Technology is integral to modern life, and payments are no exception. Open Banking products have increased in popularity in recent years, with PWC predicting that 71% of SMEs and 64% of adults will adopt this service by 2022.
Open Banking encourages innovation, transparency and competition in the UK financial services. It requires banks to allow their customers to share their transaction data with third-party companies via a regulated and compliant API (Application Programming Interface) should they wish to do so. To brush up on Open Banking payments, check out our previous blog post 'Open Banking payments at a glance' in our Open Banking series.
While Open Banking has the potential to transform the way we handle transactions, many people still haven't realised the many advantages it can offer - both to businesses and their consumer and business customers. In today's instant economy, where the digital customer experience (CX) is king, Open Banking is essential to ensure that you can meet and exceed the demands of the consumer.
In this blog post, we'll cover how Open Banking payments work and explore four ways they can improve the customer experience.
How Open Banking payments Works
From a consumer’s perspective, Open Banking payments feel like a simple, three-step process: the customer selects 'pay by bank' at the merchant's checkout. The merchant calls an API to get a list of banks for the customer to select from. Once the customer has selected their bank, the customer is redirected to their bank's web page or app to authorise the payment using their usual details. This is then verified and the customer is redirected back to the merchant's completion page. Funds are immediately sent via Faster Payments.
4 Ways that Open Banking Improves the Customer Experience
Open Banking payments offer an easy and streamlined way for customers to complete transactions and an instant economy compatible alternative to traditional card payments and bank transfers which can seem clunky to customers used to seamless digital experiences. With Open Banking payments, customers don’t have to manually enter their card details, sort codes or account numbers. This intuitive experience can help to build customer loyalty and reduce abandonment or drop off. It’s the CX of the future, and companies that offer it first could have a competitive advantage.
Here are just some of the many CX benefits that Open Banking can bring:
1. Simple navigation
Open Banking removes unnecessary steps, delay and friction when it comes to paying for goods and services, making it a convenient option for customers. Behind the scenes, Open Banking also cuts out the middlemen and fees that are associated with card payments and bank transfers. Not only does this increase revenues, but it also makes payments much faster so you can process customer refunds more easily.
2. Reduced frustration
Remembering a long card number, expiry date, security code and billing address is frustrating when you want to quickly pay for something online. According to a recent survey 8% of participants admitted to abandoning an online shopping cart because there weren't enough payment options. Open Banking removes this hurdle, creating an ideal customer journey that has the potential to reduce cart abandonment rates.
3. Familiarity and trust
Open Banking redirects customers to their bank's app or website as part of the payment process. Once there, they enter their usual credentials using a secure method such as facial recognition or a fingerprint. For many, this creates a feeling of trust and familiarity. The extra security features embedded in this process reduce the likelihood that their personal details will fall into the wrong hands.
4. Reduced likelihood of fraud and user error
Credit card fraud totalled £620.6 million in 2019, which is a staggering amount. Unlike cards or bank transfers, where customers manually enter their details, Open Banking uses their banking app or online banking to authorise a payment. This alternative payment method reduces the likelihood of fraud as scammers won't be able to use other people's details to make purchases. It also prevents user error because customers won't have to remember and type in information that could be incorrect.