All revolutions have leaders. But what about the open banking revolution — the one across the pond in the U.K.? Well, that’s going to be led by the merchants, as Francesco Simoneschi, co-founder and CEO of TrueLayer, told PYMNTS’ Karen Webster in a recent interview.
There are already some indications that open banking is gaining ground. As detailed in the latest Open Banking Report, done in collaboration between PYMNTS and TrueLayer, open banking has the potential to disrupt the payments ecosystem at large, where merchants and financial institutions (FIs) will be able to create and offer innovative products and services tied to instant and secure payments.
One clear byproduct of open banking, Simoneschi said, is that banks are becoming more central to the payment experience than they had been previously. In general, wielding a plastic card for an in-store payment may not be all that different from Bank A to Bank B, he said — but as more banking is done by mobile means and through open banking, FIs are starting to compete on user experience.
To get to ubiquity, of course, acceptance from the key stakeholders (that would be the merchants and the consumers) has to increase. There are three million open banking users in the U.K., according to the Open Banking Implementation Entity (OBIE). TrueLayer has projected that 60 percent of the U.K. population will have tried open banking by September 2023. The firm has estimated that open banking payments typically reach 30 percent within a few months of launch, a percentage that, depending on the entity, can climb as high as 80 percent, said TrueLayer.
In the near term, said Simoneschi, that increased acceptance will be driven by the convenience and security of paying by open banking, as well as the low transaction costs that enable merchants to offer users loyalty and rewards in exchange for paying this way. In the background, open banking payments move money directly from the payer’s bank account to the seller’s bank account, and the transactions do not use a third-party payment network. The payments are authenticated through biometrics and other high-tech conduits.
As Simoneschi told Webster: “Consumers may not be loyal to payment methods,” and they may not even be aware of what’s going on in the background.
Loyal To The Processes That Reward Them
But consumers are loyal to processes that simplify the day-to-day management of financial life. And open banking has shown that they are faithful to the merchants and financial institutions (FIs) that enable fast, seamless transactions, Simoneschi noted.
“The user experience is great. I don’t have to look at my card number,” he said. “I don’t have to remember a password. The only thing I need to make a payment is my mobile phone.”
Simoneschi added, “You would be really be surprised at the disproportional effect very simple UI adjustments will have on overall self-checkout and conversion rates.” For the merchants, fraud rates decline, the costs of transactions are lower and instant settlement can improve cash flow visibility.
Lower cost of payments coupled with higher success rates, said Simoneschi, can help retain the funds necessary for merchants to launch new rewards and loyalty offerings (beyond the traditional miles and hotel perks, which have been less widely embraced in the age of the pandemic), which then foster increased use of open banking payments.
“When these things really come together, I believe we’ll see a massive adoption of open banking,” he predicted, especially as consumers are nudged toward payment products that incentivize them to use it — through compelling user experiences, on the one hand, and via rewards and points on the other.
Against that backdrop, Simoneschi offered a hypothetical example where a merchant, with reduced cost of payments, can offer a coupon for the next purchase. “So I will have a preference for that merchant when it comes to shopping,” he said — which translates into a compounding effect across verticals and use cases.
By not adding another “logo” into the process at checkout, he said, “that’s powerful, because it feels like the merchant fully owns the user experience, especially of their checkout. It builds brand equity.” Simoneschi noted that this move to “own” the end-to-end experience has been a hallmark of Big Tech in the effort to get as close as possible to the end consumer.
Looking ahead, he said, “open banking is not a technology in itself that has been invented with a specific vertical in mind.” By improving payments capability and functionality, more verticals will gravitate toward open banking — getting closer to that predicted usage by 60 percent of individuals in the U.K. There may not be a “big bang” moment, but there will be a revolution — cycles of development that expand outward from tech-savvy, digital-first FinTechs to far-flung corners of commerce (and well beyond the U.K.).
“This is a very young technology,” Simoneschi said of open banking, “and there’s a self-reinforcing dynamic, where we are moving from the early adopters to the more mainstream and mature parts of the ecosystem.”
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