Foreword by Francesco Simoneschi

Ecommerce is outgrowing card payments — here's why

Card payments have been incredibly successful at driving global commerce over the last century, but they weren’t designed for digital commerce. They were invented in the 1950s by a businessman who forgot his wallet in a restaurant.

Consider the last time you made a card payment online. Maybe you searched for your wallet. You probably had to type in your 16 digit card number, expiration date and CVV code – or had to accept risk by trusting a website to store them (there were £574 million of unauthorised card payments in the UK in 2020, according to UK Finance).

Perhaps you had to confirm your identity several times (because of new Strong Customer Authentication measures, implemented badly). If you were lucky, your payment didn’t fail (5–15% of card payments fail). And how many of your online subscriptions have been paused because of cancelled or expired cards?

"As commerce continues to shift online we need a payments system that enables innovation and businesses to flourish."

We’ve gotten used to these experiences, but the truth is that cards are old form factors that have been retrofitted to digital commerce. The result is poor user experience, operational problems, high fees and fraud.

But it’s more fundamental even than that. It’s a business model problem. There are seven parties involved in every card transaction: the customer, the payment gateway, the card scheme, the payment processor, the merchant’s bank, the merchant and the customer’s bank. And often others too (payment facilitators, checkout providers, dispute management systems and so on). That means more cost, more complexity and more points of failure.

Tokenisation and wallets like Apple Pay have papered over some of the cracks in payments experience, but they’re built on top of the same old, costly, complex card infrastructure.

Digital commerce is unstoppable in the UK and Europe, and through the pandemic we’ve seen the momentum build. As commerce continues to shift online, we need payment methods that enable innovation and businesses to flourish.

Enter open banking payments

In 2015, policy makers in the UK and Europe brought in open banking and it is already underpinning much of the payments innovation we are seeing today.

Open banking enables customers to pay straight from their bank account at checkout, instead of using a card. It involves fewer intermediaries, which minimises cost and friction. Payments settle instantly and authorisation rates are high. They’re incredibly safe since card details are not shared.

They’re also easy to use: you just need a mobile phone and a bank account.

Refunds, a huge issue for retailers, have often been considered the Achilles heel of open banking, because they were not included as an original feature. But open banking providers like TrueLayer have changed this, making refunds as instant as the initial payment.

Open banking is still evolving as a payment method – and we have some details to figure out. But it is the best opportunity the industry has to create a fair payments framework for businesses, which delivers a better experience for customers.

You can read more about the rise of open banking at the end of this report. I hope you find this guide useful – and we’d love to hear your feedback. Get in touch

"Open banking is underpinning much of the payments innovation we are seeing in the market today."

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Francesco Simoneschi,

CEO & Co-founder