While 5+ years ago much of the optimisation focus was on UX, in recent years this has extended both to the number of required fields and design of the payment page, payment methods offered, and more sophisticated approaches to balancing out false positives with fraud.
However, despite all the innovation behind the scenes, there is one payment method that:
- is frictionless for your shopper,
- saves you up to 90% in transaction costs compared to card schemes,
- has almost zero fraud,
- settles your funds instantly,
and the real kicker? You probably aren’t using it.
Frictionless for your shopper, saves you up to 90% in transaction costs compared to card schemes, has almost zero fraud, and which you probably aren’t using.
Open banking payments, also known as Payment Initiation Services or account-to-account payments - is the method in question.
Let’s talk about reduced fees
Credit card processing comes with three fees; a processing fee, which is charged by your payment provider for processing the transaction, a card scheme fee, which is charged by the card schemes for using their network, and an interchange fee, which is charged by the shopper's bank. Some innovative payment providers will work with you to ensure your payments are transparent and as low as possible. But even with this help, complexity and cost remains high. This leads to an expensive way for you to accept payments – generally anywhere from 1-4% per transaction.
But with open banking payments, the transaction is simply between two bank accounts, enabled by a provider such as YTS. This simplicity and the fact that fewer parties are involved means that fees can be a lot lower – by as much as 90%. This can protect your margins, particularly at scale, in the competitive ecommerce space.
Onto the shopper experience and reduced fraud
You have probably gone through checkout experiences like this: you add something to your cart, enter your payment details, hit buy, and expect your transaction to be approved. But instead, you are asked to enter your card details, and then are redirected to go to your bank app to confirm the payment.
Not the most intuitive or smooth payment experience.
The issue is that while the intention – to reduce online fraud – is good, it can have a negative impact on the checkout experience, leading to even more abandoned carts. And with Strong Customer Authentication (SCA) growing in the EU and being enforced in the UK from March 2022, look out for a potential increase in abandoned carts along with the lower fraud.
But with open banking payments, your shopper is automatically redirected to their bank app to use their face, fingerprint or other secure method to approve transactions. This provides a fast and seamless checkout experience, which increases conversion, reduces fraud to almost nil, and along with already-lower fees, further drives down the overheads of running your ecommerce business.
In a click and collect world, protect yourself from the cost of refunds
Growth in “click and collect” has accelerated in the past year along with pureplay ecommerce. But there is an unfortunate downside to this phenomenon – an increase in refunds as shoppers can’t try certain items in store.
The benefit of open banking payments in the context of refunds is the lower transaction fee. For example, if a shopper buys shoes online with a credit or debit card and it costs €1 or £1 to process that payment, and then returns the item, the transaction cost is lost and no profits from the sale is made. For businesses that experience a high rate of returns, such as clothing or shoe brands, that adds up quickly. But transaction costs are far lower with open banking payments, offering some protection.
The white space of open banking for retail: Account Information Services
Open banking payments offer a range of benefits to retailers. But there is one other area which offers an intriguing and - as yet - mostly unexplored area for retailers to grow – Account Information Services. AIS enables you to extract individual or company transaction and balance data from multiple accounts.
In the context of retail, what could this mean? Perhaps offering upsell and cross-sell to certain shoppers based on their transaction data. Or perhaps gain a clear view into shoppers’ finances and use it to offer tailored payment plans to their shoppers – particularly interesting as BNPL (Buy Now Pay Later) payment options continue to grow in popularity.
Find out more
There are a range of benefits to retailers considering how to innovate their businesses and improve their shopper experience in the context of open banking. To find out more, contact us.