Four reasons why merchants should introduce Open Banking payments

In recent months, many Open Banking providers have discussed the benefits of Open Banking payments for merchants, utilities, lenders, and more. Indeed, there is a compelling case to make that in the mid-term, Open Banking payments will become a viable widespread alternative to cards, wallets, and BNPL payment methods, as well as bank transfers such as SEPA in the EU and BACS in the UK, due to the following reasons: 

1. Lower operational costs. No card interchange fees and less time spent on reconciliation and collection translate into significantly lower costs. At scale, this is a huge –and compelling – advantage in and of itself for merchants and other businesses alike.  
2. Faster payment process. Payments are confirmed in seconds, meaning you can ship faster, and offer a better customer experience.  
3. Lower fraud. Every payment adheres to SCA and is part of the bank’s fraud and security detection. 
4. Quicker payment settlement. Even slower rails tend to settle faster than cards and offer greater predictability in terms of cash flow management. Faster cash flow is very advantageous to businesses of all kinds, but especially SMEs, which can’t borrow at such low rates.  
5. And finally, no chargebacks. 

The above points are practical and obvious. However, there are a number of other benefits that are also important yet not so obvious. Here is a brief overview:   

Reduce partnership and fee complexity 

For merchants, payments equal complexity in many ways. There are usually a number of relationships and contracts that need to be managed, including with (multiple) PSPs, payment methods, fraud solutions, and more. PSPs wield significant power in terms of when and how much money merchants get in terms of disputes with customers. And that is even before we discuss the aforementioned fees that need to be paid to service providers.  

But with Open Banking payments, you can, if you wish, remove your reliance on intermediaries and reduce your relationships – including wallets and even PSPs. And since the payment flow is simply account-to-account, there are of course no third parties taking a cut.  

You own more of the customer experience at the checkout 

Many new payment methods have appeared in recent years, including a plethora of BNPL players, wallets, and so on. In many web shops, these payment methods are tacked onto a growing list of options at the checkout, making the checkout page cluttered, the process cumbersome, and brand recognition complex.  

But the beauty of Open Banking payments is that there is no need to ask the customer for card details or to sign up to use different payment methods, and – depending on how you structure your checkout – potentially no other brand between you and purchase besides your customer’s bank account. This simple, intuitive flow reduces complexity and resonates with customers, and means you as a brand can own a greater share of the checkout experience.  

You are buying into innovation  

Open Banking and PSD2 regulations and innovations are not standing still – they are evolving to nurture more innovation and competition in financial services on an ongoing basis. 

For example, in 2021, the UK Competition and Markets Authority (CMA) required the biggest UK banks to implement Variable Recurring Payment (VRP) APIs to enable customers to ‘sweep’ money between their accounts. In the future, further innovation in the UK and EU is a given. So when you are considering Open Banking payments, you are not only buying into what is possible today, but what will become possible in the future – and you will have a head start on implementation.  

You can reduce time chasing debt by creating more convenient ways for customers to pay 

For businesses such as utilities and lenders, you can improve conversion by offering automated recurring payments, or – if they miss a payment – following up with a QR code or text message that redirects your customer directly to their in-app bank environment. 

The improved conversion will reduce debt recovery costs – a big drag on expenses in these types of businesses. But there’s more. With Account Information Services, you are able to offer them the right product based on their financial profile, identify which days of the month your customers are most likely to have their account balances topped up and bill them in the 24-hour period after that. This should in turn further increase your payment conversion, reduce the costs of debt recovery, lower the cost of doing business, and so on. 

Less obvious benefits can multiply into big competitive advantages 

Most ecommerce companies face some kinds of pricing pressure, and many other companies, such as utilities, face other challenges such as debt resolution. Open Banking payments and account information can help innovative businesses meet and beat these challenges in many ways, some of which are quite straightforward, but others which are much less obvious. If you’d like to learn more about how Open Banking can help you overcome your specific challenges, visit yolt.com or contact us.  

About James Curran 

James Curran is the UK sales manager at Open Banking provider Yolt. He has over 20 years of experience driving growth in various FS and technology businesses including uSwitch, Google and multiple UK start-ups. Outside of Yolt he loves to watch his two young children playing sports, and joins in with them when his body permits.

About Yolt 

Yolt is a provider of pan-European Open Banking APIs and solutions - building, managing, and maintaining AIS and PIS connections for top financial institutions and ambitious tech businesses. In January 2018, we became the first ever Third-Party Provider to successfully make an Open Banking API call, and by 2020, we had made over one billion API calls. Yolt now offers API connections to 600 banks across Europe.