

Typically, PSPs use microdeposit methods – where users have to confirm two small account deposits – to verify identity. Account Information Services provide instant identity verification and streamlines a slow, manual experience.

Online marketplaces will find AIS services particularly effective as they seek to onboard new sellers – and with the number of digital merchants set to expand by 30% over the next five years^[1], faster, simpler onboarding will be essential.

In their 2020 Global Payments Report, McKinsey & Co^[2] expect digital merchants – and in particular smaller digital merchants – to capture the highest share of new revenues over the three years to 2023, experiencing CAGR of 22% over this period.

A marketplace’s bank or PSP can also use AIS services to verify a merchant’s account details via an API call in the event that customers request refunds of payouts to new or existing bank accounts, saving considerable amounts of time and money by using AIS to confirm the end user’s bank account compared to manual and/or online verification.

The white paper also explains how marketplaces can use Payment Initiation Services (PIS), another function enabled by Open Banking, to unlock higher conversion rates, drive lower fraud rates and simplify the payments experience for all parties. PIS operate online and are used to initiate a bank transfer from an end user’s account with their explicit authentication and authorization using bank-level security to deliver an easier, safer and smoother payments process.

To find out more about the Open Banking opportunity for marketplaces, download a copy of  How Open Banking is forging a new era in payments in Europe now.

[1] Data taken from the European Overview, Payments Cards and Mobile’s Digital and Card Payment Yearbooks 2022

[2] See McKinsey & Co, The Global Payments Report 2020

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