Open banking infrastructure is a game changer for merchants, banks and consumers alike, significantly reducing costs, driving higher payment conversion, providing more security and providing instant settlement.
At first glance, adoption of the new tech is strong, with the
Open Banking Limited institute recording a 68.2% annual increase in usage to June 2023. However, a closer analysis of the data reveals that much of this growth stems from account top-ups and credit card repayments.
Take up for open banking payments remains slow for the e-commerce industry. Why the lack of momentum?
Resource constraints
Most retailers experienced a contraction in consumer demand during 2023, a year which will be remembered for high rates of inflation and tightening purse strings. Business owners are choosing to first focus on critical issues affecting their demand and top
line revenue, leaving cost reduction towards the bottom of the checklist. Even though real time bank payments can help boost conversion, they are largely considered as a transaction expense saving initiative.
Interoperability
Many e-commerce retailers use off the shelf carts and tools for their online stores, such as Shopify and WooCommerce. For open banking payments to work for a retailer, it needs to fit into their wider ecosystem and be available through existing tools and
shopping carts. The challenge is that these tools were all built to integrate credit cards. Pay by Bank is different enough from cards that it has higher overheads to integrate than most "normal" card based payment methods.
Historically e-commerce has typically been less tech led than other sectors and have fewer technical resources available, so the cost of integrating “new” tech is harder to bear. This is a solvable problem with PISPs working with PSPs and carts, but it takes
time and those places can be walled gardens that are hard for PISPs to access.
The importance of the checkout experience
Banks have shown their support for the open banking revolution by developing public APIs, but the non mandated implementation in some markets has led to varying customer experiences and differences in data and information availability.
The single auth user experience in the UK is perceived by some retailers as not converting well enough. They see VRP as maybe being good enough, but we know what the challenges are to get a widely available solution ready. Because of that, in ecom where
conversion is so critical, it's a bigger risk for a merchant to take that first step and try it than in other sectors. When combined with the interoperability challenge it's easy to deprioritise. This is exacerbated by nobody having good ecom conversion data
to counter this argument.
Commercial
The commercial upside for lots of ecom retailers is less compelling than other sectors, because of their margin spread. If you sell a TV at a 20% margin, it makes less sense to invest to save 1% than if you do wallet top-up and that 1% is your biggest fixed
cost.
The "politics" of payments at ecom retailers is also potentially underestimated by PISP’s. The classic "we'll give you $200k to be on your paywall" isn’t something simple to find funding for with many fintechs.
Where is the opportunity?
Integrating a new payment option is a serious decision for merchants, requiring customer education and introducing change to established bookkeeping and accounting processes. However, the benefits of open banking-powered payments are too great to be overlooked;
including instant settlement, low fees, decreased rates of fraud, simpler reconciliation and increased customer conversion.
An expectation must be placed on payment providers within the e-commerce ecosystem to devise innovative methods of integrating open banking payments into familiar, existing payment infrastructure, instead of having merchants do the heavy lifting.
Once some of the barriers mentioned above are removed, the opportunity for e-commerce businesses and their consumers to benefit from open banking payments is huge. As the brave early adopters see the benefits, adoption will rise exponentially.
Until that happens they may decide to wait and see.