The power shift caused by open banking implies fundamental changes and not just for the banking world. The new abundance of customer data provided by every single bank and financial institution in Europe has created many different possibilities for other sectors as well, which can now thrive in the new scenario.
By forcing banks to open up their systems, the legislation introduced some important consequences with critical implications for the financial status quo:
Authorized companies now have read-only access to consumer banking information.
Payments can now be initiated by third parties directly from consumer bank accounts.
Information about the funds available on any bank account can be queried in real time.
For non-financial companies, this revolution presents unique opportunities to reduce traditional business costs as well as to improve the experience offered to customers by delivering better and more innovative services.
Open banking in one hundred words.
Come into force two years ago, the open banking legislation required the nine largest banks in the UK to make their customer financial information available to any regulated third party. These banks were obliged to authorize approved businesses to access their data in a secure and standardised form whenever – and so long as – their final customers granted them permission to do so.
Open banking was then adopted by other UK banks, and in 2019 it was introduced in more countries, also encouraged by the Second Payment Services Directive (PSD2), designed to increase competition and innovation in the European financial market.
Account-to-account payments: what are they?
The developments and innovations introduced by open banking have paved the way for a drastic redesign in the online payment sector, so far dominated by debit and credit card schemes. The traditional payment processes, far from unflawed, pose several challenges for businesses selling their products or services online which can now be empowered by a more user-driven payment flow.
Even non-financial businesses will now have the ability to create and implement their own payment solutions into their platforms without having to rely on the slower, less safe and more expensive traditional methods (such as debit and credit cards, for instance), and start accepting payments directly into their business bank accounts.
Account-to-account payments are initiated via APIs (Application Program Interfaces) connecting customers’ banks with merchants’ platforms. Every time a purchase is made, an exchange of funds between the customer and the merchant is triggered, effectively taking the card scheme operators and other traditional intermediaries out of the payment equation.
The new process only takes moments and drastically reduces the typical settlement times merchants have to stand, while reducing any superfluous step for customers from the payment journey.
Here comes the why.
So why should digital merchants and non-financial companies care about the account-to-account approach? Online payments will be significantly cheaper for businesses as card-processing fees (often between 1% and 3% per transaction) will be removed completely as well as any traditional intermediary. Everything can be handled in-house by the business itself or with the help of a financial partner of choice – also known as PISP (Payment Initiation Service Provider). The resulting savings could be shared between the merchant and the PISP, or even with customers, who can be incentivised to use this payment method to build or reinforce loyalty to brands on a completely new level.
Where’s the catch?
Meeting the required standards to access the new abundance of financial data provided by open banking and leverage it to develop your own payment solutions is a costly process, which requires time and very skilled resources. This poses a few challenges for those companies willing to embrace the innovation. However, such obstacles can be easily tackled by picking the right financial partner.
Finshark brings to life an entirely different approach to online payments. We provide non-financial 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 thousands and thousands of banks throughout the European market.
Would you like to know more about how to add an account-to-account solution into your payment mix? Get in touch, ask questions, and share your challenges with us.