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Open banking payments are a new ecommerce growth driver

By Jack Tenwick, Head of UK Sales, Yolt Technology Services

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Any ecommerce company or online retailer worth its salt is constantly on the lookout for ways to improve the customer experience. While 5+ years ago much of the optimisation focus was on UX, in recent years this has extended both to the number of required fields and design of the payment page, payment methods offered, and more sophisticated approaches to balancing out false positives with fraud.

 

However, despite all the innovation behind the scenes, there is one payment method that:

  • is frictionless for your shopper,
  • saves you up to 90% in transaction costs compared to card schemes,
  • has almost zero fraud,
  • settles your funds instantly,

and the real kicker? You probably aren’t using it.

Open banking payments, also known as Payment Initiation Services or account-to-account payments - is the method in question.

 

Lower fees than cards

Credit card processing comes with three fees; a processing fee, which is charged by your payment provider for processing the transaction, a card scheme fee, which is charged by the card schemes for using their network, and an interchange fee, which is charged by the customer’s bank. Some payment providers will work with you to ensure your payments are transparent and as low as possible. But even with this help, complexity and cost remains high. This leads to an expensive way for you to accept payments – generally anywhere from 1-4% per transaction.

 

But with open banking payments, the transaction is simply between two bank accounts, enabled by a provider such as YTS. This simplicity and the fact that fewer parties are involved means that fees can be a lot lower – by as much as 90%. This can protect your margins, particularly at scale, in the competitive ecommerce space.

 

Improve the checkout experience, and reduce fraud

You have probably gone through checkout experiences like this: you add something to your cart, enter your payment details, hit buy, and expect your transaction to be approved. But instead, you are asked to enter your card details, and then are redirected to go to your bank app to confirm the payment.

 

Not the most intuitive or smooth payment experience.

 

The issue is that while the intention – to reduce online fraud – is good, it can have a negative impact on the checkout experience, leading to even more abandoned carts. And with Strong Customer Authentication (SCA) being enforced in the UK from early next year, look out for a potential increase in abandoned carts along with the lower fraud.

 

But with open banking payments, your shopper is automatically redirected to their bank app to use their face, fingerprint or other secure method to approve transactions. This provides a fast and seamless checkout experience, which increases conversion, reduces fraud to almost nil, and along with already-lower fees, further drives down the overheads of running your ecommerce business.

 

Protect yourself from the cost of click and collect refunds

Growth in “click and collect” has accelerated in the past year along with pureplay ecommerce. But there is an unfortunate downside to this phenomenon – an increase in refunds as shoppers can’t try certain items in store.

 

The benefit of open banking payments in the context of refunds is the lower transaction fee. For example, if a shopper buys shoes online with a credit or debit card and it costs £1 to process that payment, and then returns the item, the transaction cost is lost and no profits from the sale is made. For businesses that experience a high rate of returns, such as clothing or shoe brands, that adds up quickly. But transaction costs are far lower with open banking payments, offering some protection.

 

A faster, more cost-effective payment method

Open banking payments offers a range of benefits for shoppers and ecommerce companies alike. And with up to 70% of shopping carts being abandoned – with many of these at the checkout stage – it is high time to look at better ways for your shoppers to pay.

 

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