By now, most of us are familiar with the concept of Open Banking, we have given it a go and used an app to gain a single view of our finances by linking it to our accounts across different Banks. The number of active UK Open Banking users has now surpassed five million – just four years after the practice was made a regulatory requirement in the UK. This is only the first step that opens a door to a multitude of innovative solutions that are being developed by FinTechs and other service providers.
The payments industry has seen some of the most exciting advancements in recent years that bring real value for consumers and businesses alike by improving the way we use online banking transfers to pay for goods and services. There are too many benefits to list from using Open Banking payments solutions, but some that are worth highlighting are:
- Low cost to merchants
- Instant settlement speed (via faster payments)
- Seamless user experience (automated and integrated at checkout)
- Higher payment conversion rates (over 95% success rate)
- Strong security (biometric authentication and no credential sharing)
Because of such appeal, the industry has experienced a strong adoption of Open Banking payment solutions, with over 2.5 million Open Banking payments made on average per month, which is mainly enabled by regulatory requirements (namely PSD2) and standardised APIs (issued by OBIE) that require banks to allow and support authorised third parties to initiate payments.
Unfortunately, solution providers are facing some blockers to fully realise their potential and some of the benefits outlined earlier are hindered. One of the issues we would like to explore in this article is the lack of guarantee of payments at point of sale (POS).
Completing safe, quick transactions is an essential part of any successful business. To do that effectively, businesses use point-of-sale systems to complete purchases, store information, and collect valuable reporting metrics that provide insight to assist with aspects of business development. Every purchase that’s made is essentially a POS transaction. But what happens if your POS system goes down or encounters an error? That can lead to a host of common problems that may slow the pace of business, create unnecessary stress, and result in loss of customers.
This is no different when it comes to Open Banking. Clarity on guarantee of payments is key for the healthy growth of any payment method and vital to unlock the power of Open Banking payments in ecommerce and physical point of sale scenarios.
Ultimately, all payments are processed by Banks, that have in place real time fraud detection systems, which guarantee that information is available at the point of payment approval. But, in some instances Banks refer payments for fraud checks and fail them later, resulting in funds bouncing back. This does not happen, for example, when an individual makes a payment with a card, where it either works or is rejected. Therefore, a similar treatment should be adopted for payments initiated via Open Banking.
The simple solution and answer to this problem is ensuring the proper completed payment state is established at the point of payment, which acknowledges the funds have arrived in the destination account. This means the payments always go through, leading to fast, automated and seamless payment transactions 100% of the time. That clearly benefits all parties involved in the process, by allowing merchants to deliver on their promise, customers not having to deal with the stress of making a payment and banks spending less time reviewing individual transactions for fraud.
In order to get to this state and enable a seamless integration between Open Banking payment solution providers and Banks, the OBIE is working with both parties to update the existing API specifications and create a flag to the existing protocol, where payment approval can be obtained at point of sale. The good news is that work is being done in this space and upon successful definition of widely applicable specifications, we will be able to fully uncover the potential of Open Banking payments and reap its benefits.