Leveraging Open Banking and Pay By Bank to Enhance Merchant Payment Efficiency

In today's fast-paced financial landscape, open banking and pay-by-bank solutions have become increasingly important for merchants. 

The adoption of pay by bank is now among the top three payment methods in several European countries, according to a survey conducted by Brite Payments and YouGov. The survey found that 73% of consumers are familiar with pay by bank, or account-to-account (A2A) payments. And recent reporting indicates that pay by bank represented 18% of eCommerce transactions in Europe last year.

Businesses using open banking and pay-by-bank can often realise a range of benefits, including reduced processing fees, quicker settlement of transactions and increased transparency. In our experience, merchants are increasingly viewing these services as important tools for enhancing efficiency and improving the customer experience. 

What is open banking and pay by bank?

Open banking refers to the practice of sharing financial data between different financial institutions using advanced connectivity technology, such as application program interfaces (APIs). Pay by bank, on the other hand, is a payment method that allows customers to make payments directly from their bank accounts without the need for a credit or debit card. These solutions have become increasingly popular in recent years owing to their ability to streamline payment processes and enhance customer experience.

Advantages merchants simply can’t ignore

One of the key advantages of open banking and pay by bank for merchants is reduced processing fees. By eliminating the need for intermediaries, such as card networks, merchants can significantly reduce their transaction costs. Additionally, pay-by-bank payments settle more quickly than cards (instantly compared to 1 – 3 days). Pay-by-bank payments also convert at rates of up to 40% higher than do card-based payments. This is in large part because consumers can make such payments faster (because pay by bank is designed from the ground up for digital and mobile); the process is less manual for the consumer; and, because pay by bank is done in real time, payment success rates are higher.

Another advantage is increased transparency. Merchants can access real-time transaction data to help them make more-informed business decisions. This data can also be used to identify trends and patterns, which can help merchants optimise their operations, tailor the shopping experience to customer preferences and improve their bottom line.

Customers benefit from seamless payment solutions

In addition to the benefits for merchants, open banking and pay by bank can greatly enhance the customer experience. These services offer ease of use and seamless payment solutions, which can help improve customer satisfaction. Additionally, the data gathered through open banking allows for personalisation of services, which can help merchants build stronger relationships with their customers. This ultimately leads to greater brand loyalty. 

Key considerations for successful implementation

During implementation, there are several regulatory and compliance considerations that merchants should consider. For example, the General Data Protection Regulation (GDPR) and the Payment Services Directive 2 (PSD2) have specific requirements for the handling of customer data and the security of payment transactions. Merchants must ensure regulatory compliance to avoid potential legal and financial consequences, all while considering the privacy and security implications.

These solutions involve the sharing of sensitive financial data, which can be vulnerable to cyberattacks and fraud. To address these concerns, merchants must implement data-protection measures and anti-fraud measures, such as two-factor authentication and transaction monitoring.

Integration with existing payment systems is also an important consideration. These services must be interoperable with other payment systems to ensure that merchants can seamlessly integrate these features into their existing operations. This requires careful planning and coordination to make sure that the integration is smooth, efficient and successful. 

Gazing into the crystal ball: Future trends and innovations

Looking ahead, the open-banking sector is set for a series of exciting developments and innovations. Artificial intelligence and machine learning are being meticulously harnessed to bolster the reliability and efficiency of financial services, maintaining a balance between innovation and supervision. This tech is poised to revolutionise data analysis, enabling businesses to streamline their operations and boost their profitability.

Additionally, the adoption of these advanced financial services is expanding in emerging markets. With increased mobile banking usage, there's a heightened demand for banking solutions that are both secure and convenient.

Moreover, the industry is making strides toward better standardisation and interoperability. As a growing number of banks implement these services, there is a clear need for agreed-upon standards to ensure seamless integration. This calls for collaboration among banks, regulatory authorities and other stakeholders.

The upshot is, open banking and direct-bank payment methods are offering significant advantages to businesses and customers, including reduced costs, faster transaction times and greater transparency. However, the integration of these services requires a diligent approach to regulatory compliance, data security and compatibility with existing payment systems.