Luca Giannone, Director of Financial Services at Trustly: To maximise value to consumers and themselves, merchants need a complete payments solution. A PIS-Only solution is not sufficient
The Open Banking mist
In the wake of PSD2, a multitude of new providers of services has emerged. However, there are big differences between new players appearing in the ‘mist’ of PSD2 solutions. Creating more transparency around these capabilities is vital to ensure that banks, merchants, and consumers can make the choices that will benefit them most and deliver on the promises of Open Banking.
There has been a broad assumption that banks will solely use APIs to offer access to consumer bank accounts. This is incorrect. Firstly, not all banks will offer APIs and will instead rely on direct access via the customer-facing online interfaces, which is allowed under PSD2 if carried out by a licensed operator that identifies itself vis-à-vis the bank. Secondly, in case APIs experience malfunctions, it is important to select an Open Banking payment solution that is not API-dependent.
Opening the door: Payment Initiation Services
Payment Initiation Services (PIS) play an important role in addressing the goals of PSD2 by enabling consumers to pay straight from their bank account. This offers shoppers a fast, convenient payment option, as well as a range of benefits to merchants. PIS is an essential solution for merchants to implement, given that online banking payments are one of the fastest-growing payment methods in EMEA and are set to overtake both credit and debit cards in popularity by 2022.
However, not all Payment Initiation Services are created equal. Initiation-only services can deliver the front-end payment experience by enabling a push payment from a customer’s account to the merchant’s account. Furthermore, beyond purely initiating a payment, it is far more possible and necessary to build a true Open Banking driven payments experience that benefits both merchants and their customers.
Towards open: payment initiation is only the first step
Meeting consumer expectations
Consumers want speed, choice and ease in their payments experience, but it doesn’t end with the touch of the ‘pay now’ button.
Consumers also want the same speed and convenience from a refund as they do from the original payment. In the eyes of a consumer, if merchants can take your money instantly, they should also be able to refund it just as quickly. Instant refunds are a feature that is proven to increase customer loyalty. In fact, our recent ecommerce research revealed that for 65% of consumers, the speed and ease of refund affect where they choose to shop, while 95% said same-day refunds would make them more loyal to a merchant.
Addressing merchant challenges
Payment failure or cancellation is a common problem for merchants and it can happen for a number of reasons; other payments made in the same day might be prioritised in the processing queue, or an ATM cash withdrawal could be made, leaving the account short of funds before the transaction with a merchant has cleared.
When a direct bank payment is initiated, it’s very valuable for merchants to receive a notification from their payment provider so they know they can release goods or services because they can be confident the funds will settle. This is particularly important for digital goods merchants that need to fulfil orders (such as music downloads, gaming, financial services) instantly.
Of course, the immediate refund functionality that supports a seamless consumer experience is also beneficial to merchants, since it helps them manage cash flow, reduce costs and minimise administrative complexity.
The tools for the job
To simultaneously deliver on the consumer experience and meet merchant needs require a more advanced offering than a PIS-only provider. Trustly has been in this space for over 10 years and operates across Europe. This puts us in a position to lead the way in PSD2 payments. We connect to banks via multiple integration points that are embedded in the flow of funds, which allows us to mitigate risk, offer faster settlement through our intra-bank network as well as state-of-the-art reconciliation.
Powering Open Banking payments
To maximise value to consumers and themselves, merchants need a complete payments solution. A PIS-Only solution is not sufficient. When deciding which provider to use, consider the below questions:
1. How can you ensure redundancy in case of PSD2 APIs malfunctioning?
2. How will you handle automated refunds?
3. How will you reconcile payments efficiently?
4. How do you support faster settlement?
5. How do you handle cross-border transactions?
These are the key ingredients for the best end-user experience and therefore, the gold standard for Payment Initiation Services.
The editorial was first published in the Open Banking Report 2019, which clarifies the role of key key-players in a post-September 14th world and assesses how the landscape has shifted within Europe and beyond.
About Luca Giannone
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