The groundswell for open banking is here. Banks in the U.K. are now seeing more open banking payments volume in a single month than what was measured in all of 2019.
“We’re seeing instant bank payments, powered by open banking, brought to new sectors such as eCommerce marketplaces and [subscriptions],” said Soliman, moving well beyond the confines of money transfers to mainstream use cases.
Cards still dominate checkout today, he said, and debit and credit cards have driven retail commerce through the past decade, but were not designed for digital commerce at scale.
“Think about it,” said Soliman. “What does a piece of plastic have to do with the internet?” Card-not-present fraud increased significantly between 2013 and 2018, and in the great digital age, eCommerce retailers are facing mounting costs from transaction fees and chargebacks. Poor payment conversion and slow refund mechanisms are souring the experience, at least in part, on both sides of the equation.
The reason for the open banking surge, he said, is due to the ease of the payments themselves. In fact, he noted, roughly 75 percent of merchants surveyed by TrueLayer and YouGov said that open banking payments were part of their long-term strategy.
Once they embrace open banking payments, TrueLayer clients see a 30 percent share of their checkouts done via that method within just a few months, said Soliman – and some as high as 70 percent. That’s a huge leap from the typical 5 to 10 percent share that new payment methods capture over the same timeframe — “and that would be considered a huge success,” he noted. “It’s very early on, but the trend is strong — and we expect it to continue to grow very quickly.”
Merchants enjoy a wide range of benefits as consumers pivot toward open banking payments. There is almost no risk of fraud, said Soliman, as most use cases involve strong authentication protocols that include biometric checks (such as face checks or touch ID features).
“The merchant doesn’t get to see any of your private information with open banking payments,” said Soliman. “That’s in part why we’re seeing such a major trend upward in open banking payments usage.”
The positive ripple effects translate into higher conversion rates. Soliman said that open banking payments convert at rates that are as much as 40 percent higher than cards. Higher conversion rates, of course, translate into higher revenues and cash flow for those merchants.
Though the European Union and U.K. regulations don’t actually mandate instant bank refunds as part of open banking, TrueLayer has found value in enabling that functionality. TrueLayer, through PayDirect, has enabled instant refunds by building on top of open banking standards.
Consumers have high expectations when it comes to refunds, Soliman said, but merchants are falling short. According to research from TrueLayer and YouGov in 2021, as many as eight in 10 shoppers expect a refund within one week – but one in three shoppers complain of slow or lost refunds. The time it takes to get a refund, he said, is an important factor in decisions about whether or not to shop on a merchant’s website again.
Through PayDirect, consumers are refunded in seconds to the same bank account they used to make a purchase, enabling them to make new purchases straight away. “Merchants don’t have to ask shoppers for bank account information or anything else, and the refund is essentially a ‘one click’ process,” said Soliman. The refund documentation itself is customizable, which means merchant names show up on consumers’ bank statements, building consumers’ trust.
The streamlined refund process, coupled with the strong customer authentication (SCA) protocols during the actual transaction, spotlights the balancing act that takes place between security and the customer experience. PayDirect is already compliant with SCA, said Soliman, and is also ultimately more convenient for the customer.
“Refunds have been the missing piece of the puzzle to make sure that open banking really works,” he said, adding that “for the vast number of merchants, the higher conversion rate of open banking payments, combined with the ability to instantly process refunds and payouts, [result] in an improved end-to-end payment experience.”