What are Reverse Payments in Open Banking?

Written by Yapily · October 14th, 2020

Simply put, a reverse payment in Open Banking is a secondary payment to the original payer for the same monetary amount, effectively ‘refunding’ the original payment.

Given the rise in online payments and the increase in demand for digital products and services since the start of the pandemic, reverse payments was something we were keen to launch. Reverse payments are not refunds as Open Banking payments cannot be unwound. This is why the term ‘reverse’ is used to describe them.

How a reverse payment works in practice.

When a Yapily customer initiates an Open Banking payment, reverse payments allows them to indicate to the bank that they wish to retrieve the refund account information as part of the payment details returned from a successful payment.

Should the payer request a refund in future, a Yapily customer can look up the payment details using the payment ID from the original payment. Allowing them to locate the payer account details, and initiate a subsequent payment to the payer, to effectively "reverse" the original payment.

What are the benefits of reverse payments?

Ecommerce businesses would benefit from having full control over their refund process. Being able to set and control the terms of the refund would decrease unexpected disruption. Dealing directly with the buyer/payer as opposed to a credit card company, bank or other payment provider, who have been instructed to retrieve a refund.

Another benefit to reverse payments via Open Banking is that money passes from bank-to-bank, in the same way the initial Open Banking payment is made. Meaning there are no waiting times for middlemen to pass money from merchant accounts on or unnecessary fees. This, in theory, would allow businesses to be more efficient in the refund process and predict the timeframe more accurately.

Consumers also benefit from receiving reverse payments directly to their bank account. If payments are made via credit card or e-wallet, refunds can end up in the card account or an e-wallet, which you would then need to transfer back to your bank account. In some cases the money will stay in your credit card account until you spend the value to get your account to zero. This problem is eliminated with Open Banking.

What is next for Open Banking reverse payments?

As Open Banking reverse payments are not yet mandated in the UK, not all banks are currently supporting this functionality. But many have started to introduce them, continuing to build on the strong reputation the UK has for Open Banking development. Although the UK is leading the way, for European countries using the Berlin group Open Banking standard, reverse payments should be an easy functionality to access. This is due to the payer IBAN already being captured in the initial payment initiation request. Expect reverse payments to become part of the standard as we see the adoption of Open Banking payments continue to rise.

To read more about the benefits of Open Banking payments, download our free payment innovation ebook here.

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