Open banking has emerged as a transformative force in the world of payments, promising increased transparency, efficiency, and innovation.
However, its true potential is yet to be fully realized. In order to assess its strengths and weaknesses, it is crucial to examine its current state and understand the factors that will drive consumer adoption.
From a consumer perspective, user-friendliness is paramount. If the payment experience is cumbersome or confusing, users are unlikely to embrace it.
Mobile phone payments offer a more frictionless experience compared to laptop or desktop payments. Nevertheless, the requirement to capture a QR code photo and access the banking app may hinder the checkout process.
As more payment journeys incorporate secure identification techniques, consumers are becoming more tolerant, perceiving their money as safer.
Psychological limits also come into play when considering bank payments. Unlike card payments, which offer chargeback and buyer insurance protection, Open Banking lacks these safeguards.
If a product or service does not meet expectations, obtaining a refund or disputing the transaction may prove challenging. As Open Banking evolves, we can anticipate the user journey to develop, potentially including extended credit lines and enhanced buyer protections.
Certain sectors face specific barriers to adoption. Transaction size limitations, return and refund administration, and recurring payments pose challenges for subscription-based businesses.
Despite these hurdles, the primary benefit for merchants lies in reduced costs. Studies have shown an average 50% reduction in costs compared to previous payment methods.
Open Banking charges per transaction, typically ranging from 0.10p to 0.20p, along with a percentage based on the business risk profile. This is considerably more favorable than the fees associated with traditional card payments for small to mid-size businesses.
Eliminating chargebacks is another advantage of Open Banking. With rising concerns about "friendly" fraud and its impact on businesses, Open Banking requires consumers to provide evidence of defective or undelivered goods, reducing the risk for merchants. This aspect has particularly resonated with the gaming industry, although adoption has been varied due to some gamers' preference for wallets over direct bank payments.
To drive adoption, it is crucial to address consumer awareness and preferences. The key opportunity to promote Open Banking lies at the sign-up and first deposit stage. However, many consumers still favor traditional brand names over a generic "pay by bank" link.
Education and awareness campaigns are needed to highlight the benefits and security of Open Banking.
Moreover, collaboration between banks, technology vendors, and merchants is essential to accelerate the growth of Open Banking. Banks need incentives to innovate and expand their online offerings, such as credit wallets, product insurance, and streamlined refund processes.
These features would differentiate Open Banking from the existing card system monopoly and shift consumer preferences towards this emerging payment method.
By fostering collaboration and innovation, stakeholders can unlock the full potential of Open Banking and shape the future of payments in a more efficient and customer-centric manner.