Consumers like open banking. The ease with which they can top up their e-money, current and savings accounts, or conveniently pay their monthly credit card bills, means that this payment technology is ticking the right boxes all over the world. In the UK alone, 11.4 million payments were made in July this year, a 9.3% increase over the previous month and a doubling in total payments over the course of the year, according to Open Banking Ltd. And this reflects the trend further afield with open banking users worldwide expected to grow at an average of nearly 50% between 2020 and 2024, with the European market making up the lions share with an anticipated 132.2 million users by 2024.
It wouldn’t be an exaggeration to say that open banking has been transformational in how consumers manage their funds. It makes it easier for them to find good deals on mortgages and loans, gives them agency over their data and how it is accessed by third parties, and delivers banking services to customers who were previously under-served.
As the open banking mega-trend gains further momentum, one area that still needs to get up to speed is the online retail checkout process, which too often remains time-consuming and cumbersome. There remains a heavy emphasis on payment cards, payment schemes, loyalty programmes and discount codes, all of which the customer must grapple with before completing their purchase. Where some merchants are lagging behind is in the technical and operational changes needed to expand beyond credit and debit cards and facilitate fast, convenient open banking.
Open banking capabilities provided by payment service providers like Computop, and banks, ensure secure data sharing and payment processing at the online checkout. Open banking integrations seamlessly accommodate customers’ preferred payment methods, whether through direct bank transfers, use of mobile apps of other open-banking-enabled options.
Security is a paramount concern in open banking. Online retailers should all, by now, have adopted robust security measures including multi-factor authentication, encryption and tokenisation to protect customers’ financial information. Regular security audits and compliance checks should be carried out to maintain data integrity.
A fundamental aspect of open banking is customer consent. eCommerce platforms should allow customers to grant or revoke access to their financial data at the checkout. This could be facilitated through mobile apps, direct bank transfers or QR codes. Ensuring that customers have control over their data generates trust and confidence in open banking services.
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Open banking relies on real-time access to financial data. Retailers must ensure that their systems are equipped to process transactions seamlessly, check account balances, and apply discounts or loyalty points in real-time. This requires reliable, high-speed internet connections and optimised network infrastructure.
To maximise the benefits of open banking at the online checkout, retailers should integrate loyalty programs and discounts into the open banking ecosystem. This can be achieved through APIs that link customer accounts, enabling automatic application of rewards or personalised discounts.
While open banking is growing in popularity it can be a new concept for some customers. Retailers will benefit from helping their core audience to understand how it works, how it can help them, and the risks. They could consider online resources and guides and training customer service teams to answer open banking-related enquiries.
Merchants win too
While there are clear advantages for customers, the adoption of open banking processes has major benefits for retailers too. Offering alternative payment methods and bypassing traditional card payment networks, has the potential to reduce the associated transaction fees. This also speeds up the online checkout process, making it more streamlined for customers to complete their purchases, and encourage loyalty.
In addition, because open banking enables real-time payments, retailers can receive funds instantly rather than waiting for traditional payment settlement times. The positive impact on cashflow and working capital are undeniable. The streamlining of account reconciliation is another bonus, with open banking APIs simplifying the process and reducing manual efforts for eCommerce back-office operations.
The integration of open banking into the online checkout process represents an exciting opportunity for both retailers and consumers, but getting it right means investing in the right technology and integrating with the wealth of APIs that are available.
The transition to open banking will be revolutionary for the customer experience if retailers can provide a seamless, secure, and customer-centric payment process that aligns with the evolving landscape of modern banking. The key to success lies in adapting quickly, investing in robust security measures, and ensuring customers are well-informed and in control of their financial data.
Ralf Gladis is CEO at Computop