Credit cards were invented in 1950—why do we still use them online in the age of digital banking? When consumers go to make a purchase on your app or website, adding their bank or credit card information takes time and effort. Consumers may drop off at this stage because of the hassle involved in adding information and getting everything to process correctly. To avoid this problem and offer consumers more convenience, many companies have turned to a simple solution: Open Banking.
What is Open Banking? The simplest definition is that it is a secure way for consumers to make payments and share financial information directly from their bank accounts with third parties. Essentially, Open Banking makes it possible for consumers to take advantage of their readily own financial data by connecting their bank accounts to merchants’ apps and websites to via third-party APIs.
Because of this, Open Banking is the future of banking and critical to integrating payments for merchants everywhere. Originally Open Banking started rising in popularity in 2015, and additional laws and support have made it possible to expand it to what it is now. In addition to other financial use cases, the term can be used to reference both fast, convenient payments — Open Banking Payments — as well as granting businesses and vendors secure access to consumers’ banking data — referred to as Open Banking Data.
Open Banking will continue to develop and expand to meet consumer needs and to make banking easier for everyone. From investing platforms to online commerce to budgeting apps and more, most industries stand to benefit from this future of banking.
Open Banking Payments and Data provide so many benefits to merchants and consumers alike. That’s why it’s only continuing to grow in popularity and prominence. But what specifically are the major benefits of Open Banking? These are six of the benefits and how they might help you and your customers.
Benefit 1: Better Understand Consumer Needs
When you, as a merchant or service provider, have secure access to your consumer’s shared financial information, you will see a more complete picture of who your consumers are and—more importantly—what their needs are. With consumer consent, you can see spending habits and routines, collect necessary information, and better authorize a user.
With Open Banking Data, merchants can collect financial information which enables consumers to better budget, obtain credit, validate their income, and more. At its core, Open Banking helps build safe and transparent relationships between consumers, merchants, and financial institutions.
Benefit 2: Reduce Payment Processing Costs & Administrative Efforts
Entering financial information manually isn’t just time consuming for the consumer. Merchants also have to take the time to meet compliance requirements and processes, and that requires time and administrative personnel and processes to make it happen. Processing fees and verification for credit card purchases can often be costly and time consuming, leading to more work and reduced fees for merchants.
While credit and banking card usage is widespread across the globe, it comes with a costly tradeoff. Merchants and companies are responsible for paying processing fees that range from an average of 1.5 to 3.5 percent per transaction. These fees are also on the rise — experts report banking card fees are projected to increase by 18% by 2025, leading to an additional $724 a year in spending per household.
However, Open Banking Payments enable consumers to pay directly from their bank account, which can reduce processing costs significantly while providing a safe, secure transaction for the consumer.
Benefit 3: Verify Consumers Faster & Easier
In many industries, the process of verification is crucial. Many merchants need to perform Know-Your-Customer (KYC) to verify their consumer’s profiles, banking information and additional data. Sometimes this process is called onboarding or verification. Waiting for verification and manually inputting financial data can be frustrating for consumers (and potentially time consuming). Not to mention, manual input is prone to human error and inefficiencies. Being able to move forward quickly and with more ease is valuable to the consumer and merchant alike.
Open Banking allows companies to access all the information they need to verify right away, so you can simplify the verification process and help consumers move forward faster. The sharing of bank-verified information saves consumer time, improves data accuracy, and adds efficiency—these are all benefits of Open Banking.
Benefit 4: Increase Transparency & Security
While more and more purchases happen online, many people still have trouble trusting that their financial data is kept safe and secure. Internet privacy has become an increasing issue, and Open Banking can help your company come out on top. Open Banking gives customers complete control over their financial information. This approach to information helps consumers feel confident in where their data is going and who has access to it for security purposes. Open Banking helps your business increase transparency, and it helps consumers feel more secure with their data.
In an increasingly digital landscape, Open Banking APIs provides an extra level of security used to authenticate each and every payment. Unlike the current reality of credit card payments, Open Banking can lead to less hassle and fraud across the board.
Benefit 5: Increase Collaboration Potential
Open Banking has benefits in the larger scope of the financial industry as well. Open Banking is bringing banks and fintech together already, and it can continue to increase the potential for collaboration between these two industries. Neither banking nor fintech gets an advantage over the other with Open Banking. Instead, both collaborate on behalf of the consumer to make information transfers more seamless. As data sharing increases, the opportunities for collaboration increase, leading to more innovation for solutions and products.
Benefit 6: Create a Consumer-Centric Approach
Ultimately, consumers are the keystone and focal point of merchant success. Creating a simple and streamlined experience for them is what most merchants strive to achieve. Open Banking helps you achieve that by putting consumers in control of their financial data, and allowing them to use their financial information efficiently.
Open Banking is just one aspect of creating a consumer-centric business but it can have a lasting impact on consumers. Increased market competition—especially in the financial services industry—gives consumers more choice of who to work with, and customers are drawn to companies that give them control over their information, provide a delightful and positive experience, and ultimately make their lives easier. Open Banking can help your company stay focused on the consumer and deliver a positive user experience.
Get Started with Open Banking
Overall, Open Banking provides customers the option to share their financial information with merchants and third parties of their choice to simplify purchases and more. While Open Banking can make a consumer’s life easier, it can also benefit the businesses utilizing it. These are just eight of the key benefits of Open Banking that help show just how important it can be for a modern business model.
Adopting Open Banking can help your company begin to see these benefits. Trustly is one of the leading voices in Open Banking, and helping merchants implement Open Banking Payments and Data solutions is our passion. If you’re ready to begin learning more about Open Banking, we are here to guide you. Contact us today to start using a leading Open Banking platform from Trustly.