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Online Business: High Conversion, Low Cost? – The Power of Open Banking

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How is Open Banking impacting online business conversions?

Open Banking is an already established framework, aimed at creating innovative products and integrations that are safe, versatile and easy to use. With Open Banking, both traditional and digital-first banks can share their users’ financial data securely with other providers (usually fintechs) via secure Application Programming Interfaces or APIs.

Open Banking can provide online businesses a streamlined payment process that reduces transaction costs and a personalized customer experience. And by being able to provide a smooth checkout process, marketplaces and platforms can expect an uptick in online business conversions, which makes an Open Banking solution a sound investment.

What is Open Banking?

In a nutshell, Open Banking refers to a system where banks and other financial institutions provide access to their data to third parties via APIs. In the European Union, Open Banking is regulated based on the PSD2 framework adopted in 2015. According to it, banks are required to develop APIs, meaning that authorized access to financial data can be granted to providers building different products – from payment processing to identity verification.

APIs are the backbone of open banking. They provide a secure and standardized gateway for sharing financial data between banks and authorized third-party providers.  In essence, APIs make it easy to retrieve necessary data like account information, transaction history, etc., without compromising the security or privacy of the customer. In the EU, these APIs have to follow stringent security requirements to ensure data integrity and confidentiality, thereby building trust.

Open Banking fosters a symbiotic relationship between banks and fintech startups, financial service providers, and retailers, who use this data to provide value-added services, like more efficient payment methods, budgeting tools, or personalized financial advice. 

How to boost online business conversions with Open Banking?

Open Banking can improve conversion rates for ecommerce players thanks to a couple of benefits it offers, namely:

  • enhancing customer experience (which includes a seamless check-out process)
  • enabling instant transfers with seamless authentication
  • and allowing personalized and targeted offers

Here’s a breakdown of how this works in practice:

Enhanced customer experience via smooth checkout. Having a smooth payment and check-out process is one of the most (if not the most) important factors in improving online business conversions. If customers can’t wrap their head around a complicated checkout labyrinth, they are more likely to abandon their shopping carts. And, according to one study, as many as 8% of consumers abandon their carts because there’s not enough payment options. With an Open Banking solution in place, customers can pay directly from their accounts, without the need to dig out a card from the depths of their purse or wallet. 

Instant bank transfers and seamless authentication. Customers feel at ease when they know that their payment has been processed successfully. Open Banking enables instant bank transfers, which is a significant advantage over traditional payment methods that often involve a delay. Also, open banking supports seamless authentication methods, such as biometric identification or one-time-passwords, providing an added layer of security and trust.

Personalized and targeted offers. One of the most transformative aspects of Open Banking is the potential for personalization based on real-time data. With the customer’s consent, businesses can access transaction data to gain valuable insights into their spending patterns and preferences. This information can be used to create personalized offers and recommendations, enhancing the customer’s experience and fostering loyalty.

How can online businesses reduce costs with Open Banking?

By improving online business conversions, an Open Banking integration can help businesses drive revenue. At the same time, it can help companies improve operational efficiency and drive their costs down. Here are the ways it does so:

  • streamlining payment processes
  • eliminating intermediaries
  • simplifying reconciliation and other accounting processes
  • improving financial planning and decision making with aggregated financial data.

Let’s look into each of these benefits:

Streamlined payment processes. Traditional payment methods often involve numerous steps that come with additional costs. Open Banking, with its secure APIs, enables a direct link between businesses and their customers’ banks. This direct connection facilitates faster, smoother transactions, reducing the need for manual interventions and decreasing the chances of human error. As a result, businesses save both on transaction costs and time.

Elimination of intermediaries. Every middle-man in processing of payments takes a cut, and those cuts add up and eat into the margins of online businesses. According to research by The Motley Fool, credit card processing fees for merchants equal approximately 1.3% to 3.5% of each transaction. With an Open Banking solution, you can bypass credit card networks and other intermediaries, which results in direct savings.

Simplified reconciliation and other accounting processes. One of the key benefits of Open Banking is real-time access to transaction data. This instant access allows for faster reconciliation of payments, reducing the time and effort spent on accounting processes. 

Improved financial planning and decision-making. Open Banking provides businesses access to aggregated financial data, presenting a holistic view of a customer’s financial situation. This information can be invaluable for businesses in making informed financial planning decisions, improving the precision of forecasting models, and tailoring product or service offerings based on consumer behavior. Furthermore, it allows businesses to manage their cash flows better, avoid unnecessary expenses, and save costs.

To sum up, Open Banking is transforming the financial landscape of online businesses by promoting efficiency, reducing costs, and supporting informed decision-making.

How to choose a reliable Open Banking provider?

As Open Banking continues to transform the financial landscape, online businesses have a huge amount of options to choose from.

The first step to choosing a suitable solution is to understand your business goals and how Open Banking can help you meet them. This might involve improved payment processes, higher online business conversions, access to customer financial data, or cost-saving opportunities. Ideally, the solution you choose should cover them all. And only a reliable and experienced partner can deliver you that.

When screening for the best payment provider, you have to take into account multiple factors to make an informed decision:

  • Check your potential provider’s market coverage. Are there certain payment methods they can’t support? How popular are those methods in your market?
  • What kind of API design principles are they using? What is the frequency of their API tests and feedback procedures?
  • Do they have features that extend beyond payment processing? This is especially important, if you want to benefit from data analytics.
  • How does the integration process look like? How long does it take? 
  • Can the provider ensure a 99%+ uptime? It helps if there is a status page you can check and interrogate.
  • Can the provider ensure 24/7 customer support?
  • What is the providers’ data protection policy?

At ConnectPay, we’re happy to answer all these questions directly and sincerely. Reach out to us today.

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