In 2019, we partnered with Aite Group to look at why banks should leverage the API economy in API First: Realizing the Potential of Open Banking. In that report, we shared how bank product distribution was changing to "API First," and how APIs were facilitating collaboration and reducing the work to deliver joint solutions. With PSD2 accelerating this approach and open banking adoption, it was a logical next step to start researching how other players in the ecosystem, specifically Payment Service Providers (PSPs), are responding to and will benefit from open banking and the new payments rails that are beginning to take shape across Europe.
What are open payments? Open payments are account-to-account (A2A) payments that are initiated by the PSP directly from the customer’s bank account (with the customer’s consent, of course) and credited to the merchant’s account. As demand grows for new payment solutions that are faster, more transparent, less risky, and cost efficient, open payments are becoming increasingly attractive. It’s easy to see how the potential advantages of open payments to create new payment experiences at lower fees and reduced risk are generating significant interest in the e-Commerce world. Open payments can be up to four times cheaper than card payments, which in itself would be a game changer for merchants.
“Online merchants have a growing interest in adding open payments as a new payment method to their checkout page, as open payments can help them to reduce cost, mitigate risk, and streamline operations,” explains Ron van Wezel, senior analyst at Aite Group. “Banks and PSPs will launch open payment solutions this year to meet that demand,” he adds.
The Road to Open Payments takes a closer look at four key areas:
- Payment initiation services (PIS) will enable banks and PSPs to offer open payment solutions to their corporate and small and midsize enterprise (SME) clients - open payments are expected to take an increasing share of European payment volume.
- Conversion is table stakes, and open payments must at least match the level of competing payment methods - cost reduction can be a significant driver for merchants to favour open payments over cards.
- Eight out of 15 respondents to the research, including large banks and acquirers, reported that they will launch PIS in 2020; the priority markets for open payments to launch are the UK, Poland, Germany, and the Netherlands.
- Banks and other PSPs believe that current market inefficiencies will be addressed over time and that open payments will reach mass adoption in three to five years.
Download your copy of The Road to Open Payments today and get in touch with the team to discuss your strategy.
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