Debunking a payment myth: why open banking is ready for mainstream

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Francesco Simoneschi, CEO & CO-Founder
19 Mar 2021
money moving sideways

I want to share with you a few facts and data points which challenge the myth that consumers don’t trust or use open banking.

At TrueLayer, we process more than half of the open banking volume in the UK — whether you measure it by API calls or by payment volume — giving us a unique perspective on this topic.

We’ve found that:

  • open banking payments typically reach 30% share of checkout within a few months of launch — and for some of our clients, it’s as high as 80%

  • consumers paying with open banking typically deposit 30% more in value and three times more often than those using other methods

  • the total value of open banking payments we’ve processed has increased by 250x in the last 12 months

  • at the current rate of growth, 60% of the UK population will have tried open banking by September 2023

What are open banking payments?

Open banking payments move money directly from the payer’s bank account to the seller’s bank account, without using a third party payment network (known as ‘Payment Initiation’). It has all the low cost and security benefits of traditional bank transfers, with better UX.

Now let’s get to the main reason for this blog: why the idea that consumers don’t trust and won’t use open banking payments, is a myth. There are two important reasons:

  1. Consumers are not ‘loyal’ to payment methods: they care about convenience (and security).

  2. Take up of open banking payments isn’t low, it’s just not widely available yet.

I’ll explain these points further below.

1. Consumers are not ‘loyal’ to payment methods: they care about convenience (and security).

In our experience, consumers are not particularly loyal to payment methods — rather, they care about ease of use and security.

Here, open banking payments have the advantage. Unlike cards, they were designed for the digital world and built for mobile. Open banking payments are authenticated using biometrics like face ID or a fingerprint, making them both automated and highly secure. There’s no friction from having to manually key in bank details, fraud is virtually eliminated and payment success rates are higher than 95%.

For the most part, the open banking payment flow is customised, meaning a consumer doesn’t need to learn to trust a new payment brand: the only brands they need to trust are the merchant they’re buying from and their own bank.

We work with our clients to help them build high converting, frictionless flows and these flows are very competitive with other payment methods. We typically find they convert 20–40% better than cards in the UK for example.

2. Take up of open banking payments is not low, it’s just not widely available yet.

Open banking is still a new payment method and today only a small proportion of merchants have implemented it. But where this payment option is offered to consumers, adoption is skyrocketing and it’s displacing cards at checkout.

Our clients typically find that open banking payments reach 30% share of checkout within a few months of launch. For some, it even reaches 80%. Our clients also typically see that consumers paying this way deposit 30% more in value and three times more often than those using other methods.

With all the benefits that open banking payments provide to merchants (low fraud, low cost, instant settlement), high adoption means that more value is delivered.

To some extent then, this revolution will be merchant-led. We expect more and more businesses who transact online to integrate open banking payments over the next year, meaning that more consumers will try it.

In the UK overall, there are 3 million open banking users, according to the Open Banking Implementation Entity (OBIE), which is 5% of the general population. At the current rate of growth, we would expect that 60% of the UK population will have tried open banking by September 2023.

How ‘ready’ are open banking payments across Europe?

If we look at open banking payments through a geographic lense, the picture is more complex.

The UK has had a head start on open banking, thanks to strong regulation and a common API standard. This meant the banks serving the critical mass of UK consumers were compelled to build high quality APIs to an ambitious timetable, ahead of European banks. UK banks have delivered consistently on features like app-to-app and biometric authentication, which has led to a frictionless user experience.

The virtuous circle of volume and user experience is working well in the UK: lots of volume is being pushed through these rails, which gives UK banks the opportunity and incentive to improve their APIs and user flows, based on feedback from companies like TrueLayer.

In the UK, payments also settle in real time, using the Faster Payments network.

In Europe, we’re 6–12 months away from the UK. The maturity of open banking infrastructure varies, with banks coalescing around nation states when it comes to implementation. German banks for example are typically using XS2A standards while French banks use STET.

In markets like the Nordics and Germany, customer journeys are not too far behind the UK, when you compare conversion rates. In markets like Italy on the other hand there is still a fair amount of work to be done to improve user flows.

The approach we take at TrueLayer is to advise our clients on the best countries to launch in and to let them know where take up might be slower, as user experience is poorer. We also give lots feedback to banks and regulators, to help them eliminate issues and improve reliability — then we usually see fast progress.

What the future looks like

Digital banks were some of the earliest adopters of open banking, using it to provide money management services to their customers. Open banking has also gained traction in financial services more broadly, where it can help merchants meet regulatory requirements and accelerate customer applications and sign-ups.

But we’re now seeing open banking payments add value to a much wider range of businesses, from app-based investment and trading platforms, travel and remittance to online gaming services and ecommerce sites — anywhere where card processing fees and manual bank transfer processes are stinging merchants.

Open banking payments are ready for the mainstream in the UK — and we’re not far off in Europe. In the coming years, we’ll see them brought to the masses through sectors such as subscriptions, marketplaces and ecommerce. In the next five years, this will be the default way to pay online.

To hear more from Francesco on this topic, as well as experts from the FCA, the PSR and Amazon, watch this Keynote Panel discussion from Pay360: Open Banking, Innovation and Customer Impact.

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