According to the Financial Times, more than 7 million UK customers are using open banking regularly to make informed financial decisions, access credit or make payments - and this is fast growing in countries beyond Europe. So what is open banking, what’s driving this growth, and what questions should you be asking when considering it as part of your payments strategy?
Open banking allows third-party financial service providers to access customer financial information and payment systems, with the customer's consent. It allows customers to share their banking data securely using open APIs (application programming interfaces).
Sharing financial data enables customers to access new financial products and services that better meet their needs, such as personalized financial advice, budgeting tools, and easier ways to manage their accounts across multiple providers. Open banking is also used to make payments, which involves the direct transfer of funds between bank accounts.
In 2022 there were 68.2m open banking payments, up from 25.2m in 2021. While this number is still a tiny fraction of payments overall, it’s growing around 10% month-on-month. But why are they becoming a popular choice for payments?
Account to account (A2A) payments are a form of direct payments, bypassing the traditional payment rails and presenting significant benefits for merchants. The cost of payment is both lower and more predictable, particularly in comparison to card payments and the complex pricing models based on cards. The security and convenience that this payment method ensures is a very competitive benefit in the market.
As a result, we will continue to see “Pay By Bank” solutions launch in the market. So far we’ve seen the likes of American Express, Volt and Monoova - to name a few - and all of which deliver real-time payments thanks to these open frameworks.
Primer is a unified platform for hundreds of payments and commerce integrations. Whether it’s expanding to new markets easily, increasing conversion, or optimising performance, our role is to empower our customers with the right payment strategy that works for them.
Open Banking is a popular item on the product roadmap. So if you’re considering implementing this technology, there are a few questions you should ask your selected providers.
1. What’s your coverage?
When selecting an open banking provider, it is crucial to take into account the geographical coverage offered. Electronic Funds Transfer (EFT) is primarily used in the United States, while Open Banking is primarily used in Europe. It is important to note that certain open banking players may have diverse coverage based on the number of banking providers they have integrated with. In some cases it's not just about the number of connections but also the breadth of connections too. This will translate into offering extensive coverage in any banked population.
Depending on your market demographics, you need to know the coverage breakdown across retail, business or corporate bank accounts and in each market. In summary, it’s critical that the open banking provider you choose has sufficient coverage in your target market to meet the needs of your customers.
2. What's the API uptime?
Ask for the percentage uptime of any given API integration. What happens in the event of a failure and what’s the fallback plan? Uptime can normally translate in a specific conversion rate based on the customer ability to access the required bank and complete the payment.
3. What is the customer journey?
Within the open banking journey, there are additional steps the customer needs to take to complete the payment successfully that provide a layer of security but - if not handled carefully - it could turn into a conversion disaster.
In Europe - does the customer have an easy way to check they can pay with their bank of choice?
In the US, when it comes to the customer account verification step, do they need to manually enter the IBAN and other information manually every time or there is a seamless journey for the returning customer
How is the redirect handled to let the customer complete the payment with their bank account?
4. What’s your payment strategy?
Consumers expect a high degree of personalisation and choice in their shopping experience – whether it’s a curated product selection or being able to pay where, how, and when they want. With one in five consumers abandoning their checkout when their preferred payment method is not available, merchants are under ever-increasing pressure to deliver the best possible experience to protect revenue and conversion while reducing checkout abandonment rates.
When looking for a cost effective method and almost instant settlement of funds, account-to-account payments is a payment option that merchants should explore within their payments stack.
5. What’s your business model?
Depending on your business model, the ability to offer recurring subscriptions or refunds could be critical. Would one provider be compatible with your business model and meet your business use case requirements? If you are expanding into different geographies and would like to offer different flows such as EFT/ ACH, RTP and recurring payments - does the provider cater to your requirements or would you need to use a combination of integrations?
There are more than 50 countries rolling out open banking initiatives across the globe. Some countries and regions have well developed open banking ecosystems and regulatory frameworks, others less so.
These “open ecosystems” are typically made up of banks and financial institutions, fintechs, and technical service providers. Initiatives such as PIX in Brazil, New Payments Platform (NPP) and Consumer Data Right (CDR) in Australia and the Smart Data Initiative in the UK, have all set up working groups and roadmaps to outline data sharing mechanisms.
Here’s a snapshot of some of the providers we have on the Primer platform today.
According to Volt, 76% of banks worldwide expect their customers to adopt open banking over the next three to five years. So open banking and instant payments are gaining fast adoption, globally.
While growth is inevitable, we should expect more features and use cases to be unlocked as the industry matures. With all that said, we believe that open banking is one to size up for any payments roadmap.
What are the different types of ‘fast payments’?
There are many different types of transfer methods and payment rails. But the main difference is that they have varying processing times.
RTP - The Real Time Payment (RTP) network is known as RTP. As the name suggests, when a payment is initiated, it is delivered directly to the recipient's bank account. This takes place through The Clearing House.
ACH - any payment is processed through the Automated Clearing House Network is considered an ACH payment. Payments are collected into batches and processed at regular intervals throughout the banking day. This is also a popular B2B method.
Wire Transfers - this takes place directly between two banks. Since banks tend to work at a slower rate than RTPs, a wire transfer can take up to 48 hours for the funds to be available in the recipient’s account
Open banking payments - an alternative to purchase goods online rather than using debit cards or manual transfers. A secure payment method with instant payins and payouts
Explore more payment methods