How open banking payments – in and out – can help businesses
Challenge >>
Ongoing problems with processing payments add to the difficulties faced by the UK’s small businesses when attempting to secure finance.
High transaction costs when accepting card payments can eat into profit margins, particularly for businesses with smaller transaction volumes.
Limited payment options fail to align with changing customer preferences or technical advances, while delayed payments create challenges in meeting operational expenses and paying suppliers. This, in turn, can sometimes stall business growth.
Elsewhere, restricted access to payment data precludes effective analysis of customer behaviours, hindering attempts to optimise pricing, marketing strategies, and the overall customer experience. Manual reconciliation and management of different payment streams is time-consuming and can be vulnerable to human error, impacting efficiency, productivity, and accurate financial reporting.
Addressing these challenges requires firms to adopt suitable payment technologies, explore alternative payment methods, and partner with payment service providers that can offer tailored solutions for their specific needs.
Solution >>
Open banking payments reached a record high of 11.4 million in July 2023, double the amount recorded for July 2022, and one of the key drivers for that growth was open banking-powered e-commerce payments. These payments have transformed online shopping experiences with shoppers choosing this secure and frictionless way to pay for their purchases. It also enables vendors to confirm that they've received funds before releasing purchased goods. This provides added assurance in the online transaction process.
As large UK companies and major institutions continue to roll out open banking payment options, smaller businesses can easily do the same to attract and grow their share of customers.
OPEN BANKING
PAYMENTS
Benefits of open banking-enabled business payments
- Enhanced payment options – open banking enables small businesses to offer customers a wider range of payment options. ‘Pay by bank’ options allow customers to initiate payments directly from their bank accounts. This can bypass traditional card payment methods, while offering QR codes as a way to pay is also popular with customers, charity donors, community-based organisations and social enterprises. Both options can reduce transaction costs for organisations and provide customers with a convenient and secure payment experience and, in some cases, eliminate the need to handle physical cash.
- Streamlined checkout processes – small businesses can simplify their checkout processes by integrating open banking payment solutions into their websites or mobile applications. As well as eliminating the need for customers to enter card details manually, friction within the payment process is reduced, minimising errors, and potentially helping to boost conversion rates.
- Faster refunds – card-generated refunds can often take several days to resurface on cards and are a common frustration for customers. Open banking solutions allow merchants to use virtual accounts to collect payments and deliver refunds on Faster Payments rails, improving the customer experience.
- Lower transaction fees – by leveraging bank-to-bank transfers, businesses can reduce transaction fees associated with card schemes. For small businesses with lower transaction volumes or those operating on smaller profit margins this can be particularly beneficial.
- Managing bulk payments – around 46% of businesses still pay employee salaries using a manual process. Open banking platforms can connect to business accounts simply and securely to automate this process, speeding up reconciliation of transactions, and the payment of salaries and bills, saving business owners and book-keepers hours of tedious, time-consuming admin.
- Late payments and improved cash flow – with faster settlement times compared with traditional payment methods, small businesses can benefit from quicker access to funds. This can help improve cash flow and reduce the time between making a sale and receiving payment – a serious challenge for many businesses. Offering clients a ‘pay now’ option on an invoice via an embedded link in their accounts software makes it quicker and easier for clients to make a payment, and minimises the risks of an invoice getting lost.
- Access to account information – open banking allows access to real-time transaction data and customers’ account information (with their consent). This information provides valuable insights for small businesses, helping them understand customers' spending patterns, preferences, and financial behaviour. This can then be used for targeted marketing, personalised offers, and improved customer engagement.
Find out more >>
Open banking – a faster, frictionless way to pay
