To say that the fintech industry is evolving is a gross understatement. The industry has adapted and innovated to meet new challenges and seize new opportunities, driven by the advent of open banking, wider internet access, the growth of the app economy, and many other factors.
A key factor making financial services more accessible is open banking. It began as a European initiative but has now grown into a global movement that is unlocking competition in retail banking – changing the face of retail banking so millions of consumers and businesses can benefit. It was launched with the aim of increasing competition and providing consumers with more innovative and tailored financial products, as well as speeding up the digital transformation of the banking sector. The open banking revolution is indeed in full swing, and maximising its potential now depends on improving the customer experience, to instil trust and confidence in the technology.
As PSD2 laid the foundation for open banking, the global pandemic and rising digitalisation have greatly accelerated its growth. One of the main motivations behind the development of Open Banking has been to overcome the difficulties associated with traditional card rail payments. Last year alone, the UK saw growth of 500% in open banking payments, which reached 26.6 million. The Open Banking Implementation Entity (OBIE) revealed that 3.9 million British consumers and 600,000 UK small businesses are currently using open banking services, with one million new users being added every six months.
The numbers show that consumers are increasingly demanding quick and easy ways to pay for goods and services. Open Banking simplifies the payment process, leading to cost savings in addition to increased consumer convenience. Since the outbreak of the pandemic, 33% of British consumers have tried new payment methods while shopping online. The Open Banking Impact Report states that 7.5% to 8.5% of digitally savvy consumers who use technology use at least one open banking service now, compared to 5% to 6% in December 2020. In addition, 83% of these users plan to continue using these services. While these are low percentages, they are big numbers that are growing steadily and rapidly. This clearly indicates that this trend is gathering momentum.
Easier, faster, and more affordable payments
Alternative payment options are sought by consumers for a number of reasons, but some of the key factors are the inflexibility, cost, and time associated with using traditional card-based payment options. Consumers are looking for seamless and quicker options. As shown by research Vyne conducted into payment preferences in Q4 2020, 40% British shoppers said they are ditching websites with poor payment processes.
This is because the process of filling out multiple forms during online checkout can be frustrating. Our research shows that regular online shoppers are abandoning baskets at least once a month, citing hidden charges and frustration at inputting lengthy card details as the chief reasons for doing so. Payments made using an account-to-account option eliminate the need to fill out an endless list of details and can be made in as little as three clicks.
Recent shifts in online shopping have prompted retailers to offer better and more diverse incentives to customers in order to retain them. Customers today expect a seamless shopping experience and easy returns and refunds. As per our research, 43% of consumers have had to chase their refunds for online purchases, leaving them feeling frustrated and angry at retailers. Poor payment terms can damage customer loyalty, but open banking offers a viable solution by eliminating the long waiting period for refunds.
Amazon’s recent decision to reverse its ban on Visa credit cards in the UK illustrates the moveable feast that is the current payments ecosystem. Some businesses think the fees associated with accepting card payments are a barrier to offering the best prices to customers. As a result, they may simply stop accepting them.
Knowing the consumer better
Financial institutions around the world, from banks to lenders to accounting firms, are embracing open banking, allowing them to digitalise and use less plastic and paper than ever before. In parallel, more and more customers are turning their backs on companies that they feel do not share their values. The year ahead will be all about consumer preferences, and businesses who fail to understand and align with their audience’s beliefs will see consumer attrition.
A recent survey by Deloitte revealed that consumers are adopting more sustainable lifestyles, with 61% of consumers reducing their use of single use plastics in 2021. This shows that customers are becoming more aware of their carbon footprint and actively seeking to purchase products through socially-conscious channels. This demand needs to be taken seriously by merchants, and one way of achieving that is by implementing more sustainable payment methods.
In light of an increasing emphasis on the environment, there will be more cardless initiatives in both the fintech and retail sectors this year. Safer payments are also another top priority of consumers today. 79 percent of online shoppers agree they would try new payment methods if they perceived them to be safe, which will prove invaluable to the open banking industry.
Businesses that align with consumer values by providing environmentally friendly, secure, and convenient payment options will reap the rewards.
Overcoming obstacles to create new opportunities
2022 was already expected to be a good year for open banking, and the FCA has set the tone for the months to come with its optimistic outlook. The removal of the 90-day reauthorisation requirement in November 2021 was a landmark change that will support the adoption of open banking services. Now, consumers and businesses will be able to stay connected to their selected third-party providers for longer, resulting in an improved user experience. It seems that 2022 may well be the year of innovation in customer experience when it comes to open banking payments.
The time is right for the move away from expensive, slow, and cumbersome cards. Increasing the adoption of new, more convenient, and smart payment methods will benefit retailers, and indeed all businesses, greatly.