Why you should consider an open banking strategy

Media image full width

Open banking Why you should consider an open banking strategy

Published on 17.012023 by Stephan Lamprecht, journalist

Today, online shops are the most important sales channel for most retail companies, which is why it’s well worth optimizing all the processes they involve. This is where open banking can be a very important tool, and we are going to take an in-depth look at the benefits of the technology.

All the processes in an online shop should run as “smoothly” as possible for the customer, as marketing experts always so eloquently put it. In this context, payment at the end of the order process is a very important stage. At first glance, the term “open banking” primarily seems to be solely related to the payment process. However, the use of the technology paves the way for even more possibilities.

What is open banking exactly?

It is hard to provide a universal definition of “open banking”. At its core, however, it is a technology that provides access to bank customers’ account information using standards and interfaces once they have given their consent. In short, open banking opens up the banking interface to third parties.

Some fintech companies have specialized in open banking services, and provide access via application programming interfaces (API) that are easy to implement. And seeing as account information is of course sensitive data, regulatory authorities like FINMA or BaFin make sure that not just any company can gain access. To be able to offer open banking, the “account information service” licence is required as a minimum.

Open banking was made possible by an EU directive that expressly called on banks to make account data available to third parties as well via interfaces. A retail company that works in open banking with a company that has a licence can assume they are on the safe side as far as regulations are concerned.

Open banking options during the check-out process

If the retail company decides to work with a provider that has a “payment activation service” licence, they will improve the check-out process and the efficiency of their own payment processes. Take payment via a conventional bank transfer, for instance, which is famously associated with delays for the retail company. What’s more, it requires customers to actively visit the banking portal or to actively use the banking app.

With open banking or the use of a special provider, things are different. Unlike with a conventional transfer, the customers do not need to commission a transaction from the bank. Instead, the payment goes directly through the payment provider, and they forward the amount to the retailer in a matter of a few minutes.

Customers benefit from the time saved with their preferred method. The payment purpose and bank details for the transfer therefore come directly from the software used by the retail company, and incorrect numbers or missing information become a thing of the past. Retailers also benefit since the effort required to reconcile payments is kept to a minimum. If (partial) repayments to the customer do prove necessary, these can be processed just as easily.

The process can be sped up even more with “instant payments”. Essentially this involves a real-time transfer that is initiated by the payment activation service, and money lands in the retail company’s account in a matter of seconds.

More untapped potential with open banking in digital commerce

This is how easy it is to use open banking for payments. The option to access account information via API (customer consent is still required) allows for other applications, and it reveals what a treasure trove of data the banks have been sitting on exclusively up to now. Here are just a few simple examples:

  • To open a current account, customers normally need to be able to prove their identity. This means retailers can assume that the data from the account is a verified address and a correct date of birth. In the case of products that require a proof of age, the customer can simply provide this with their account.
  • Sales data analysis is also a suitable basis for assessing the creditworthiness of customers. This means the transaction comes with fewer risks.
  • Of course, sales data for the account also shows when and where customers have ordered and paid for something before. This means the data is also suitable for discovering regular customers who were previously unknown, or for appealing to specific people who used to buy from the competition. Here, too, you will find early fintech companies that rely on these “card-linked offers”.

Getting information and developing a strategy

All of this is by no means a long way off, and in fact a number of companies offer the service already. This means that coming up with a strategy of your own, and reviewing what services best complement your shop and the customer experience, makes sense here.

Stephan Lamprecht, journalist

Stephan Lamprecht has been following e-commerce developments in Germany, Austria and Switzerland for two decades as a journalist and consultant.

((commentsAmount)) Comments

There was an error during request.
  • (( comment.firstname )) (( comment.lastname )) (( comment.published )) (( comment.content ))

Contact us

Do you have questions for our experts, or do you need advice? We will be only too happy to help!

Contact us