Open banking payments: open for business

By Tom Pope, head of payments and platforms at Tink

The UK fintech sector is growing at an exponential rate, with the Confederation of British Industry (CBI) estimating it could yield an additional £32bn for the UK economy by 2030.

But as highlighted in the CBI’s recently-launched ‘Winning with Fintech’ campaign, in order to continue fuelling growth, more brands need to tap into the “flotilla of benefits” on offer from the country’s world-beating fintech sector. And one such benefit to businesses is the open banking payments opportunity.

To date, innovation in payments has given rise to new categories like BNPL and birthed new payment brands like Klarna. But payments innovation isn’t just about adding yet another new brand name to sit alongside card payments. It’s also about meeting rising consumer demand for a payments experience that is more seamless and embedded in the customer journey. This is more important than ever, as our recent research revealed that 88% of customers are prepared to abandon a transaction if faced with friction when making an online payment.

So, how can businesses meet consumer expectations when it comes to payments? The answer is through open banking.

Payments – the open banking opportunity

It’s evident that users want to know that payments are secure and reliable, with over half (58%) of Brits now expecting payments to be completed in one click.

Thankfully, businesses are increasingly waking up to the enormous potential of open banking to truly transform the future of financial services. And while, thanks to these developments, we are closer than ever to a payment method that offers near-perfect success rates, practically zero fraud and zero chargebacks (all with a great user experience), it is not yet ready to take on all payment flows. But savvy merchants are seeing spectacular results by adopting it for account top-up payments or bill payments, where open banking is fast becoming mainstream. Even more remarkably, this growth is all organic — there is no open banking marketing budget. Open banking is growing only because it offers a superior user experience.

Essentially, what we need to do is think of payments on a spectrum. There are examples of great payments experiences (think Apple Pay or Amazon one-click for e-commerce), but there are also examples of poor payment experiences that are ripe for innovation and disruption. Bill and top-up payments are being disrupted now, but merchants in other sectors are waking up to the opportunity and the most innovative thinkers are starting to move now.

Secure, seamless and simple

In addition to massively reducing transaction costs, open banking payments have clear advantages that can bring significant benefits to merchants and consumers alike.

For example, with open banking payments, you don’t need coins, notes, cards, or a good memory for long numbers. All a payment needs is permission from the consumer, granted directly using the provider they trust the most – their bank. This method leads to near-perfect end-to-end success rates.

Another benefit is that it’s the first-time businesses can properly control the user experience. They don’t need to have a separate payment brand involved or redirect someone to a different log-in or website, which irritates consumers. They retain control of the customer journey.

What comes next?

The recent development of a robust open banking regulatory environment has provided a strong foundation for payments innovation to take off.

This virtuous circle of innovation in open banking now needs to continue; something that can only occur if industry players continually work together. Financial services players must continue to enhance APIs — which may come in the form of further regulation, or individual large payments providers working with banks bilaterally.

Variable Recurring Payments (VPRs) clearly have a lot of promise for the payments industry and are the next step in the journey for open banking payments. We see a ‘bank on file’ experience emerging to replicate ‘card on file’, which could then truly extend the reach of open banking payments into commerce.

There’s no question that open banking is a game-changer for payments. Yet it’s clear that more needs to be done to raise awareness of the benefits offered to businesses and consumers. We are currently sitting at a tipping point for mass market adoption across Europe; an exciting time for the industry to enable fully embedded payments into the customer journey.