Market Insights

Why Open Banking Will Appeal to eCommerce Merchants in 2021 | Imran Gulamhuseinwala OBE, OBIE

In this video, Imran Gulamhuseinwala OBE, Implementation Trustee for Open Banking Implementation Entity (OBIE), joined our OBE campfire to share some new 2021 statistics on Open Banking adoption and provide some exciting news for eCommerce merchants on refund functionality for Open Banking payments.

Video Summary

Open Banking is the best kept secret in financial services today. Once one get outside of the bubble of Open Banking Excellence and so on, not a lot of people know about it. But the really exciting thing is that it is the beginning to see adoption.

Just recently there are more than 2.5 million active users of Open Banking-enabled products. It’s still a small number in the grand scheme of things, but it is growing quickly. In terms of API volumes, 70 million API calls were made in 2018, that’s 5 billion in 2020.

So it is increasing nicely. And on the payment side, it is really important, the final piece of the jigsaw are coming into place they’re not there yet. But there is a good level of payments, 3.5 million in 2020 and hopefully soon it is going to be hitting a million a month. So the growth rates are coming through.

The experience of designing standards which the banks have to implement, back at Open Banking HQ is this notion that there is such a thing as positive friction and negative friction. Regarding friction you have to be careful with frictions. Bad user experiences are what fills the vacuum.

It doesn’t mean that the consumer is better served. So by putting an extra screen in, it doesn’t cause the consumer to stop, pause and think, “Do I really want to buy that thing that is nice and spangly, jangly or whatever and I shouldn’t buy it”. It’s not what happens, consumers just fly through it because it becomes habit-forming very quickly. So, as an industry it is very important to try and work way through and figure out what does actually benefit a customer and what doesn’t.

A lot of the merchants are interested in taking payments directly via bank accounts because often there’s no settlement period, there’s no interchange fees to pay. So there’s a lot of benefits to them there. Over the course of last year there was a really crucial piece of missing functionality, and it was kind of obvious, and that’s refunds.

So it’s very hard to reverse a payment made over bank transfer, particularly using the old Open Banking model. After a lengthy consultation over the course of last year, refund functionality was approved into the Open Banking standards and that’s going to be rolled out over the course of the next weeks and months. This will bring more merchants in the table as they want refunds to work.

This idea of a “Code of Excellence” for the vast array of Fintechs out there who are the pioneers and moving the industry forward and it would be a good idea. But nonetheless, it is rather frustratingly about a year and a bit ago when tried to bring the industry around together and the motto “Let’s develop one of these things”, it was rejected.

And it wasn’t rejected just by the Fintechs or by the banks, it was rejected wholly. And it’s interesting because under PSD2, whilst there’s a lot that can do to mandate the banks to do things, there’s nothing really to mandate the third-parties to do things. They have to be authorised by the FCA, but there’s nothing there where you can encourage or coerce them to join one of these things, it could even be construed to be an obstacle. So it’s a good thing, but how to get there that’s an important question.

Video Timeline

00:00​ – Start
00:17​ – Open Banking statistics 2021
01:09​ – Can friction help customers make better financial decisions?
02:27​ – Will eCommerce merchants accept Open Banking payments in 2021?
03:27​ – What will it take to move the industry forward?

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