As more shopping shifts to e-commerce, Open Banking is set to have a major impact on retailers in the next couple of years and new innovative payment forms are coming to market.

What is Open Banking
 and why does it matter for retailers? 

Open Banking is an initiative introduced initially in the UK, then followed by broader EU regulation under the Payment Service Directive 2. It gives consumers a secure way to give trusted third parties access to their bank accounts. 

There are two elements to Open Banking. 

The first element is the ability for consumers to give access to their bank accounts to trusted third parties for the purposes of information; for example, to enable consumers to see all their bank account information in one place.

The second element, which I’ll focus on in this article, is the ability for consumers and small businesses to make online payments to retailers from their bank accounts, via third parties.

Regulators are encouraging Open Banking enabled payments and information-based propositions as a catalyst to open up innovation in the payments industry.

For retailers, this second element of Open Banking means a faster payment experience for their customers as no card details need to be typed in. Retailers also don’t see nor hold sensitive payment information, can benefit from cost efficiencies, and receive their money instantly. Furthermore, compliance to Strong Customer Authentication requirements are built into the product via the secure authentication done by the bank – meaning that retailers don’t need to take further steps to be SCA compliant, when using certain Open Banking products. 

For consumers, this means that they don’t have to type in long card details. They can simply authenticate via biometrics on mobile devices. Consumers can see their bank account balance before confirming the payment, and the money is instantly debited from their account, giving them a real-time view of their available finances. Since consumer payment information is not shared with the retailer or third party enabling the transaction, there is also lower risk if the retailer were to have a data breach.

When will Open Banking products launch in the UK?

The largest UK banks delivered Open Banking APIs in 2018, with the rest following suite in 2019.   We’re already seeing new products introduced to help retailers and customers take advantage of Open Banking. 

At American Express, we launched our own Open Banking productPay with Bank transfer, with ecommerce sites including Hays Travel, JustGiving, Royal Lancaster and Boodles already making use of the service. This product enables consumers to make online payments quickly without a debit card to hand, view their bank current account balances prior to confirming a payment, and benefit from bank-level data security. 

How will Open Banking impact retailers?

Open Banking offers retailers more choice in how they can accept payments. These products, such as Pay with Bank transfer, offer easy integration, immediate access to funds and a cost-effective way to receive consumer payments from UK banks. 

By 2022, pwc expects 64 per cent of UK adults will be adopters of Open Banking services. This means that retailers could see financial benefitsImmediate access to funds will be a big shift in the payments space, making cashflow management for retailers easier. With SCA built into the user experience and less payment information for the retailer to securely store, this simplifies payments for retailers. 

Ware in the infancy of bringing Open Banking use cases to market, and expect even more applications of Open Banking to benefit retailers over the coming months and years. 

How will 
Open Banking benefit consumers?

Open Banking payments gives consumers a simple and speedy way to pay e-commerce retailersConsumers benefit from bank-level security for payments, with the added benefit that they can see their current account balance before making a purchase. 

Looking forward, there are many ideas for Open Banking and open finance in unlocking people’s data to help them make more informed purchasing decisions. More frictionless e-commerce experiences for consumers will lead to further benefits for retailers. 

Open Banking is no longer a theory or pipe dream: it is a reality, and one that is already bringing significant opportunities to consumers and retailers.


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This article was originally published in The Retailer, our quarterly online magazine providing thought-leading insights from BRC experts and Associate Members.