Report
Beyond Cards
The rise of alternative payment methods UK & Europe 2022
In partnership with Edgar, Dunn & Company
chapter 6
Open banking – the APM accelerator
Alternative payment methods are projected to grow significantly in the next four years, though payment cards will continue to be important in most markets across Europe.Open banking is behind many of today’s payments innovations. By allowing fintechs and third party providers direct access to bank accounts via secure, regulated APIs, open banking has created:
- A new pan-European bank payment method
- A framework for payments innovation
Open banking as a payment method
Open banking payments are likely to become the dominant method of bank transfer payment in ecommerce in the next five years, as well as acting as underlying rails for other alternative payment methods such as BNPL or wallets. Open banking payments offer a number of advantages:
- Consumers pay straight from their bank account – and in many markets they authenticate with their face ID or fingerprint.
- Funds settle with the merchant instantly or near-instantly, helping them manage cash flow and enabling them to ship goods immediately.
- Coverage is pan-European, because EU banks are required to have APIs available (in contrast to schemes that only work domestically, such as iDEAL in the Netherlands and Swish in Sweden).
- They can be embedded into checkout since open banking providers integrate with their clients (merchants) via API, as well as integrating into banks via API. This generally means that the payment starts and ends in the merchant’s app or website, increasing convenience for consumers.
- They are based on secure, regulated APIs. No credentials are shared, significantly reducing the risk of fraud.
6.0 Successful open banking payments 2020–2021 (millions)
Several factors are helping to accelerate the take up of open banking in the UK and across Europe, including the growth in ecommerce (52% of shoppers were motivated to buy online during the pandemic according to Businesswire), the development of real-time bank payment systems and advanced APIs.
Open banking as a framework for payments innovation
But open banking is more than a new type of bank transfer payment.By bringing together customer bank account data with payment initiation, open banking creates a new innovation framework. It makes payments smarter and enables merchants and PSPs to improve processes throughout the purchase journey.Examples include:
- Verifying accounts – using transaction data to verify that the payer owns the bank account (accelerating KYC)
- Eliminating lost and failed payouts – using bank-verified account information to pre-populate payment setup
- Affordability – assessing whether a customer can afford a product or service (such as a loan, investment or gambling spend)
Open banking turns bank accounts and bank payment rails from black boxes and dumb pipes into data-rich manifestations of customers, and allows merchants to streamline the end-to-end purchase journey, from KYC to settlement of funds, reconciliation and refunds.
OPEN BANKING PAYMENTS
Build your open banking strategy with a trusted partner
Offering the right APMs can help you reach new customers, increase sales and deliver operational efficiencies.In a survey of ecommerce merchants by YouGov and TrueLayer, three quarters (74%) said open banking payments were in their long term strategy.But while open banking APIs are pan-European, the maturity of open banking user experience and API reliability varies by market, which presents challenges for merchants.It’s important to build your open banking payments strategy with a trusted partner, to help you navigate the opportunities and challenges of open banking and support you with implementation on a global scale. You might also need a partner that can provide additional functionality not available through out-of-the-box open banking, like instant refunds.TrueLayer processed billions in open banking payments in 2021 for our partners, from fintechs like Revolut to ecommerce providers like Cazoo.
Build your open banking strategy today. Get in touch
Build your open banking strategy today. Get in touch
Beyond Cards
About this report
Data sourcesPayment methods market share was developed using data from various sources including:
- Edgar, Dunn & Company’s Global Payments Model
- Global Data
- Statista
- Individual country payment associations
- JP Morgan
- 2021 World Payments Report by Worldpay by FIS
- European Central Bank and member state central banks
- Specific websites such as alt.fi and eurocommercenews.eu
- Major business publications such as Forbes and Financial Times
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