Recently, we introduced Yapily Virtual Accounts which enables merchants and payment service providers (PSPs) to collect local payments, initiate instant payouts, and streamline reconciliation…all consolidated into a single API.

Instead of funds landing directly in your business account, our customers can open unlimited virtual IBANs in GBP and EUR, and organise their payment flows by use case, business line, or region, and streamline their process for payment operations.

And now, Yapily Virtual Accounts also helps customers solve one of the most anticipated use cases in open banking: refunds.

What are the problems with refunds in open banking?

Refunds can be a frustrating experience for both customers and merchants. And, while open banking has proven to be a faster (instant, in fact) and cost-effective way to make payments, it has yet to improve the process of issuing a refund.

One of the biggest challenges merchants face when returning money to a payer using open banking is payment authorisation, which is done one-by-one. While that might not be complicated if you need to return just a few payments here and there, as your payment operations scale, manual authorisation simply isn’t feasible. Needless to say, this process is time-consuming, resource intensive, inefficient, and frustrating for both the merchant and the consumer.

While there is a way to work around this… it’s not a perfect solution.

Instead of manually authorising refunds, merchants could execute a so-called reverse payment. Here’s how it works.

When a person or business makes a purchase, they share payment details, including their account information. In the UK, this means sort code and account number. In the case of a reverse payment, this information is used to send the money back to the original payer. The problem is, not all banks pass the payment details needed to return the money on to merchants or payment service providers. Without this information, reverse payments can’t be processed, meaning it’s not a reliable solution, and does not completely solve the problem.

Payment operations present a separate set of challenges. If all payments land in the same account, it’s very difficult for finance teams to keep track of the source of, and reason for, each payment. Likewise, it’s difficult to get clear visibility on funds that are missing a payment reference. The only solution is to manually match and find payments which is resource-intensive and doesn’t scale.

So, what’s the alternative?

Virtual accounts.

These are unique virtual accounts used to manage payments between a merchant and their customer. Payments settle in a unique virtual account number, which then can be used to simplify reconciliation, by segregating payments by product or region and providing a process for issuing refunds.

There are several benefits of using virtual accounts to issue refunds:

1. No more waiting on payment authorisation, merchants can just simply issue refunds and automate their payment processes.
2. Refunds are processed using domestic rails (Faster Payments in the UK and SEPA Instant in Europe), meaning that money lands in the payer’s accounts instantly.
3. Virtual accounts make it easier to keep track of all the payments and refunds. Each transaction is recorded and tracked making it simple to identify which payment is being refunded.
4. Virtual accounts are more flexible than reverse payments. They can be used to issue partial refunds or refunds for multiple transactions and are better suited for streamlined payment operations at scale.
5. Virtual accounts provide a complete view of the refund status. Knowing where payments are in their journey helps merchants better manage their inventory and cash positioning.

With a single API, our customers not only get unlimited vIBANs to collect funds and issue refunds, but also receive payment notifications when funds have landed or left the account. By using Yapily Virtual Accounts, merchants can provide a better customer experience, avoid potential disputes, and streamline their payment operations.

Ready to explore open banking refunds for your business? Get in touch today.