Open banking vs card payments
When buying online the advantage lies with open banking. Open banking payments are quicker, easier and more secure than card payments. You don’t have to key in your card details manually or trust a website to store them for you. Simply select your bank from a list and approve the purchase with your face ID or fingerprint (the merchant can’t store your payment details). This virtually eliminates fraud.
For businesses, open banking payments:
are cheaper, because there's no card processing cost
settle more quickly than cards (instantly compared to 1-3 days)
convert up to 40% better than cards, because they’re designed for digital and for mobile, the process is less manual and payment success rates are higher.
| Open banking payments | Card payments | |
|---|---|---|
| Cost to merchant | Low | High |
| Settlement speed | Instant via Faster Payments | 1-3 days |
| User experience | Good. Automated, mobile first, made for digital, integrated into checkout. | Good when websites store information, otherwise manual data entry required. |
| Payment conversion | High. Success rates >95% | Medium. Success rates c.85% |
| Security | Strong. Biometric authentication and no credential sharing. | Weak. Credential sharing is used but strong customer authentication will make payments more secure. |
Open banking vs standing order
A standing order is a regular, automated payment of a fixed amount of money, for goods or services, which is set up and controlled by a bank account holder. It’s a popular option for regular payments to friends or family, or between accounts.
Standing orders can also be set up through open banking. This makes it simple for consumers to set up regular, automatic, fixed-amount payments using an app or other open banking service.
| Open banking payments | Standing orders | |
|---|---|---|
| Cost to merchant | Low | Low transaction fees. High operational cost because of manual processes (eg reconciliation). |
| Settlement speed | Instant via Faster Payments. | Instant via Faster Payments. |
| User experience | Good. Automated, mobile-first, made for digital, integrated into checkout. | Poor. Requires opening up online banking and manually entering payment information. |
| Payment conversion | High. Success rates >95% | Set up takes effort, but once set up, success rates >95% |
| Security | Strong. Biometric authentication, no credential sharing. | Strong. Set up via online banking with strong customer authentication. |
Open banking vs direct debit
A direct debit is similar to a standing order, except that it is managed by a provider, not the bank account holder (although they must give authorisation). Unlike standing orders, direct debit allows for variable payment amounts.
Currently in the UK it is not possible to set up variable, repeated, automated payments using open banking. So open banking is not a substitute for direct debit – at the moment. However, this situation is likely change in the future as new regulations requires the banks to provide this feature.
| Open banking payments | Direct debit | |
|---|---|---|
| Cost to merchant | Low | Low |
| Settlement speed | Instant via Faster Payments | 3-5 days |
| User experience | Good. Automated, mobile-first, made for digital, integrated into checkout. | Mixed. Requires completing a direct debit mandate but once set up, payments are automatic and no further authentication is needed. |
| Payment conversion | High. Success rates of >95% | Set up takes effort, but once set up, success rates >95% |
| Security | Strong. Biometric authentication, no credential sharing. | Mixed. No credential sharing, but no strong customer authentication. |
Open banking vs manual bank transfer
To make a manual bank transfer, you need to log into your online banking and manually input payee and payment details. For businesses, manual bank transfers are cheap but difficult to manage – for example reconciliation is time consuming.
| Open banking payments | Manual bank transfer | |
|---|---|---|
| Cost to merchant | Low | Low transaction fees. High operational cost because of manual processes (eg reconciliation). |
| Settlement speed | Instant via Faster Payments. | Instant via Faster Payments. |
| User experience | Good. Automated, mobile-first, made for digital, integrated into checkout. | Poor. Requires opening up online banking and manually entering payment information. |
| Payment conversion | High: Success rates of >95% | Set up takes effort, but once set up success rates >95% |
| Security | Strong: Biometric authentication, no credential sharing | Strong: Set up via online banking with strong customer authentication |