As Open Banking races towards its fourth year of life, there are widespread signs that banks, payment service providers (PSPs) and others in the network are warming up to it.
Michael Lane, Vice President of Sales at Token shares why it’s time to get on board the open banking payments train.
Following initial scepticism, the banks are starting to embrace Open Banking with more eagerness as they get a better understanding of the various benefits and use cases. A recent report by Temenos and The Economist Intelligence Unit, for example, outlines how Open Banking can drive innovation and better customer experience, with 45% of global banking leaders now keen to transform their business model into a “true digital ecosystem”.
One of the reasons banks are buying in is because Open Banking-enabled account-to-account (A2A) payments give them the opportunity to become the centre of the payments universe again, presenting banks with a significant opportunity to act as an ‘acquirer’ for this newer type of payment and provide value-added services around the transaction.
Whilst Open Banking could have easily disintermediated PSPs, gateways and acquirers, they are now moving en masse to offer Open Banking capabilities because of growing merchant demand for this lower-cost payment mechanism. A2A payments can drive a much greater margin, especially if they build new services on top, like settlement accounts, reconciliation, and reporting.
Supporting merchants in the brave new world of payments
With around four million consumers and businesses now using Open Banking-enabled products, in July 2021 the UK topped two million successful Open Banking payment initiations per month.
That’s an eye-opening increase of 664% in just one year, and merchants have certainly taken note. They want to adopt A2A payments as they become more familiar with the cost savings, security and speed of settlement on offer.
Within the next six to eighteen months, Open Banking payments will be everywhere. And if a PSP hasn’t already considered how Open Banking payments can position and differentiate them in a competitive market, their merchants will be ready to consume them elsewhere.
Merchants regularly send out a request for information (RFI) to PSPs to gauge their capabilities. We’re seeing more and more RFI processes that now include a checkbox: “Do you support Open Banking?”
Given this increasing merchant demand, the question is no longer if PSPs should buy into Open Banking payments but when. The train is leaving the station, and PSPs not onboard could soon find themselves left standing at the platform. They need to act now to gain a first-mover, or even early majority, advantage.
Progressing from ‘click to try’ to ‘click to buy’
If you’re a PSP that supports A2A payments, and your merchants are asking to start accepting low-cost bank transfer payments directly within their app or website, then that’s a solid first step. But how can you then help merchants to nudge their customers to click and convert to A2A payments?
Most consumers will naturally want to ‘click to try’ the ‘Pay by Bank’ button before understanding what A2A payments are and how they work. And while that kind of consumer interest is exactly what the industry needs to see, to maximise conversion, merchants must aim to educate consumers about the new world of Open Banking-enabled payments.
Through careful, considered User Experience (UX) design and communications, merchants can prime consumers to ‘click to buy’ rather than ‘click to try’ – even on their first go. Once consumers enter the journey, we’re seeing completion rates of 97%+.
As with UX more generally, a ‘right first-time’ mentality is vital. As they launch A2A payment propositions, PSPs should take the time to encourage merchants to think about two key ingredients for success: placement and prompts.
In terms of placement, it may sound obvious, but it’s worth repeating: ‘Pay by Bank’ mustn’t be presented last on a long list of payment method options. We know from experience that merchants who place ‘Pay by Bank’ as a first or second option see the highest click-through and completion rates.
And then, for prompts, PSPs should encourage merchants to provide a clear explanation of what A2A payments are all about. Whilst A2A payments are both sleek and intuitive, I have seen some great examples of merchants going above and beyond in providing an extra layer of information, and therefore confidence, to consumers. Specifically, I’ve seen merchants using a pop-up to explain that A2A payments are something new their customers should try and what to expect when they do.
Nail placement and prompts, and consumer adoption will go through the roof. From PSPs to gateways, acquirers and merchants, that’s better for everyone.