One of the key motivations behind Open Banking has been to enable the growth of alternative payment methods to cards.
A new report demonstrates that the policy drivers, the industry development and the innovation have all worked together to deliver that alternative in the form of Open Banking payments.
The simplicity of the Open Banking payment chain, made possible by API technology, is key to the cost savings, reduced fraud and improved conversion for merchants.
It also increases convenience for consumers, who increasingly want to make and receive all payments instantly and seamlessly.
The development of capabilities for instant refunds will enable Open Banking to be used successfully in e-commerce. At the same time, the growth of e-commerce is beginning to show merchants’ reliance on card payments creates problems of its own.
Card schemes and the chargeback approach, which is the target of increasing fraud and which suffers from slow resolution, will only further impact merchants if they are unable to add new payment methods to their checkout as e-commerce payments continue to grow.
Strong customer authentication (SCA), while seamlessly integrated into Open Banking payments, is also creating issues for merchants who collect card payments, as SCA is retro-fitted onto an existing and ageing infrastructure.
So while e-commerce merchants will continue to feel the pain of collecting card payments, Open Banking payments are truly ready for launch.
This research report examines the development of Open Banking payments (payment initiation services) since PSD2 (2015) and looks at the most important reasons why this payment method is becoming a competitive alternative to card payments.
The report finds that:
- Open Banking has led to the emergence of new payment providers with the potential to challenge the dominance of card networks.
- The growth of Open Banking payments has been encouraged by the decline of cash in retail transactions (which fell by 35% between 2019 and 20201); the expansion of e-commerce; and an increased focus from policymakers on the persistently high costs of card acceptance.
- Greater competition between open banking payments and card payments is likely to bring significant benefits to merchants and consumers. These benefits include:
- Lower merchant fees for accepting electronic payments
- Reduced risk of unauthorised payments and fraud, thanks to embedded strong customer authentication (SCA) and pre-populated payment details
- Increased convenience for consumers (and conversion rates for merchants) as a result of shorter payment journeys
- Non-card payment providers in other countries with similarities to open banking payment providers have achieved high take-up rates, strong popularity with consumers, low fees and low fraud rates. These providers include:
- Bank schemes such as iDEAL (Netherlands) and Swish (Sweden)
- Third-party providers such as SOFORT (Germany)
- Open Banking provides digital payments for a digital age. It reduces the number of parties to transactions, increasing efficiency and speed, which should translate into customer satisfaction.
The post Open Banking payments to overtake card payments for e-commerce? appeared first on Payments Cards & Mobile.
