Fintech Insights

Join the Open Banking revolution

May 13, 2020

The new path to customer loyalty

Consumers pay in any number of ways and loyalty programs are key in driving their payment method of choice. From points on credit cards to better interest rates at financial institutions and shopping reward programs, there are loyalty programs associated with almost every business, payment method and bank.

Merchants know how competitive it can be to keep consumers coming back again and again. Not only do they have to capture their customers’ attention initially, but they must provide an engaging online experience all the way to checkout. Anything less than an ideal shopping journey can increase cart abandonment rates.

Knowing what payment types their customers are using can help merchants keep their customers through checkout and drive loyalty. The 2020 Global Payments Report already shows a worldwide trend toward digital wallets which eases the checkout process by not requiring the customer to input payment details every time they shop online. But there is another payment method to consider.

Introducing Open Banking

Open Banking is a new payment solution that’s driving more innovation, competition and clarity around the payment journey. Open Banking gives consumers a secure way to make payments directly from their mobile or online banking app using a credit transfer.

Open Banking also allows consumers to easily compare competing products from different financial providers leading, to more choice and better products while also helping them better manage their finances.

Merchants benefit, too

Enabling Open Banking provides customers with a better experience by building on brand trust and security, improving the payment experience and helping increase transaction approval rates.

Open Banking also helps reduce the number of chargebacks a merchant must deal with. When customers can authenticate directly from their bank account, there’s less risk they forget about the purchase and initiate a chargeback claim.

Additionally, when purchases are authorized directly through the customer’s bank it may speed up the timeframe to funding the merchant’s account. While settlement timeframes continue to improve with real-time payments, there’s still a small waiting period for payments authorized by the card networks.

Open Banking security guidelines

Making payments even easier is important, but it’s important that security is not compromised. According to the Open Banking, Preparing for lift off report, there are five principle security and trust guidelines protecting consumers:

  1. Consumers never share their username and password with any entity other than their bank
    Consumers give consent to the third-party provider (TPP) but authenticate directly with their bank. This is known as the redirect model and lets consumers keep banking credentials private. Furthermore, to allow access into a TPP’s mobile app, banks must let consumers authenticate on their mobile device.
  2. Opt in, not opt out
    Ultimately, it’s the consumers decision to give TPPs access to data.
  3. Data can only be shared with consumer consent
    Consumers must provide consent if data will be shared with each TPP and must be re-approved 90 days after the initial approval.
  4. Rescind as easily as permit
    Consumers will use a permissions dashboard through the bank or TPP which allows for easy management of each TPP they work with.
  5. Authorized third parties only
    TPPs have to be authorized by the Financial Conduct Authority (FCA) as an Account Information Service Provider (AISP) and/or a Payment Initiation Service Provider (PISP). Only these TPPs can register on the Open Banking Directory.
    As more banks, third parties and customers are looking to engage in Open Banking opportunities, we can help you prepare. Contact us for more information on our Open Banking solution.