The benefits of open banking-powered payment methods

Wednesday 21 September 2022 09:30 CET | Editor: Raluca Ochiana | Interview

Siamac Rezaiezadeh, Director of Product Marketing at GoCardless, reveals the benefits that Open Banking-powered payment methods, including VRPs, bring to both businesses and consumers.


'The simplest way to combine the trust and reliability of direct debit with real-time, faster payments is to offer open banking-powered payment methods.'

What are the most popular types of A2A payments currently available on the market? 

Direct debit continues to dominate consumer preferences in many countries across Europe, with GoCardless research finding that it’s the payment method of choice for a range of recurring payment use cases. By way of example, in the UK, it’s the preferred way of paying household bills and subscription payments. There is also a growing appetite for real-time payment capabilities, with The FinTech Times stating that global real-time payment transactions hit an estimated 118 billion in 2021. The simplest way to combine the trust and reliability of direct debit with real-time, faster payments is to offer Open Banking-powered payment methods.

Open Banking in the UK has been progressively building momentum. In part, this is down to HMRC rolling out open banking enabled ‘Pay by bank account’ to a dozen different tax regimes, leading them to receive just under GBP 2.5 billion via Open Banking in less than 12 months. As similar frameworks go live across Europe, we will start to see this spread ongoing.

The next step is to enable the real-time collection of recurring payments. Two examples that spring to mind are the PayTo initiative in Australia and Variable Recurring Payments (VRPs) in the UK. Both are a work in progress but offer exciting ways to combine the flexibility of direct debit with the speed of card authorisation. 


In the context of Open Banking, what benefits do Variable Recurring Payments bring to both payments players and consumers?

The introduction of what is essentially instant direct debit will be a big boost to PSPs that play in the A2A space. With immediate payment authorisation paired alongside the lower-cost, lower-churn of A2A payments, PSPs can offer a true alternative to cards. 

Thinking of consumers, the arrival of VRPs has come at a time when it feels most needed. GoCardless research found that 57% of consumers are struggling to save due to the increased cost of living. A further half said they would use new technology that automatically moves their money from one account to another with a higher interest rate. VRP ‘sweeping’ will give consumers greater control over their money management, allowing them to make payments faster and to move money easily between their accounts, helping people clear debts and build savings.

Are there any possible future use cases where VRPs can be most effective at the B2C ecommerce level?

Absolutely. Because of the speed of payment authorisation, people can pay directly from their bank in several ways, with one of the most interesting being the possibility to replace ‘1-click’ card payments with ‘1-click’ bank payments, e.g., ‘card on file’ replaced by ‘bank account on file’.

You can go even further by implementing QR codes to direct people to online payment flows where they can pay via ‘account on file’. QR codes’ ability to link the offline and online worlds here is significant, bringing Open Banking-powered payments to shops, hospitality and more. 

For merchants dealing with recurring payments, what kind of challenges are they facing? How can the emerging A2A payments rails help them out in this matter?

The subscription economy is booming, and businesses now have to focus on retaining the customers they have gained over the past two years. The payment methods offered to consumers have a direct impact on churn; for example, the rate of customer churn for subscribers who pay with a credit card is over three times more compared to those who pay with direct debit. A starting place is looking at payment methods with lower failure rates, as 11-15% of failed payments result in churn. 

Bank account payments fail less frequently, with energy and telecoms businesses, as examples, having benefited from it for years. But newer recurring revenue businesses often require the speed of authorisation that card payments bring in order to meet consumer expectations. Emerging A2A payment rails can help here, simply by making the bank account a viable payment option for these types of businesses too. 

What is GoCardless’ unique way to improve the recurrent payment experience for merchants and consumers?

There’s no such thing as a ‘one-size-fits-all’ payment solution, but our thesis is that payments that move directly from one bank account to another offer businesses substantially more benefits. Our value-add comes from incorporating multiple bank payment methods into one network, enabling merchants to optimise their payment strategy in unprecedented ways. For example, if speed is of the essence, Open Banking payments are the way to go. If cost is a focus, direct debit may offer better value. And, as Open Banking innovation rolls out in phases, offering both tried-and-tested bank payment methods like direct debit alongside the newest technology will ensure merchants can cater for all payers. 

Finally, GoCardless layers data and analytics on top of bank payment methods as part of ‘payment intelligence’ features to help merchants optimise payments. Two years ago, we launched Success+, which applies machine learning to predict the best days for payment retries. Since launch, we’ve recovered over GBP 49 million in failed payments. Later this year, we’ll launch an anti-fraud feature which uses the same technology to help merchants protect their revenue.


This interview was first published in Payment Methods Report 2022, the most updated overview of trends and developments in the payment methods space and the innovative technologies that these methods work upon, emerging consumers habits, and strategies on how to win at conversion and retention.

About Siamac Rezaiezadeh

Siamac is Director of Product Marketing at GoCardless, leading go-to-market activities, value proposition development, market research and frontline sales enablement. Prior to GoCardless, Siamac launched and ran a travel marketplace, wrote a book on sales strategy and spent seven years at a SaaS startup through successful acquisition and subsequent growth as part of an NYSE-listed enterprise. 


About GoCardless

GoCardless is the global leader in direct bank payment solutions, making it easy to collect recurring and one-off payments directly from customers' bank accounts through direct debit and open banking. Each year GoCardless processes more than USD 30 billion of payments across more than 30 countries.

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Keywords: payment methods, merchants, Open Banking, fintech, account-to-account payment, ecommerce
Categories: Payments & Commerce
Companies: GoCardless
Countries: World
This article is part of category

Payments & Commerce


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