Open Banking: How Merchants Benefit

As the card payment industry and merchants prepare for Secure Cardholder Authentication as part of Payment Services Directive 2 (PSD2), another part of the PSD2 regulation is starting to get noticed—Open Banking.

Open Banking, quite simply, means that banks will share customers’ financial information electronically and securely with trusted third parties when the account owner gives consent. This will allow consumers to use their banking apps to make authenticated payments directly to merchants in real-time.

The intent of this regulation is to encourage innovation and competition within the payments industry, particularly through new Account Management Services and new Payment Initiation Services.

To date, much of the discussion around Open Banking has focused on the benefits of Account Information Services to the consumer, third parties and banks. Account Information Services provide a consumer with a consolidated view of all of their financial products. Media has also reported on the perks of Payment Initiative Services, which let consumers pay directly from their bank accounts through a third party.

Largely under-reported however are the benefits that Open Banking provides to merchants. Merchants can realize lower transaction fees, less risk of chargebacks and the potential to receive funds faster than they would if taking payments by credit or debit card. This could also translate into improved cash flow, as the payment hits the merchant’s bank account immediately.

Through Open Banking, the merchant provides a better overall customer experience, building both brand trust and loyalty. By providing a better customer experience, merchants can reduce online abandonment rates as well as transaction declines and improve payment acceptance.

These are some significant benefits that merchants can realize by taking advantage of Open Banking, and we’re here to help. As a leading global payments technology company, we welcome the opportunity to discuss how Open Banking could add value to your business.