10 reasons PSPs should adopt open banking

Open banking is transforming the payment landscape for consumers and businesses. But how do Payment Service Providers, the key players in payment processing, benefit?

The way we pay has changed a lot over the years. More than half of us now use digital wallets, so we don’t have to remember strings of card numbers. Because of this, we have high expectations when it comes to paying online (hint: speed and convenience).

But it seems businesses are struggling to keep up. Our newly released State of Payments report reveals a staggering 63% of consumers have recently abandoned their cart at checkout because of a subpar experience. And the worst part? It’s costing businesses over £650 million in lost revenue every year.

As businesses face a growing demand for seamless payment experiences, they’re increasingly turning to their payment service providers (PSPs) for support. The natural question being asked by PSPs is: what’s in it for me?

Quite a lot actually…

Here are 10 ways PSPs could benefit from adopting open banking.

1) Increase merchant retention

Let’s start with an important metric for PSPs: retention rates. Simply put, retention rates indicate how many merchants continue to use a PSP for an extended period of time.

If you’ve ever talked to a business about their biggest challenges, chances are they’ve mentioned transaction fees. It’s no wonder – payment processors can take up to 6% of each sale, which adds up to billions in lost revenue. In fact, according to the Axe the Card Tax campaign, around £5 billion is lost every year due to card network fees.

It’s shocking, but there’s a solution… open banking. Since open banking payments are made directly between bank accounts, businesses only have two costs: a fixed fee for accessing open banking APIs and a volume-based transaction fee.

By reducing payment costs with open banking, PSPs create a stronger incentive for businesses to stay loyal. After all, lower costs mean more savings for businesses to invest in growth and expansion… and this translates to higher retention rates for PSPs.

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2) Boost transaction volume

As we just mentioned, merchants are more likely to stick with a PSP that helps them save money and grow their business. By leveraging open banking to cut transaction fees, PSPs can do just that. Importantly, lower transaction fees don’t equate to less revenue. Why?

Businesses that save money on payments are more likely to reinvest those savings back into their operations, which means PSPs will process even more transactions. Ordo, for example, saw monthly open banking transactions increase by 110%, and Yotta Pay experienced over 100% monthly growth in open banking payments.

Merchants saving money + PSPs getting more business = a win-win for both sides.

3) Improve conversion rates

Our latest report asked payment decision makers to name their top three priorities. And what did we learn? Well, it turns out that securing investment (19%), customer acquisition (19%), and profit margin (18%) are at the top of the list for most.

But when we delved deeper into the state of online payments, we found that traditional methods simply aren’t cutting. The truth is, slow payment experiences are actually damaging conversion rates. And when conversion rates suffer, it’s not just customer acquisition that takes a hit… it’s profitability, too.

Customers expect fast, seamless, and secure payment experiences; 28% expect the payment process to take less than two minutes, and two-thirds expect it to take no more than four minutes. A clunky or outdated payment process can frustrate customers who are more likely to abandon their purchase altogether.

But with open banking payments (more about them here), PSPs can facilitate faster processing and improve security. Volume, for example, increased checkout conversion rates by 250% after adopting open banking.

Experience how fast open banking payments are first-hand with a live demo, no need to sign-up. Try our Payments Demo

4) Optimise fraud prevention

Talking about security… our research found 29% of businesses value it most when evaluating types of payments to offer customers. There’s just one problem: businesses are losing more revenue from legitimate orders being declined than from fraud itself. So, what can PSPs do to avoid this paradoxical situation?

It starts with a more flexible payment system that uses advanced authentication protocols and encryption… and that’s where open banking excels. Open banking payments are protected by Strong Customer Authentication (SCA) to ensure transactions are secure and reliable. Because of this, fraud is reduced and unjust chargebacks are minimised.

Need proof? Crezco reached a net promoter score of over 76 after adopting open banking, demonstrating strong satisfaction and confidence in this secure technology

5) Offer faster settlement

Our report also asked payment decision makers about their biggest pain points in 2023. The most common answer? Slow settlement.

It’s hardly surprising considering settlement can take days or even weeks. But with ongoing economic uncertainty, businesses are navigating complex cash flow management and little investment. This means they need a way to receive funds almost instantly.

With open banking, payments are processed in real-time using Faster Payments, so businesses receive payments instantly. Trilo, for example, reduced the time it took for merchants to receive funds from up to 7 days to just 5 minutes.

In short, open banking can help businesses unlock thousands of pounds each year to reinvest back into their business and optimise cash flow.

6) Maintain market share

Handling global payments, monitoring security, accommodating payment preferences, prioritising customer experience … you name it, businesses rely on their PSPs to deal with it. But is ticking all these boxes enough for PSPs to maintain market share?

Back to our research, only 30% of payment decision makers rated their PSP as “good” for supporting multiple payment options, while just 1 in 4 (27%) rated them as “good” for payment conversion. There’s clearly room for improvement… and open banking can help.

Open banking is an essential piece of the future payment puzzle, and early adopters gain a competitive advantage. But that’s not all, open banking also offers enhanced security features, such as customer-controlled payment data, which can help protect a PSPs credibility. You can learn more about security in open banking here.

7) Refund within hours

The biggest challenge merchants face when it comes to refunds is manual authorisation. While it might not be a big deal if businesses need to return a few payments here and there, as their payment operations scale, it simply becomes inefficient.

But there is another way… virtual accounts.

Powered by open banking, PSPs can create unique virtual accounts to manage payments between a merchant and their customer. Payments settle in a unique virtual account, which businesses can then use to simplify the process of issuing refunds.

And, refunds are processed using domestic rails (Faster Payments in the UK and SEPA Instant in Europe), meaning that money lands in consumers’ accounts instantly. With Yapily Virtual Accounts, PSPs can help businesses provide a better customer experience, avoid potential disputes, and streamline their payment operations.

8) Embed payment experiences

We talk a lot about seamless payment experiences, but what does it actually look like?

Imagine you’re shopping online, and the business you’re buying from lets you complete your purchase without redirecting you to a payments page or re-entering your payment details. You love how convenient it is and decide to sign up for an account to get more perks. Embedded payments not only improve the payment experience but also helps to drive customer loyalty and customer retention.

For businesses, the payment process is embedded within their software or website without causing friction in the buyer’s journey. As a result, both businesses and PSPs can see an increase in completed transactions and a decrease in cart abandonment rates.

If you’re wondering how it works, the answer is embedded finance and open banking. Embedded finance involves integrating financial services into non-financial products and services, making transactions seamless and convenient. In fact, 92% of business leaders are planning on launching embedded finance within the next five years.

9) Gain deeper insight

As the saying goes, “data is the new oil”. And it’s true - with the consent of your customers and their customers, open banking can provide a wealth of valuable information. By tracking buying behaviour, PSPs can gain a deeper understanding of their customers’ needs and create personalised payment solutions that drive loyalty and retention.

But that’s not all. Open banking can also help identify and mitigate fraud risk by monitoring transactions and flagging suspicious activity in real-time. This not only protects PSPs from financial loss but also builds trust and confidence among their customers.

Like they say, if you can’t measure it you can’t improve it.

You can test the Yapily Data demo experience and the type of insights provided by connecting to your bank account information service. Live test Yapily Data Demo

10) First-mover advantage

The first-mover advantage of open banking is clear. While open banking payments are becoming more prevalent in areas such as e-commerce, peer-to-peer payments, and digital wallets, there are still untapped industries in which PSPs can break ground.

Esenda, for example, introduced open banking to a sector embedded in heritage and tradition: education. As a result, they saw a 100% uptake from customers and have now processed over £9m in transactions on behalf of over 10,000 parents.

Businesses demand it, as well. Our report found 27% of businesses are already investing in open banking to stay ahead of the curve, while 58% want to use it for themselves.

And it’s not just businesses that are interested in open banking – consumers are too. In fact, 34% of shoppers would like to use open banking at the checkout, and 44% would switch to a payment method that doesn’t charge businesses high fees.

By embracing open banking, PSPs can become an example of how this technology improves the payment experience for everyone involved.

Want to learn more?

Got questions about open banking payments, how they work, and their use cases? Check out the articles below.

Variable Recurring Payments vs Direct Debit The complete guide to open banking payments Faster Payments, and what it means for open banking

To learn more about Yapily Payments, check out our API documentation. Or, if you’re ready to take the next step, try our demo for free.

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