There is no room for dispute when looking at the adoption rate of open payments since its launch in 2018. Records are being broken month over month, with exponential growth the new normal. The adoption rate of new users in the UK alone increased by one million in just six months. In Brazil, the end of March saw 214.4 million registered users of open payments, known as Pix, move R$784.7bn across more than 1.5bn transactions. It’s now the dominant, preferred payment method for consumers in Latin America’s largest market.

But in a global market where new digital payment methods are constantly arising, why are we seeing such dramatic increases in the uptake of open payments? 

The need for reducing transaction costs

With years of significant increases in fees from the card schemes, merchants and consumers are crying out for fairer, faster, and more seamless payment solutions. Typical processing fees for card payments are as high as 3.5% for credit cards and 1.75% for debit cards. These not only cut into businesses’ bottom lines, but also force merchants to increase the cost of goods, putting their reputation at risk as consumers struggle with the cost-of-living crisis. Open payments, on the other hand, cost significantly less – often sub 1% or a fixed price per transaction. 

It’s also worth mentioning that open payments are near-instant, meaning merchants can shorten their cash cycle and gain access to revenue much faster than in the case of card payments, which typically take 3-5 business days to process. 

For consumers, the need for faster and simpler ways to pay has become of paramount importance. After years of card payments, their embedded use in our daily lives means that inputting card details and CVV codes appears only a minor inconvenience.

There is, however, a faster, simpler way to pay for goods and services. Open payments offer customers a more straightforward experience. Shoppers no longer have to enter their card details or CVV codes. Instead, they use biometrics such as fingerprints or Face ID to securely log into their banking app and make their payment.

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The need for more secure ways to pay 

In March 2022, the Financial Conduct Authority (FCA) enforced Strong Customer Authentication (SCA) across all UK e-commerce merchants. The aim was to enhance the security of payments and ultimately limit the number of card fraud cases.

Despite Nationwide reporting 2,000 fewer card fraud cases each month following SCA, we are seeing significantly negative impacts for e-commerce businesses. According to Nuapay, 99% of merchants have seen at least a 5% rise in declined payments. The average, however, is a staggering 37% rise.

Because open payments are inherently more secure, they have the potential to eliminate card fraud. You don’t have to share your card details at the checkout. Through encryption, open payments allow consumers to pay directly from their bank account without the need to share bank account information. With no credentials inputted or shared, fraudsters are left with nothing to target.

Innovation through regulation 

Despite its potential to transform the financial sector and its continued levels of adoption, the regulatory scheme for open payments got off to a bumpy start. Concerns about regulation, which was mandated by the European Union’s Revised Payment Services Directive (PSD2), have ranged from the slow uptake of the initiative, heightened risk of exposing consumer data, and a lack of common data standards across the industry. 

PSD2 was created without technical and operational guidelines. This has resulted in different implementations across countries within the EU, as well as within individual countries – both from regulatory interpretation and technical execution perspectives.

 Yet, despite a clear lack of cross-border standardisation, there’s little dispute that open banking has become a global phenomenon. More than 50 countries are rolling out their own initiatives – with six markets developing their own PSD2-style legislation and more than 10 others working on open banking market standards.

Changing the game for the payments sector

We’re in an exciting time for the payments sector. As consumer demands shift, the need for alternative and innovative ways to pay has become a priority across the industry. Payment giants like Visa and Mastercard have been impressive businesses over the past 60 to 70 years. They’ve paved the way for innovation across payments. But we’re now in a time when card payments are no longer fit for purpose. Instead, we need to be looking for faster, simpler and seamless services – and that’s open banking. 

Volt CBDO Jordan Lawrence