Open Banking and Card Payments: A Perfect Payment Marriage?
Welcome to the Acquired.com Insights newsletter, keeping you up to date with the latest news on all things payments!
This month, we have focussed on the world of Open Banking with a look at how our proprietary solution, Pay by Bank, measures up compared to other payment methods in terms of both customer experience and transaction success rates. We have also explored why Acquired.com believe that open banking solutions should be used in parallel with traditional card payments - rather than as a replacement for them - to create an optimised payments ecosystem.
Let's dive right in!
In today’s fast-paced digital world, businesses are constantly seeking innovative ways to streamline their payment processes and enhance customer experience. Our Pay by Bank solution offers a seamless and secure way for consumers to make online payments directly from their bank accounts.
It eliminates the need for customers to enter their card details or log in to separate payment gateway, making the payment process more convenient and efficient. With Pay by Bank, users can authenticate themselves securely and authorise transactions directly from their trusted banking app or online banking portal.
Shall we take a quick look at the key benefits of open banking for both customers and businesses?
Seamless integration and user experience
One of the key advantages of Pay by Bank is its seamless integration with various e-commerce platforms and merchant websites. Businesses can easily incorporate this payment method into their existing checkout systems, offering customers a smooth and hassle-free payment experience.
Enhanced security and trust
Amid increasing concerns over data breaches and online fraud, security is of paramount importance for both businesses and consumers. As customers authorise transactions through their banking apps or online banking portal, Pay by Bank ensures a high level of authentication and encryption, significantly reducing the risk of unauthorised access or fraudulent activity.
Real-time payments
Traditional card-based transactions can sometimes involve delays in settlement and refunds, causing inconvenience for both businesses and customers. With Pay by Bank payments are processed in real-time, helping accelerate the fulfilment process. Additionally, when businesses settle the funds directly into an Acquired.com ledger this allows for full visibility of the funds being settled.
Consumer reach and financial inclusion
Another advantage of Pay by Bank is its potential to reach a broader consumer base, including individuals who do not possess or prefer not to use credit or debit cards. By facilitating payments directly from bank accounts, this solution promotes financial inclusion and ensures that a wider audience can participate in the digital economy. This not only benefits consumers but also opens new avenues of growth for businesses by tapping into previously unexplored markets.
Catering to customer preferences
Customers have diverse payment preferences, and we therefore recommend offering multiple payment options to cater to a wider range of customer needs. While some customers may prefer the convenience of card payments, others may prefer the security and direct access of Pay by Bank. Customers may event abandon their shopping carts if their preferred payment method is not available. By offering both payment options, businesses can accommodate various customer preferences and increase the likelihood of checkout conversion.
Preparing for the future of payments
As e-commerce continues to thrive and evolve, businesses must adapt to changing consumer preferences and expectations. Acquired.com’s Pay by Bank solution empowers businesses to offer a modern and secure payment experience that aligns with the needs of today’s tech-savvy customers. By simplifying the payment process, ensuring robust security, and facilitating real-time transactions, Pay by Bank can be a game-changer for businesses who take online payments.
Now we have looked at the key benefits of this solution, let's see how Pay by Bank compares to other payment methods when it comes to transaction authorisation success rates.
More than 600,000 British businesses now use open banking (OBIE) in either a data or payments capacity. From streamlined collections in sectors such as lending and retail to increased financial control and tailored repayment options for customers, including open banking payments as part of a customer-centric strategy is paving the way for a more inclusive and secure payments ecosystem. In addition to benefiting the consumer by offering them a streamlined payment experience, open banking payments tend to have higher success rates compared to card payments.
With an average 97% authorisation success rate, Pay by Bank (Open Banking) transactions demonstrate a remarkable level of reliability and efficiency. This high success rate can be attributed to the direct account-to-account nature of open banking payments, which ensures accurate and up-to-date payment information, reducing the risk of manual errors or payment failures.
In comparison, digital wallets like Apple Pay have a strong but slightly lower authorisation success rate of 94%. While digital wallets offer convenience and security, they may still encounter occasional authorisation challenges, possibly due to factors such as connectivity issues or compatibility limitations with certain payment systems.
One-click checkout, a feature that enables faster payments by storing customer payment information, shows an authorisation success rate of 85%. While this method offers convenience, there may be some instances where the stored information becomes outdated or requires re-verification, leading to a slightly lower success rate.
Standard authorisations or traditional card payments, exhibit a 70% success rate. This slightly lower rate can be attributed to various factors, including potential input errors, expired card details, insufficient funds, or declined transactions due to fraud prevention measures. It is worth noting that solutions such as Account Updater or Scheme Tokenisation can be used in parallel with card payment methods to reduce the impact of declines due to outdated customer payment information.
This data, taken from the Acquired.com Hub, suggests that overall, when it comes to authorisation rates, open banking payments tend to have higher success rates compared to card payments.
Why are the authorisation rates for open banking higher than other payment methods?
Accurate Account Information
With open banking customers authorise the payment directly from their bank account using secure APIs. This eliminates the possibility of errors in inputting card details or using out of date payment information, which can lead to payment failures.
Real-time Funds Verification
Open banking allows for real-time verification of funds availability in the customer’s account. This reduces the likelihood of declined payments due to insufficient funds, as the account balance is checked at the time of authorisation.
Account Information Service Providers (AISP)
Some businesses make use of Account Initiation Service Providers (AISP) who are authorised to view bank account information – but cannot initiate payments or transfers. The AISP can check funds are available prior to payment to maximise success rates further. This tactic is most common in sectors such as credit where data-driven lenders could use AISPs to check a customer’s credit history and creditworthiness.
Strong Customer Authentication (SCA)
Open banking payments adhere to strong customer authentication requirements, which improve security and help prevent fraudulent transactions. By incorporating multi-factor authentication methods, open banking can provide an additional layer of protection, reducing the risk of unauthorised payments and increasing authorisation success rates.
Bank-to-Bank Transfer
Open banking payments involve the direct transfer of funds between two bank accounts, bypassing intermediaries such as card networks and processors. This streamlined process eliminates potential points of failure and reduces the chances of authorisation errors or system downtime.
In the context of consumer duty, the combination of lower failure rates and instant settlement offered by open banking payments ensures that customers in sectors such as lending and debt collection are better able to make affordable and reliable payments, reducing the risk of missed or late payments that may negatively impact their financial wellbeing. The efficiency and speed of open banking payments contributes to a smoother and more seamless payments experience for businesses and consumers alike.
While some customers may prefer the convenience of card payments, others may prefer the security and direct access of Pay by Bank. Customers may event abandon their shopping carts if their preferred payment method is not available. By offering both payment options, businesses can accommodate various customer preferences and increase the likelihood of checkout conversion.
Some final thoughts...
The choice between open banking and card payments should not be seen as an either-or scenario, but rather as an opportunity to create an optimised payments ecosystem for a variety of customers. It's crucial for businesses to recognise that customers have diverse preferences, and failing to offer their preferred payment method can lead to abandoned carts and missed conversion opportunities. By embracing both open banking and card payments in parallel, businesses can best accommodate various customer preferences, promote trust, and ultimately increase the likelihood of a successful conversion.
Thanks for reading our Acquired.com Insights on Open Banking. We would love to hear your thoughts!
To find out more about Pay by Bank - please get in touch.