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How Open Banking is Impacting Payouts & Customer Loyalty

April 21, 2022


Open Banking Payment Solutions

Consumers increasingly expect digital and instant payments. While some limitations still exist, open banking is the key to delivering what customers want and eventually gaining their loyalty.

E-commerce is at an all-time high, after years of consistent growth followed by an exponential rise. It began with the mass adoption of smartphones and then accelerated due to the pandemic, as brick-and-mortar stores were temporarily closed per safety guidelines. Consumers still required goods and services, so retailers with the technological infrastructure for a digital-first sales strategy capitalized on that demand.

Today, E-commerce is not just a convenient alternative to in-store purchasing, it’s often the first choice. After years of consistent year-over-year growth at around 14%, Q2 of 2020 saw online sales growth shoot up to 44.5% according to the U.S. Department of Commerce. Statista reports that there were 230.5 million online shoppers in the U.S. alone in 2021, while globally the industry is now worth around $2.276 trillion.

The ability to pay quickly and securely is at the heart of E-commerce success and online shopping is only becoming more accessible thanks to the technology that allows you to create accounts, save payment methods, and ultimately complete “one-click checkout.” For even greater growth, instant payments will be key — and open banking can make that happen.

The Rise of Instant Payments & Payouts

E-commerce proffers many benefits, but one limitation is that consumers are not able to touch or try out items before purchasing. Consequently, in 2020, as E-commerce purchases were soaring, so too were online returns, which doubled to $102 billion as reported by the National Retail Federation. Meanwhile, the status of whether or not an event — like a concert or a play, would take place became even more uncertain during the pandemic, increasing refund requests for ticketed events.

Returns (and refunds) are inevitable, especially now, so merchants must make that process as seamless as possible to earn and maintain customer loyalty. Regardless of the reason for the return, the consumer wants to see that refund in their account as immediately as possible. Research from Doddle and YouGov found that 40% of consumers would reconsider a merchant if their refund took too long to show in their bank account, while 38% said they wanted to be refunded as soon as they shipped the returned item rather than waiting for the merchant to receive and catalog it.

One issue for merchants is that consumers are starting to expect this level of service, as it’s becoming more common in peer-to-peer transaction platforms like Venmo. Until now, infrastructure limitations challenged a company’s capacity to fulfill this demand; but things are changing.

How Customer Loyalty Has Changed

With fewer options in a given marketplace, a merchant can coast a bit; simply because — where else would their customers go? But today’s consumer is presented with innumerable options: countless brands have established themselves online, creating a very competitive market. Shoppers have their choice of provider, whether they’re looking for clothing, dining, or banking. So, merchants have to stay ahead of consumer behavioral shifts and adapt accordingly if they want to maintain loyalty.

For example, once a customer has seen that it is possible to receive their refund or payment immediately, they wonder why other providers aren’t doing the same and will factor this convenience into their future online purchasing decisions. The providers that adapt to shifting consumer expectations will reap the rewards. The J.D. Power 2021 U.S. Retail Banking Satisfaction Study found that the more a consumer digitally engaged with a company, the higher their consumer satisfaction.

The Open Banking Solution

Consumers are more demanding than ever and the competition for their attention is fierce. This is where open banking has been pivotal. Historically, payment regulations and infrastructure limitations have made it difficult to innovate at scale; primarily because payments aren’t transacted in a vacuum but rather rely on payment rails and schemes that are usually established at the national level.

At the core of it, open banking enables direct integration with consumer bank accounts through APIs. This way, the transaction need not first go through the banking institution so payments can be sent and received more quickly. Crucially, these pathways retain the security and authentication of a more traditional banking transaction. They also cost less per transaction than authorizing a credit card payment, which makes them appealing to merchants as well as consumers.

What’s on the Horizon

There are still some tech-related limitations in the current consumer landscape. Many regions don’t yet have the payment rail support needed for instant payments, although experts hope that the EU’s success with SEPA Instant Credit Transfers will encourage greater adoption. Once the infrastructure is in place, more banks will be able to enroll and make instant payments the default method for transferring money. At that point, consumers will begin to see instant payments at scale. This shift might not happen overnight, but when it does happen, it will be here to stay.

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