Since 2018, many countries have looked to the UK and followed its lead in implementing Open Banking payments, adapting the UK’s model to local needs and expanding it into new areas. However, if the UK wishes to remain the vanguard of Open Banking, it needs to start thinking further ahead into the future.
GoCardless recently collaborated with 11:FS to undertake new research, combining survey results from 999 business decision-makers with qualitative research, to better understand which use cases and their associated sectors are quietly leading the way already, which are poised to benefit from Open Banking in the near future, and which still have a long way to go due to existing barriers.
Open Banking payments are particularly advantageous for remote, high-value transactions; think of sectors like financial services and real estate. These customers value trust and security, which make Open Banking payments attractive for several reasons:
Reduce the risk of ‘card not present’ fraud since payments require upfront authentication;
Payment is still simple and seamless;
They eliminate burdensome interchange fees which typically range from 1.5-3.5%, but in some cases can be as high as 6%.
Open Banking also means payers avoid the risks associated with manual entry of payment details as the system automatically populates account information and ensures funds are sent securely. This reduces the anxiety of large payments getting misdirected, which our research found to be a common concern.
Main challenges today
The main barrier to widespread adoption is that payment limits vary across banks. There’s also low consumer awareness compared to alternative payment methods and if they aren’t requesting it, merchants have less of an incentive to use it.
Another major use case for Open Banking is recurring payments and subscriptions, specifically in sectors like financial services, media, utilities, and SaaS (Software-as-a-Service).
Merchants and their customers place value on being able to control how and when payments are made.
Bank accounts don’t expire.
Providers, like GoCardless, enable the first payment to be taken alongside either a recurring Open Banking payment or direct debit within one seamless setup process.
Currently, Variable Recurring Payments (VRPs) are mandated to sweeping use cases – so their availability is limited to instances where two accounts are owned by the same person. This is great for building savings or paying off debt earlier. Wider commercial use cases are on the roadmap to be unlocked, and it’s expected that additional industries like telecoms, utilities, government, and charity will be approved by the regulator in 2025. Success will continue to depend on ensuring banks are properly incentivised and that consumers are protected.
Low-value, remote transactions are typically aligned with retail ecommerce, where the customer is looking to make an impulsive or low-consideration purchase. The customers want an experience that’s simple and safe, requiring minimal effort on their part. Merchants prioritise speed and conversion to avoid payers abandoning the checkout as quickly as they entered.
One in three British payers believe bank payments are the safest way to pay;
Upfront authentication reduces the risk of fraud;
Payments can be made on mobile or on-the-go.
To meet the needs of impulse shoppers, the wider ecosystem will need to better define and roll out consistent processes so that payers know what to expect regardless of the bank account or the apps they use. For example, to incentivise shoppers to switch away from cards, the ability to save bank account details on their phones would be huge.
Much like remote transactions, in-person transactions with low price points in sectors like hospitality and retail have been slow to adopt Open Banking.
Instant one-off Open Banking payments can be made on mobile;
Fast confirmation and funds leaving the bank account are critical benefits for point-of-sale;
Ease of combining Pay-by-Bank URLs behind QR codes.
The growing possibility of NFC-enabled Pay-by-Bank solutions and QR code-based payments could bridge the gap in in-person environments. We’ve already seen that in action through GoCardless customers such as Gravity Active Entertainment who use QR codes in their trampoline parks for instant entry fees.
But currently, they’re the exception and not the rule. For wider adoption in these sectors, Open Banking needs to integrate with existing POS systems to match the convenience and speed of contactless payments.
In the coming years, Open Banking payments will unlock significant benefits for use cases that involve high-value transactions, recurring payments, and sectors where security and cost savings are critical. Progress across use cases won’t happen at an equal pace, but it is moving and can move faster still if the payments ecosystem keeps working together.
This editorial piece was first published in The Paypers' Open Finance Report 2024, the latest comprehensive market overview and analysis focusing on the key players and products within the Open Banking and Open Finance ecosystem. Download the full report to discover more insightful content.
Andy is Chief Product Officer at GoCardless, responsible for driving forward the organisation’s global product and feature innovations. When Andy arrived at GoCardless in 2020, he brought his expertise in payments along with him. Previously the Director of Payments at Spotify, Andy is an old hand when it comes to devising and executing global payment strategies.
GoCardless is a global bank payment company. Nearly 100,000 businesses, from startups to household names, use GoCardless to collect payments through direct debit, real-time payments and Open Banking. GoCardless processes USD 130 billion+ of payments annually across 30+ countries; helping customers collect recurring and one-off payments, without the chasing, stress or expensive fees.
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