4 things every merchant needs to know
about Open Banking
4 things every merchant needs to know
about Open Banking
Since launching Open Banking has sparked a revolution in the financial services industry. With momentum continuing to build, we explore the importance of Open Banking for consumers and merchants.
Since the launch of the EU’s Payments Service Directive 2 (PSD2) in 2018, Open Banking has sparked a revolution in finance. From payments to personal finance management, consumers and merchants alike have embraced Open Banking. In 2023, more than 7 million consumers and SMEs used Open Banking services in the UK, with the milestones falling at pace.
It’s now clear that momentum is behind Open Banking in some markets, but there is still a significant way to go. In this blog, we’ll outline why Open Banking is so important — for consumers and merchants alike.
What is Open Banking?
Open Banking is the sharing of financial information through the use of APIs. In turn, this has become a major source of innovation that could reshape the financial services and banking sector. Crucially, data sharing is never done without the user’s consent, and the data is always safeguarded by industry standards — such as PSD2 in Europe.
What are the benefits of Open Banking?
1) Open Banking will facilitate faster and instant payments: Traditionally, merchants have had to pay fees to accept credit card payments, and there can be delays in receiving funds due to processing times. Open Banking provides a viable alternative to traditional payment methods like credit or debit cards and is faster for both the merchant and the consumer. Open banking also allows instant settlement — particularly important for high-value transactions. For consumers, significant lifetime purchases such as buying a car that are made with open banking create an easier and more convenient user experience.
2) Open Banking can help merchants expand their reach: Open Banking enables merchants to offer services to customers who may not have access to traditional payment methods like credit cards. Open banking can also be used for recurring payments of varying amounts — without the need to re-authenticate every transaction. By offering a greater variety of alternative, convenient payment methods, merchants access new markets and customer segments.
“Open Banking has immense potential to improve merchant’s revenue streams and customer reach while offering increased accessibility, convenience and security for customers”
3) Open Banking can create new business models for merchants: Open Banking’s potential applications are near limitless, and merchants can add significant added value for their customers. For example, by providing range of checkout financing options that may not have been possible with traditional payment methods.
4) Open Banking reduces the risk of fraud: Finally, Open Banking has a strong emphasis on strong authentication, encryption, tokenisation, and payment initiation. Focussing on the latter, payment initiation services allow consumers to initiate payments directly from their bank accounts via their smartphones, without the need for a credit card or other payment method. This eliminates the risk of card details ever being stolen or compromised. These pillars of Open Banking means that the risk of fraud to customers is minimal, which in turn will drive loyalty to brands.
Open Banking has immense potential to improve merchant’s revenue streams and customer reach while offering increased accessibility, convenience and security for customers. The future of banking is open — businesses must now seize the opportunity and disrupt the status quo.
