Open Banking’s Potential to Transform Payments
Open banking, also known as pay by bank, is poised to be a transformative shift in the payments sector, according to industry experts, as reported by PYMNTS. Alexandre Gonthier, the founder and CEO of open banking FinTech Trustly, believes that open banking has the potential to solve ongoing problems in the payments industry by offering a repeatable and easily adopted solution.
Open banking payments utilize application programming interfaces (APIs) to establish secure and direct communication between different financial institutions and payment service providers. Gonthier noted that digital natives are quick to adopt serious services offered by reputable companies. Open banking unbundles online banking credentials and brings bank sign-in functionality directly to billers and merchants, eliminating the need for additional accounts.
By leveraging enhanced connectivity, open banking enables personalized payment experiences tailored to individual preferences. Consumers can authorize payments, initiate transfers, and access transaction details through a single platform, eliminating the need for multiple payment apps or accounts. Gonthier described open banking as a straightforward process where users simply sign into their bank accounts, without requiring cards, account and routing numbers, or filling out forms. These benefits drive adoption among consumers.
To successfully commercialize open banking across the payment ecosystem, it needs to be positioned as a preferred payment option. Trustly is focusing on gaining market share in the enterprise sector rather than competing in the retail market. The association of trust with a brand plays a vital role in the go-to-market approach of the open banking sector. Trustly has observed different adoption and conversion rates with smaller eCommerce players compared to larger, well-known ones. Gonthier also highlighted the importance of targeting segments where debit cards are less effective.
Gonthier emphasized that being preselected as a payment option with premium placement is crucial for adoption. After gaining that placement advantage, the benefits of open banking need to be demonstrated, proving its utility compared to established payment methods. Open banking offers strong authentication controls that reduce declines for merchants and provide robust protection against fraud. Gonthier highlighted the high degree of certainty in identifying users through multifactor authentication, backed by legal protections for consumers. Open banking also bypasses transaction limits for large purchases, competing only with paper checks.
The key distinction between open banking and debit cards is the reliance on the automated clearing house (ACH) for fund transfers. While ACH is not a real-time payment platform, it is capable of facilitating large transactions. Gonthier expressed interest in exploring the potential of open banking in helping paycheck-to-paycheck consumers manage their cash flow and play the float game.
Open banking has the potential to revolutionize the payments landscape, providing seamless and personalized experiences for consumers. Trustly aims to drive adoption in the enterprise sector by focusing on trust and emphasizing the unique benefits of open banking over traditional payment methods.