Attributed to James Hodgson, Chief Product Officer, Payit by NatWest

Open Banking has revolutionised the world of payments, providing users with more streamlined services and greater flexibility in managing their finances. More broadly, it has enabled the financial services industry to expand its offerings for Businesses and end consumers with innovative, user-friendly instant Payment options. As a secure alternative for sending and receiving payments, open banking has also paved the way for businesses and end-consumers to access instantaneous up-to-date financial data, managing their finances more effectively. Business owners, in particular, have taken to open banking to automate previously manual processes, driving efficiency and reducing costs.

Having amassed seven million users in the UK, open banking is providing businesses of all sizes with a competitive edge by giving them the license to offer customers flexible options at checkout. As consumers and businesses adapt to a new era of financial literacy, merchants who do not yet offer a range of online and in-store payment options are set to fall behind. Now more than ever, businesses simply cannot afford to lose customers to cart abandonment and slow payment processes. To combat this, businesses must ensure their payment processes don’t put additional barriers in the way of their customers.

In a world where 87% of UK adults encounter suspected online scams, as reported by Ofcom, how can businesses embrace open banking payments to better relationships with customers, offering safe and flexible payment solutions?

Quicker transaction settlements to re-capture lost sales  

Consumers’ tolerance for problems at checkout is hitting new lows. Forbes reports that on mobile devices alone, the cart abandonment rate is 84%. Open banking provides businesses with a seamless solution.

Businesses can use open banking to collect payments, cutting down on payment processing times and helping move money more efficiently. The old adage that in business, ‘time is money’, has never been more apparent. Systems that reduce card transaction fees, improve payment completion rates, and drive increased revenue are more beneficial and cost-effective in the long run. By minimising re-directions and facilitating transactions with speed and ease, businesses can actively help prevent cart abandonment, recapturing previously lost transactions.

As the payments industry strives to render payments friction a thing of the past, automated payments will play a huge role in building loyalty and helping to drive the conversion of first-time customers into well-known friendly faces – it’s a win-win for businesses.

Driving consumer confidence with safe and secure payments

Consumers are eager to protect their finances now more than ever. 83% of UK shoppers are concerned about their payment security when shopping online, highlighting the need for businesses to upgrade their systems as payments modernisation becomes a necessity.

Businesses can alleviate these concerns by using payment solutions powered by open banking, giving consumers full control over how their financial data is used – and, more importantly, who can access it. The payments industry has forged new ways for businesses to easily collect and send payments online.

Single-use mobile payment methods, such as those that generate a link or QR code to receive payments instantly from customers prevent the risk of human errors more commonly seen with manual processes. They have no access to a user’s login credentials and do not store or share any of their personal bank account information. These methods allow customers to make instant online payments, resulting in a safe, simple, and fast payment experience for users. Additionally, businesses can send payments to customers without the need to know the payee’s bank account details.

For added peace of mind, open banking has also brought in a functionality called Confirmation of Payee (CoP), helping stop fraud and prevent accidentally misdirected payments by verifying whether the name of a payee’s account matches the correct name and account details. CoP can also help reduce operational costs for businesses, improving the digital journey for customers and the overall user experience as businesses strive to maximise conversions.

Facilitating flexible payment options

Open banking also offers businesses another unique opportunity.

Variable Recurring Payments (VRP) are a novel payment method and a significant turning point for open banking. VRPs are set to transform the way in which payments are made online and will look to replace current traditional payment methods such as Direct Debit and Card on File in the future. Introducing a mechanism to authorise future payments within pre-agreed limits, VRPs will allow consumers to benefit from a new level of payment automation, experiencing greater transparency and control over their finances. In enabling efficiency and ease, customers’ details are also secure and protected as their bank and/or card details are not saved for future use.

By harnessing the benefits of open banking payments such as immediate settlement and no data burden, the development of VRPs means that open banking can be applied across more use cases, also enhancing the experience for customers looking to collect recurring payments more easily and be more cost-effective.

VRPs are proving particularly effective for bill management. They allow businesses to set up an arrangement with a retailer to take payments to cover the cost of their service or product, reducing the time spent on accounts and invoicing. At the heart of open banking innovation, VRPs benefit businesses by acting as a flexible alternative to direct debit and credit cards, enabling lower fees, no chargebacks and immediate settlement.

The bottom line

Open banking has significantly accelerated the financial industry’s digital transformation, with instant, secure and error-free payments becoming a necessity for all. And it has supercharged the emergence of innovative payment solutions, radically altering the concept of efficient payment acceptance.

Good relationships are a strong foundation for success. Businesses will need to continue satisfying consumers’ growing demand for a faster, frictionless checkout experience to also build trust and better relationships. By adopting safe and easy-to-use services that not only optimise efficiency but more critically, improve customer propositions, businesses can offer more tailored products and services to offer a more enticing and reliable customer experience.

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