Driving E-Commerce Revenue Growth through Open Banking

Payments. They’re able to impact your top line revenue and your bottom line revenue in different ways. But you have to optimize them to get the full benefit on your checkout page. Card payments and traditional ACH struggle as revenue builders.

And that’s where Open Banking solutions come in.

If you’re like most merchants, you know how crucial it is to offer a variety of payment methods to your customers. In fact, 70% of customers consider the availability of their preferred payment method as very or extremely influential in their decision to make a purchase online.

Open Banking sits at the intersection of top line performance and bottom line efficiency. In this blog, you’ll discover how Open Banking can help your business thrive on both fronts.

Let’s explore the different ways that Open Banking can transform your business's financial health.

A Closer Look At the Hidden Costs Eating Your Revenue

There are a few costs tied to your payments setup that may be eroding your bottom line revenue:

1. Consumer Involuntary Churn: When a customer drops off from your business inadvertently, it’s called “involuntary churn” or "passive churn." Most of the time, involuntary churn occurs due to payment failure, usually a card expiring or getting lost/stolen. Losing customers like this, especially for subscription-based e-commerce merchants, directly affects your revenue stream. 
2. High Transaction Fees: Every time a customer swipes their card, you lose a percentage of that sale to processing fees. Although swipe fees tend to fluctuate, they can be as high as 3.5% of any given transaction. For high-volume businesses, this can add up to thousands or even millions of dollars annually.
3. False Declines: In an effort to prevent fraud, many payment systems err on the side of caution, sometimes a little too much. False declines, which is when a bank or payment processor rejects a legitimate transaction, can cost you sales, reduce your overall conversion rate, and upset potentially loyal customers who get frustrated with the purchase process.

Each of these takes a bite out of bottom line revenue, which is often a strong indicator of the efficiency of your business. And over time? Those bites impact your ability to optimize your expenses and could add up to a significant chunk of change that should have been reinvested in your business.

To let you in on a little secret: traditional payment methods are a hidden sinkhole for revenue that merchants often don’t consider when examining how to streamline both their top and bottom lines. How can we fix that? By leveraging the power of Open Banking Payments. 

Open Banking Payments: The Revenue Booster

So, how exactly can Open Banking Payments help address these pain points to strengthen both top and bottom revenue streams? Let's break it down by examining each pain point:

Reducing Involuntary Churn 

Pain point: You work hard to attract new customers and fill up that revenue bucket, but if you've got holes in the bottom from involuntary churn, all your hard-earned gains just keep slipping away. For e-commerce merchants that are subscription-based, card payments can be the source of the problem, with 50% of consumer churn coming from card payment failure. 

Open Banking solution: Open Banking gives you the tools to plug those leaks and keep that revenue flowing. Bank accounts are evergreen and don’t have the same vulnerabilities that cards do. 

By integrating Open Banking Payments and allowing consumers to Pay by Bank, you can reduce involuntary churn and keep more of your hard-won customers active and paying. No more frustrating declined payments or abrupt account closures, just a steady stream of reliable recurring revenue.

How this benefits revenue: Every customer you're able to retain means more steady, predictable top line revenue flowing in. But the benefits don't stop there. By minimizing those unintentional losses, you also reduce the associated costs of dunning, failed payment fees, and reacquisition efforts. That means a healthier bottom line, too.

In essence, Open Banking ensures that every initial sale you make can translate into recurring revenue because bank accounts are evergreen and don’t suffer from the issues that often plague card payments, such as card info getting lost, stolen, or expired. It's a win-win scenario—you retain more of your existing customer base, which boosts your overall revenue while streamlining your operational efficiency and profitability. 

Lower Transaction Costs

Pain point: Standard swipe fees, around 2-3%, add up and siphon your sales revenue. The more sales you make, the more you end up paying. From brick-and-mortar shops to e-commerce businesses, merchants feel the weight of card processing fees as they collectively paid a record-breaking $107 billion in swipe fees in 2023 alone. $107 billion in swipe fees.

For most merchants, the cost of payment acceptance is second only to labor costs. It's likely a significant chunk of your operational costs, cutting into your revenue potential. Since 2011, the current card network duopoly has “raised or created new fees at least 40 times since 2011 alone.” And who benefits from those fees? The card duopoly.

Open Banking solution: Open Banking Payments are already available, enabling you to optimize your payment scheme and offer customers a viable Pay by Bank alternative that avoids these fees altogether, instantly improving your margins on every sale. 

Card payments typically take a percentage of each transaction—around 1.5% for debit and 2.5% for credit—while ACH charges just $0.01 to $0.02 per transaction. The savings are clear: ACH is the more cost-effective choice. With Open Banking Payments, you can easily offer ACH as an alternative to card payments, boosting your bottom line.

How this benefits revenue: Swipe fees can impact your top line, mainly because merchants often pass these costs onto consumers through higher prices that make them less competitive or payment restrictions such as minimum purchase amounts. These additional costs not only eat into your net revenue but can also affect your top line by discouraging customers with minimum purchase requirements or increased costs.

Fortunately, Open Banking modernizes ACH payments. ACH payments are a fraction of the cost of card transactions, allowing merchants to avoid swipe fees altogether. This reduction in costs can directly increase bottom line revenue and prevent the need to pass swipe fees to consumers, which can aid in driving conversion and allow you to maintain a competitive edge for pricing.

Boost Conversion by Eliminating False Declines

Pain point: Overactive fraud detection leads to lost sales from legitimate customers. That’s exactly why false declines are a revenue killer.

These payment failures not only cause friction and destroy your reputation as a merchant, but these lost sales directly impact your revenue. False declines resulted in an estimated $81 billion loss for e-commerce merchants in 2023. It’s estimated that 11% of transactions processed by e-commerce merchants resulted in a false decline just in the past year alone.

Open Banking solution: $81 billion in losses and missing out on 11% of potential transactions is enough to illustrate how much false declines hurt merchants. So, what can be done? With bank-level authentication, false declines become a thing of the past. 

Open Banking Payments can give you the insight and data to allow you to review and approve legitimate transactions, which helps maximize your conversion rate by eliminating false flags for fraud. In other words, picture your payment system as a secured building. Open Banking Payments are like a keycard that grants instant access, eliminating false alarms and ensuring seamless entry without compromising on security.

How this benefits revenue: The process of using Open Banking APIs to login with bank credentials is simple and inherently secure, significantly reducing false declines and fraud risks. This frictionless payment experience boosts payment success rates, which positively impacts your top and bottom lines by increasing conversion rates and allowing transactions to go through without the risk of payment failure. 

Additionally, with Open Banking, the need for manually entering card information is eliminated. One major hurdle for conversion on online purchases is the manual entry of card details, which can deter customers and potentially halt sales. In essence, Open Banking addresses this by offering a streamlined and automated checkout experience.

Driving Revenue Growth with Open Banking Insights

In addition to addressing key pain points in the payments process, Open Banking enables a more proactive and direct approach to customer loyalty and driving sales, both of which contribute to revenue growth. 

Imagine having a crystal ball that tells you exactly what your customers want, when they want it, and how much they're willing to pay. That's essentially what Open Banking Payments can enable through its direct API connection to consumer bank accounts.

This isn't just about offering customers discounts or saving money, it's about driving revenue from the top  by giving your customers curated and tailored suggestions, products, or services based on their transaction data with your business. By leveraging these insights, you can:

• Identify and target your most valuable customer segments. Open Banking data gives a detailed view of customers' spending habits, including where, when, and how much they spend.
• Increase average order value through personalized offers and upsells. Optimize pricing strategies based on real spending data. Create highly targeted offers that actually resonate with consumers, as opposed to generic discounts and catch-all incentives.
• Improve customer retention with tailored loyalty programs. Craft personalized product recommendations based on their purchase history to encourage repeat purchases and better rewards based on their transaction history, order size, frequency, etc.

The plethora of data you can leverage by optimizing payments with Open Banking is an incredibly powerful resource to improve not just your payments setup but also streamline and optimize your sales and customer retention strategies. 

Ready to Optimize Your Payments Setup?

The world of payments is changing, and Open Banking is leading the charge. The question is: are you ready to lead with it?

By embracing Open Banking Payments, you're not simply cutting costs to maximize savings. You're opening up a whole new world of revenue growth opportunities. Say goodbye to the swipe fees and fraud risks that have been quietly eating away at your profits and hello to deeper customer insights that can drive strategic growth and more.

Remember, in the fast-paced world of e-commerce, standing still is the same as moving backward. Why not take the leap and see how Trustly's Open Banking Payment solutions can transform your business? Contact us today for a free demo.

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The Trustly Blog is where business professionals get insights from the Open Banking leader to learn how to tap into the power of Pay by Bank through Open Banking.

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