What are the Benefits of Open Banking Payments for Businesses?

Today, many UK businesses are adopting Open Banking because the system allows for better financial management, significant cost reduction, as well as improved administration. Here, we’ll explore the benefits of Open Banking for businesses and you’ll find out what this could mean for you.

What is Open Banking?

Open Banking refers to a financial system where customers grant third-party financial technology (Fintech) companies access to their banking data through APIs. This allows for the creation of new financial products and services that can improve the customer experience and increase competition in the banking industry. Open Banking is usually implemented through regulatory measures that require banks to make customer data available to authorised third-party providers.

What are Open Banking (Pay by Bank) Payments?

Pay by Bank (Open Banking) payments is a system whereby consumers pay for goods and services online without disclosing their financial information. Consumers can also decide who has access to their information. This makes the payment process far smoother, more cost-efficient, and most importantly, less susceptible to fraudulent activity.

How Does it Work?

When an online business offers Open Banking as a mode of payment, the consumer reaches the checkout page and instead of keying in their credit or debit card details, they’re instead directed to their trusted bank account to approve the transaction in a way they recognise very well (this is most often done on their mobile banking app but can also be done on their bank website).
Once the transaction is approved, the customer is seamlessly returned to the checkout page to complete the process.

What’s the Tech?

The technology involved is APIs (Application Programming Interfaces), so there’s no human interaction,meaning data is captured and transferred using software, safely and without human interaction or error. The APIs connect to the consumer’s bank, retrieve the information and the transfer is fully automated. Businesses receive the funds immediately into their bank, and customers therefore receive their goods faster.

What Are the Benefits of Open Banking Payments for Business?

1.  Better Conversion Rates

Since there’s no need for your customers to expose their banking details by manually keying in account information and card numbers, Open Banking gives the customer an enhanced, efficient and much safer checkout journey.

2.  Improved Acceptance of Transactions

Credit cards and debit cards are notorious for failed payments at the checkout stage – and customers often just give up! With Open Banking payments, there’s far less chance of failure, as transactions are made directly between one bank and another, far more smoothly and with higher success rates.

3.  Lower Fees

For businesses this is a major commercial benefit in that there is far less processing cost with Open Banking, 7-10X less compared to card payments.

4.  No Waiting for Funds

For businesses again this is really useful, there’s no waiting for funds to clear as transactions are instantly settled. That means companies don’t have to wait days for money to arrive – and the result is better cash flow. For customers, this improves their experience too as they receive their goods much faster.

5.  No Chargebacks

With Open Banking there are no chargebacks – so merchants don’t have to pay a fee. Open Banking uses other means to protect customers and issue refunds.

6.  Less Administration

Open Banking also means less administration for businesses because there’s no need to complete compliance documentation which is a tedious manual job. Through the Open Banking system, customer information is automatically available and shared between the banks securely.

Summary

Open Banking (Pay by Bank) Payments is paving the way for the future of online payments,bringing with it a wealth of benefits for businesses and consumers. As well as its enormous efficiency, smooth transacting and reduction in administrative burden, it’s far more cost-efficient too, and in this day and age – what business wouldn’t like to reduce their operational costs and payment provider fee.