One key motivation behind open banking is to enable the growth of alternative payment methods. With the continuing growth of online retail sales and the card network’s ageing infrastructure, there’s an opportunity for the ecommerce industry to embrace open banking payments.
Here are three reasons why open banking is ready to challenge the dominance of cards:
1. Open banking payments are growing fast
Open banking payments are growing consistently, with payment volumes rapidly accelerating in the last year. Successful payments made using open banking providers increased from 280,000 in July 2020, to 3.9 million in January 2022.
While open banking is a relatively new development, there are already over 5 million open banking users in the UK. On its current trajectory, 60% of the population will be open banking users by September 2023. The growth of open banking payments in ecommerce should follow suit.
2. Ecommerce payments are also growing
Two trends in retail payments have created an opportunity for more open banking payments in ecommerce. Cash has declined as electronic payments have grown. This means ecommerce sales as a share of retail purchases have increased, highlighting the need for smooth customer journeys.
Ecommerce payments are more easily optimised than point of sale payments because they don’t require merchants to upgrade physical infrastructure, so open banking payments can be integrated into the ecommerce journey relatively easily.
3. Greater competition from open banking payments will benefit merchants and customers
Without alternatives to cards, merchants face high fees for accepting electronic payments, as well as high rates of card-not-present fraud. Competition from open banking payments can improve the situation, with:
- lower fees: open banking payments can offer lower and more predictable merchant processing fees than card acquirers, and they don’t involve additional card costs, like PCI compliance and chargeback processing.
- greater payments security: SCA has been implemented for open banking using secure APIs to ensure banking credentials are only shared with the bank, without the need for risky information-sharing.
The findings in this article are from our Future of Ecommerce Payments report. Get your copy