A recent survey conducted by emerchantpay found a glaring lack of customer knowledge surrounding Open Banking, whilst also revealing they are using the payment method without even knowing.
Open Banking has surged in usage across the financial sector since its inception in 2017, but what more can be done by financial services and merchants alike to grow its visibility?
Payment Expert spoke to emerchantpay Chief Product Officer, Jon Horddal, on some of the findings within the research and why more customer recognition is vital for Open Banking’s future growth.
Payment Expert: Firstly Jon, were you surprised at how little is known of Open Banking by consumers and if so, what do you attribute it to?
Jon Horddal: It was no real shock that our research highlighted such a lack of Open Banking awareness among consumers. Media coverage around the technology has largely focused on regulation and been targeted towards those working in the financial services sector. Very little has been covered by the wider media on the benefits of Open Banking for consumers.
Another key contributor to this knowledge gap is the absence of consumer education from banks. With two thirds of consumers having received no communications from their bank regarding Open Banking, it’s no wonder so many are unaware of its capabilities.
PE: What more can be done from the banks and merchants standpoint of driving awareness of Open Banking to the end consumer, how could this be done in a simple yet effective way?
JH: Banks and merchants have a responsibility to educate their customers about emerging technologies in the financial sector. It’s not good enough to simply inform consumers what these technologies are either, they need to help them to fully understand the benefits.
Unfamiliarity breeds apprehension. Without enough knowledge, customers often hesitate to embrace new solutions; the slow adoption of Open Banking is a prime example of this. More proactive communication from banks and merchants around the advantages of Open Banking for consumers is the key to driving adoption.
PE: Of the consumers that stated they did know of Open Banking, what are the benefits of a consumer knowing of its presence at the point-of-sale and checkout?
JH: For consumers, selecting Open Banking as payment method enables a very convenient checkout experience. Online checkout using Open Banking can typically be completed within seconds – much faster than manually entering card details.
Account-to-account payments also happen in real-time, meaning money leaves a customer’s account instantly. This allows more accurate budgeting and spending tracking for consumers, leading to overall better financial management.
Open Banking’s direct bank connections and strong authentication methods also significantly reduce the risk of fraud and chargebacks.
PE: On the flip side, how beneficial is it that merchants are becoming more aware of Open Banking? What benefits can it bring to them?
JH: The benefits of Open Banking for merchants include higher acceptance rates, as well as reduced cart abandonment due to an improved payment experience.
Merchants can also benefit from reduced risk of fraud and chargebacks, along with faster settlements. This can deliver greater profitability for organisations and ultimately business growth.
PE: What role can Open Banking have on payment methods, particularly Buy Now, Pay Later?
JH: Open Banking may not have an immediate direct impact on Buy Now, Pay Later (BNPL). However, it’s a competitive new solution that has the potential to outpace other localised payment methods in the future.
In fact, our research demonstrated that customers project that they will use Open Banking more frequently compared to BNPL in five years time. I project it will also transcend traditional, localised payment methods.
Due to its standardisation, the Open Banking payment journey is similar around the world. As such, with consumers spending more on cross-border purchases, it’s likely we will see more consumers using the solution as it makes international payments easier, cheaper and more accessible.
PE: Lastly Jon, and thank you for your time, in your opinion, how long before Open Banking in commerce receives widespread mainstream acceptance from consumers and merchants alike, and what does this mean for the retail sector?
JH: I predict it will take another three to five years for Open Banking payments to become widespread for consumers and merchants. This is a similar timeline to how long it took for Apple Pay and Google Pay to gain traction and recognition among consumers.
For the retail sector, the widespread use of Open Banking will mean there’s a more standardised, viable alternative to both local bank payment methods and card payments.
With clear benefits for consumers and merchants alike, Open Banking will play a key role in payments across most industries.
