In the last couple of years, we have witnessed a substantial wave of financial changes which magnitude is affecting not only banks, but potentially also any business selling its products or services online. One of the most significant effects caused by open banking and PSD2 – the ground-breaking regulations shaking up the financial status quo in the UK and Europe respectively – is the dramatic and long-awaited transformation of the payment sector.
Threatening the more traditional methods we have been using for a while now such as e-wallets, credit and debit cards, a new approach to payments has recently materialised.
Essentially, customers can now connect their bank accounts to the platforms they are buying from and authorise an instant transfer of funds to pay for the things they acquire.
Powered by a completely different network than card transactions, account-to-account payments (also referred to as direct payments, direct bank transfers, bank-to-bank payments, online banking payments or instant bank payments) can replace any other method presently available, or provide an innovative addition to the range of possibilities currently offered to digital customers.
Here we have gathered the seven reasons why we believe online businesses should jump on this opportunity and let their customers pay directly through their banks.
1. It’s swift and simple.
Account-to-account payments are the digital equivalent of an exchange of cash happening in real life between a customer and a merchant. First, the beneficiary (an online store, or an app selling its services, for instance) transmits a request for the customer to agree to in order to initiate a payment. Then, the payer authorises the transaction, setting in motion an instant transfer of funds which (just like cash) exchange hands directly, from one bank account to another.
This creates a convenient and seamless payment journey with less steps to go through, no card data to entry and no additional app downloads, as customers only need to log into their bank account for an automated authentication, authorization and checkout. Furthermore, after the first payment is screened and processed, merchants can start offering even faster checkouts to their recurring customers for smoother purchase experiences.
2. It removes the traditional fees.
At present, merchants willing to accept cards must pay between 1% and 3% on every transaction (depending on the chosen payment provider) because of the interchange, assessment and additional processing fees required by the several intermediaries involved in each transaction. These costs do add up.
However, the account-to-account model implies an exchange actively involving only three main parties: the customer, the merchant and the customer’s bank (the merchant’s bank simply receives funds once a payment is settled). Just one additional role is required to complete the transaction: a Payment Initiation service, which functions can be performed either in-house by the merchant’s dedicated division or outsourced to a financial partner of choice.
In this new scenario, the typical payment actors such as gateways, processors and card networks are no longer relevant.
Removing the traditional intermediaries from the equation, reducing the number of active parties involved, as well as the need for the numerous layers of interaction and exchanges between them, significantly alleviates the costs of being paid online.
3. It generates a branded checkout experience.
Letting customers pay through their bank accounts, allows even non-financial businesses to develop their own checkout solutions and shape them to their liking, to better fit their brands and customers. This not only helps avoiding any unwanted redirection to third party sites during the payment and authorization processes, but it also contributes to build loyalty on a different level as even checkout processes can be designed with the brand culture and message in mind.
4. It’s safe for customers.
Online card payments require customers to provide their card details, a practice that in the past has resulted in huge numbers of fraud attempts and stolen data. For this reason, merchants and retailers have a few months (depending on the country) to implement a Strong Customer Authentication (SCA) service – a PSD2 requirement to increase security in electronic payments – on all their transactions. However, the account-to-account approach already integrates this layer of security by default and no sensitive information is ever disclosed with merchants during the exchange, keeping customers constantly in control of their funds.
5. It provides certainty of getting paid.
One of the biggest drawbacks of card payments for sellers is unquestionably settlement times. The required merchant’s batching tasks, the clearing functions performed by the acquiring bank and the card network, as well as the acquiring bank’s funding processes, all need to be finalized before a card payment is completed. All this unavoidably delays the final settlement of funds for merchants, which can take up days from the purchase date.
Also, due to particular circumstances such as fraud or chargebacks, card payments might fail to process only after a sold product has already been shipped, or a purchased service consumed, leaving the merchant in need of a cash buffer to recover from the incurred loss.
By removing any intermediary layer and taking advantage of instant payment schemes, account-to-account payments can become the perfect method to drastically reduce the settlement times merchants currently have to stand, also assuring payments are in the bank before a product or a service is provided.
6. It’s perfect for the digital age.
At a time when everything is one click (or tap) away, customers expect instant experiences and smooth authentications without redirections, fumbling around with cards, or manual inputs of data. Meeting the needs of young digital natives, account-to-account payments are optimised for online and mobile, and integrate well with innovative opportunities for effortless payment journeys, such as one-click purchases, invisible checkouts or conversational payments.
7. It’s scalable.
The account-to-account model can become the easy way for retailers and other non-financial companies to gain instant access to the whole European market, without the need for localizing each and every payment method before expanding into new territories. The open banking infrastructure facilitating instant payments between accounts is powered by APIs (Application Program Interfaces) connecting banks and financial institutions across Europe. One API integration is all it takes for a business to gain access to all the markets covered by the infrastructure of choice.
Finshark brings to life an entirely different approach to online payments. We provide businesses with a solid and ever-growing financial infrastructure, the required technical resources, and our bespoke solutions to start accepting account-to-account payments from customers of banks throughout the European market.
Would you like to know how to let your customers pay you with their bank? Get in touch, ask questions, and share your challenges with us.