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.
Open banking payments rolled out from 2018 across Europe, but it is most mature – in terms of adoption and conversion rates – in the United Kingdom. In 2021, more than 20 million successful payments were made, with an estimated total value of more than £10 billion.
There are now more than five million open banking users. At the current growth rate, almost two thirds of adults will be using open banking by the end of 2023.
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.
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.
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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.
Build your open banking strategy today. Get in touch
About this report
Payment methods market share was developed using data from various sources including:
Edgar, Dunn & Company’s Global Payments Model
Individual country payment associations
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
TrueLayer is a global open banking platform that makes it easy for anyone to build better financial experiences. Businesses of every size use TrueLayer to power their payments, access financial data, and onboard customers across Europe, the UK and Australia. Trusted by millions of consumers and businesses around the world, our vision is to create a financial system that works for everyone.
Edgar, Dunn & Company
Edgar, Dunn & Company (EDC) is an independent and global strategy consulting firm specialising in payments and digital financial services. The firm was founded on two fundamental principles of client service: provide deep expertise that enhances clients’ perspectives and deliver actionable advice that enables clients to create measurable, sustainable change in their organisations. Established in 1978 in the United States, Edgar, Dunn & Company has expanded to meet the needs of its increasingly global client base. Today the firm serves clients in more than 45 countries on six continents from offices in San Francisco, London, Paris, Frankfurt, Dubai and Sydney.
Statistics, research and recommendations are provided “as is” and are intended for informational purposes only and should not be relied upon for operational, marketing, legal, technical, tax, financial or other advice. TrueLayer and EDC do not make any warranty or representation as to the completeness or accuracy of the information within this document, nor assume any liability or responsibility that results from reliance on such information. The information contained herein is not intended as legal advice, and readers are encouraged to seek the advice of a competent legal professional where such advice is required. All brand names, logos and/or trademarks are the property of their respective owners, are used for identification purposes only, and do not necessarily imply product endorsement or affiliation with TrueLayer and /or EDC.