If you’re considering offering open banking as a payment option, but don’t know where to begin, keep reading. This guide will help you evaluate the right payments option for your company.
What are open banking payments?
Open banking payments are payment methods that rely on Application Programming Interfaces (APIs) to carry out bank-to-bank transfers.
This is different to traditional electronic payments, which rely on traditional payment processor parties to facilitate transactions.
These APIs enable the direct sharing of financial data between authorized institutions. This means verification is instant because it does not rely on third-party intermediaries.
Open banking payments are directly related to and subject to open banking policies and standards more generally.
The benefits of open banking payments
Open banking payments provide low transaction fees.
With traditional payments, each time customers use their card at the checkout, it incurs a cost for the merchant. And it’s not just small businesses that feel the impact - enterprises do, too.
For every card, e-wallet, or Buy Now Pay Later (BNPL) transaction, the processor takes up to 6%. Yikes!
Open banking payments are also fast. They don’t need to wait for approval from payment process parties such as payment gateways, payment networks, etc.
Open banking payments are also secure. Their use of APIs means that only data necessary for each transaction is shared. This significantly reduces the risk of unauthorised access or data breaches.
Amazon vs Visa
When Amazon threatened to stop accepting UK-issued Visa credit cards unless Visa lowered its fees, Visa accused Amazon of restricting customer choice.
Despite reaching a last-minute truce, Amazon’s initial rejection suggests one thing: a shift away from cards, towards account-to-account payments.
Or, in other words, open banking payments.
Types of open banking payments
There different types of open banking payments: single, scheduled, bulk, and variable payments.
The benefits of each type are the same: faster, cheaper, and more convenient transactions.
|One-time payment made through a bank’s online platform to another bank account without going through a middleman (like a card network)
|Peer-to-peer payments, account top-ups, invoice payments, and bill payments
|One-time payment set up in advance and scheduled to happen on a specific date.
|Peer-to-peer payments, account top-ups, invoice payments, and bill payments
|Multiple payments from a single bank account to a list of recipients in one transaction.
|Invoice payments, payroll, treasury payments, and interest payments
|Variable Recurring Payments
|A recurring payment where the amount changes each time.
|Subscription payments, variable interest payments, dividend payments and commerce payments
Now that you’re familiar with different open banking payments, let’s take a closer look at each one.
Single payments (also called account-to-account payments) are regular one-time payments.
They differ from bank transfers because the payee doesn’t need to enter their bank account information or card details. And the payment is processed instantly, rather than in three business days.
There are no gateway, processing, or scheme fees. So, single payments are cheaper than card transactions.
They can be sub-divided into the following categories:
Domestic: One-time payments made within the same country. These use local clearing schemes like BACS for bulk payments, and Faster Payments for instant settlement.
SEPA: Domestic payments that can sometimes involve cross-border transactions. A way to send money within the Single Euro Payments Area using SEPA Credit or SEPA Instant.
High Value Payments Systems: For high-value payments. A Real-Time Gross Settlement (RTGS) scheme can be used if the payer’s bank supports it.
Cross-Border: These payments use SWIFT, which is a secure and efficient way to quickly transfer money internationally.
Use case: Peer-to-peer payments
Kate and her friends go out for dinner and want to equally split the bill.
Before, everyone would have to log into their banking app to send a bank transfer. Now, Kate can log into a money management app like Emma and send a payment link.
All her friends have to do is approve the payment and their share of the bill is taken care of. Easy!
Yapily Payments allow businesses to offer a frictionless checkout experience at all customer touchpoints.
Whether it’s on their website, face-to-face, or in-app, consumers can Pay by Bank however they choose to shop.
Scheduled payments are payments sent directly from a customer’s bank account on a specific date.
Normally, customers would have to log into their banking app to schedule an automatic bank transfer. But with open banking, customers can schedule payments within the app of the financial service provider they use.
It’s important to note that right now, customers can only change or cancel a scheduled payment through their banking app (if the option is available).
Use case: Bill payments
Adina has multiple bills due on different dates throughout the month. Previously, she would log into each service provider’s website to make a payment on the day. It was time-consuming and easy to forget, putting Adina at risk of late fees.
Now, she can schedule each payment. She simply logs into her digital banking app and sets up a payment for each bill.
Adina enters the amount and the payment is processed directly from her bank account on the date she chooses. This is different to Direct Debits, which involves setting up an instruction and a notorious three-day cancellation rule.
For years, it’s been impossible for small businesses to pay multiple people at once, like their employees and suppliers. Payroll, for instance, would have to be manually processed.
To put that into perspective, small businesses spend over two hours on payroll admin each month…
Now, businesses can submit multiple payments from their phone or desktop in one go. This can be done with the help of solutions like our award-winning Bulk feature.
Bulk payments vs batch payments
Bulk payments and batch payments both consolidate multiple transactions. The main difference is that batch payments have the capabilities of adding layers of timing or conditions (payment type, date, etc).
|Bulk payments are multiple payments made to different recipients, on the same date and using the same account.
|Batch payments are multiple payments made to different recipients from different debtor accounts.
Bulk payments streamline payments by consolidating multiple transactions. This reduces transaction fees, minimises errors and saves time.
Batch payments can be used when companies have multiple suppliers to regularly pay. Rather than paying separately from different accounts, they can consolidate payments into a single batch payment.
This saves time and effort and increases payments’ punctuality. It provides businesses with more sophisticated capabilities than bulk payments do. These include greater control of their payment cycles and better strategic cash management.
Use case: Payroll
Hamal is a finance manager at a small firm. Every month, he spends many hours processing bulk payments for his team’s salaries. Manually entering details for each payment is time-consuming… and he risks making errors. Now, Hamal can simplify the process using open banking. He connects the firm’s business bank account to a platform like Comma and submits payroll at once with just a few clicks.
In fact, Comma has helped reduce the time finance teams spent making bulk payments by 77%.
Yapily Bulk allows companies to streamline bulk payouts. It can be added as embedded process within their own platform. It’s really simple, just a direct API integration into their business bank account. No more file uploads or other convoluted processes.
Variable Recurring Payments for sweeping
Variable Recurring Payments (VRPs) enable businesses to collect regular payments using open banking.
Today, they can only be used to move money between two accounts belonging to the same person or business. This is called sweeping.
Some examples of sweeping include moving money:
- Between current accounts (to avoid falling into overdraft)
- To accounts used for loan repayments
- To a credit card account
- To cash savings accounts that pay interest
Use case: Intelligent savings
Anna is a young professional who wants to save more money.
She uses a personal finance app to track her spending. And she often finds that she still has spare money in her account at the end of each month. She doesn’t know what to do with this money.
Fortunately, there’s a useful feature on her personal finance app. It monitors her disposable income and leftover money.
Now, every time she gets paid, the app automatically detects any spare money in her account and sweeps it into her savings.
Variable Recurring Payments for non-sweeping
So, VRPs can currently only move money between two accounts with the same name (me-to-me). But what moving funds between separate accounts (me-to-business)?
This is called non-sweeping. Fast-paced innovation in the open banking space will make this a reality in no time.
With NatWest, we at Yapily are unlocking VRP for sweeping and non-sweeping payment use cases. This goes beyond the minimum regulatory requirements so that our customers can make the most of all it has to offer.
Some examples of where it can be used include:
- Streaming subscriptions
- Utility bills
- One-click checkouts
- Repeat invoices
- Gym memberships
Direct Debit also does these. But over half of UK businesses face a £50 fee for every failed Direct Debit transaction… and 500,000 Direct Debits failed in the UK alone last year.
Learn more about the difference between Variable Recurring Payments and Direct Debit.
Use case: Membership payments
Marco owns a popular gym.
He was previously accepting card payments with high transaction fees and managing Direct Debits for membership payments. So, when he heard about Variable Recurring Payments, he decided to give it a try.
Marco integrated his payments with the platform Volume. He was impressed by just how easy it was. With a few clicks, his gym members could pay using Variable Recurring Payments with the flexibility to change tiers at any time.
Yapily Variable Recurring Payments
Yapily Variable Recurring Payments allow merchants and other payment providers to use open banking for recurring payments. These payments can be for varying amounts and they don’t require reauthentication each time. Our customers, like Volume, can save costs, increase payment volumes, and provide frictionless alternatives to standing orders and Direct Debit.
Open banking payments have revolutionized the financial landscape. They have done this by leveraging APIs for seamless bank-to-bank transfers and sidestepping traditional payment processors.
They offer a more convenient way to handle transactions compared to traditional payment methods like card and Direct Debit.
These transactions are faster, cheaper, and more secure. Merchants can save significantly on transaction fees, which can sometimes reach up to 6% with traditional methods.
Various types of open banking payments cater to different needs:
- Single payments for one-time transactions
- Scheduled payments for future expenses
- Bulk payments for businesses
- Variable recurring payments for ongoing costs
These payment types, coupled with innovations like virtual accounts, enable individuals and businesses to manage their finances more effectively, from peer-to-peer transfers to complex commercial transactions.
So, whether you’re looking to streamline payroll, enhance the checkout process, or upgrade digital banking features, we have an open banking payment solution for every company.