Exclusive: ‘Shuffling the payments pack’ – Ossama Soliman, TrueLayer in “The Paytech Magazine”
Ossama Soliman, Chief Product Officer at TrueLayer, on why open banking payments will replace cards online
Open banking is set to have a big impact on online payments, and 2021 could be the turning point. The convergence of technology, regulation and economic conditions is giving open banking the momentum it needs to offer a mass-market alternative to card payments. As more customers have turned to digital channels to manage every aspect of their lives, they have experienced a poor payments service. The problem is cards, which weren’t designed for use online and have been retrofitted into current online payment flows. Newer, digital approaches, such as Google Pay or Apple Pay, paper over those cracks but don’t change the fundamentals.
The introduction of strong customer authentication (SCA) adds another layer of friction to cards, with workarounds that deliver a poorer customer experience. Some studies have suggested that the impact on conversion could see Europe’s online economy lose €57billion. But with open banking payments, authentication is integrated into the payment flow, with the consumer often using biometrics such as fingerprint or face ID to identify themselves in their banking platform.
Building a head of steam
Digital banks were among open banking’s earliest adopters, using it to provide money management services to customers. It is adding value to a much wider range of businesses, from app-based investment and trading platforms, foreign exchange and remittances, to e-commerce and online gaming services – where card processing fees and manual bank transfers are stinging merchants. Open banking-enabled payments will become the default way to pay online, replacing debit cards and benefitting businesses and consumers.
In our experience, they are already comfortable using open banking payments and they are increasingly displacing cards in customer checkouts. The open banking adoption figures in the UK speak for themselves. In mid-February 2021, the UK Open Banking Implementation Entity (OBIE) announced that more than three million people and businesses are using open banking-enabled apps and services in their daily lives. In 2020, the number of open banking users doubled to two million: it’s taken just five months to surge by another million.
Benefits to the consumer
The economics for the consumer are simple: it doesn’t cost anything but provides them with a lot more. How many times have you got to a payment step and realised you need to grab your card because you can’t remember the full number or CVV (card verification value) code? We’ve all been there. Open banking removes the need for customers to know their card details. Instead, payments are authenticated with their face or fingerprint on their mobile device, instantly and securely. Plus, they’ll never need to update stored details if their card is lost, stolen or expires. There’s also more protection as they’re less likely to be the victim of fraud, since open banking payments use bank-grade security.
Speed is also a big benefit. In many industries, slow payments are a long-standing source of frustration, complaints, bad reviews – and, ultimately, customer churn. A 2020 study from YouGov and TrueLayer, found that 60 per cent of customers are more likely to trust a provider that offers instant payments. In the case of services like online trading and investment platforms, around half of customers are likely to switch to a provider that offers instant withdrawals.
There are, of course, challenges in introducing a new payment method that consumers aren’t used to. However, our clients typically find that open banking payments reach 30 per cent share of checkout within three months of launch. Customers paying this way also deposit 30 per cent more in value, and three times more often, than those using other methods.
Benefits to the merchant
There are various reasons why open banking payments make sense for merchants, too. The biggest is that they offer higher conversion: with success rates above 95 per cent, and a 20 per
cent higher overall conversion than cards. That means higher revenue and potential profits.
Take the example of a large e-commerce retailer which, every month, sees customers put £100million in potential sales into their carts and go to the checkout page. With cards, a little fewer than half of customers will actually fill in their card details. So the £100million becomes £50million. Of those customers who do fill out their details and click pay, 85 to 90 per cent will experience a successful transaction. So, from a potential £100million put into carts, the retailer is actually netting £45million in sales. With open banking payments, that would be £70million. TrueLayer has some customers who, based on that scenario, are consistently netting the equivalent of £90million.
I’ve used an average case to illustrate the point but, even there, open banking payments are increasing sales from £45million to £70million or more. That is a 40 to 50 per cent increase in sales, equating to hundreds of millions in recovered revenue each year. That differential is likely to get even bigger, as merchants implement workarounds for card payments due to SCA. Some studies suggest it could negatively impact card conversion by 20 to 30 per cent.
And there’s another bonus. While card-based fraud losses continue to hurt businesses, open banking payments are authenticated directly with the bank, and biometrically with the payee, significantly reducing fraud risk and saving businesses around half-to-one per cent of revenues.
Setting a new standard
It’s time to fundamentally change the way we pay online, from cards to instant bank payments, via by open banking. Open banking is digitally-native and mobile-first by design. Bank-to-bank payments move money at a fraction of the cost, securely and conveniently, while also delivering a vastly better consumer experience. There is a huge opportunity for banks to improve the experience, remove legacy card infrastructure and move money at a fraction of the cost, more securely and with a higher level of customer service and convenience.
We’ll see open banking brought to the masses through sectors such as subscriptions, marketplaces and e-commerce. In just a few years, it will be the default way to pay online.