Open banking payments in Australia – the what, the why and the how

What are open banking payments and how will they work in Australia?

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Australia is closing in on launching a new way to pay called ‘open banking payments’ and they will be transformational for ecommerce, online gaming, wealth management and many other industries. Open banking payments are a safe, instant and cheap way for businesses to take payments online by allowing customers to spend money from their bank account, without the hassle of pulling out a debit card or making a traditional bank transfer. TrueLayer already processes billions in open banking payments in the UK and Europe, where merchants and consumers are embracing this payment method. We route more than 50% of all open banking traffic in the UK, Ireland and Spain – and we believe the future of payments in Australia will be powered by open banking. In this blog, we'll explain how open banking payments will work in Australia, harnessing the power of the Consumer Data Right (CDR).

What are open banking payments?

Open banking payments allow money to move directly from one bank account to another bank account without the hassle of debit cards or traditional bank transfers. Your customer simply chooses this payment method at checkout, selects the amount and the bank, and gets automatically redirected to their bank to confirm the payment. The money moves and TrueLayer redirects your customer straight back to your app so they can continue on your customer journey.

How fast are open banking payments?

In the UK, TrueLayer moves money on the Faster Payments network, which is like Australia’s New Payments Platform, and it typically takes only a few seconds.Our in-house data shows open banking payments in the UK grew 13-fold from 2019 to 2020 and have continued to grow strongly in 2021. We expect 60% of the UK population to be using open banking by 2023. Our happy customers include Revolut and Freetrade, who are building their market-leading businesses using our payments technology for instant deposits and withdrawals.

Why does my business need to start thinking about open banking payments?

There are a few factors driving the momentum of open banking payments around the world, and these drivers are also in force in Australia.
  1. Consumers want smooth and secure digital shopping experiences. As ecommerce sales accelerate, partly thanks to COVID-19 but in line with long-term trends, customers want a better experience than having to key in details from a physical card to buy online. Open banking payments are digitally native and designed for online and mobile.
  2. Debit transactions are increasing, while credit transactions are flattening or decreasing. Open banking is a faster and cheaper way for your customers to access their bank account to make debit payments – easily.
  3. Cards weren't designed for digitally native commerce and finance at scale. They have high transaction costs at 0.5-4%; slow settlement means there is a lag before the cash reaches the merchant's bank; high fraud rates cost Australian business $447.2 million between July 2019-2020; and businesses lose an average of 25-50% of sales thanks to the extra friction at checkout (created by needing to find the physical card and enter the details).

Why are open banking payments better?

Open banking payments require a bank to process a valid payment instruction sent by a CDR accredited person, as if that instruction has come from the bank’s customer through any other digital channel. In this way, open banking payments move funds directly from one bank account to another via secure and regulated open APIs, after a customer has given authorisation. Cards, digital wallets and bank transfers are either expensive or inconvenient. Open banking leverages highly regulated APIs to create near-instant, inexpensive and secure payments.It typically converts 20-40% higher than cards, and the payments are more likely to succeed. Fraud is lower because every payment is strongly authenticated. And settlement is instant because they typically leverage faster bank payment rails.

Simple, modern and app-to-app enabled

Simplicity is key in how open banking payments work.Let's say a customer is making a payment through an app. They select the open banking option and confirm the amount and the bank they want to use. They are automatically redirected to the bank to confirm the payment. That money is instantly added to the merchant's account, and the user receives confirmation.In the UK, TrueLayer's data shows 1 in 3 customers choose open banking payments when offered at the checkout, and most never go back.

Example of an open banking payment journey in the UK

What kinds of businesses should use it?

Our experience in the UK and Europe shows that a vast range of businesses stand to benefit from open banking payments, when available in Australia, including:
  • ecommerce retailers
  • merchants with high transaction values (who feel the pain of card and wallet transaction fees and spending limits)
  • businesses frustrated by interchange fees and chargebacks
  • companies in high risk industries like igaming and financial services with heightened compliance requirements to monitor for fraud.

I'm in! How can I use open banking payments in Australia?

For open banking payments to become a reality, we need Australia's CDR legislation to evolve. ‘Payment initiation’ is a great example of ‘action initiation’ enabled through the CDR – and it was recommended as a priority by Scott Farrell in his Future Directions report. In fact, he mentioned ‘payment initiation’ a total of 268 times!We anticipate that 'action initiation' – the power for consumers to authorise an open banking provider to take an action for them, such as making payments – will be endorsed when the government responds to Future Directions, before the end of the year.Here at TrueLayer, we're preparing by launching our data API, followed by our payments API next year, when the real-time payments network PayTo is switched on.From then onwards, we’ll be launching new products and solutions to build on top of open banking rails and provide deeper value to our customers.Contact us to learn more about how you can work with TrueLayer to harness the power of open banking payments in Australia.
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