Guide to Open Banking for Retailers
Open Banking comes to life in January 2018, and the focus so far has been on how it will shake the banks up. Designed to create competition in the industry, the main benefits are seen as easier account switching and cheaper banking products. But, in reality, the bigger shake up will be in the Retail sector. If you are a Retailer, this is what you need to know.
What is Open Banking?
Open Banking is a regulatory change across Europe that requires banks to enable access to customer accounts by trusted third parties.
When does it happen?
It comes into effect on 13 January, 2018. There has been lots of activity for some time across the industry about what Open Banking will look like, and what its impact will be.
How does it impact me, the Retailer?
Two words - Payments and Data!
Retailers currently collect payments online using Payment Service Providers (PSP) and Acquirers. This enables the retailer to take credit or debit card payments, as well as use digital wallets like Paypal - you simply plug in. How can retailers leverage open banking to improve their ecommerce offering? Improving the payments process to reduce cart abandonment is a key strategy for online retailers. The onerous process of adding credit card details disrupts the checkout process and negatively impacts conversion rates. Clearly retailers are interested in investing in anything that will improve conversion rates online.
The most obvious thing retailers can do is speak to their PSP and find out what they are doing about Open Banking. The retailer may want to become a trusted third party with direct access to customers accounts to collect payments directly. However, this necessitate building complex APIs and registering with multiple national competent authorities such as the FCA in the UK. There will be a few aggregators that could provide the plumbing for you, however aggregator applications can’t understand and define r customer experience, a key element of ecommerce success. When evaluating the benefits of integrating into the Open Banking ecosystem it’s vital that retailers consider the impact on customer experience. Authentication, authorisation, transparency, and trust are all considerations that need to be made when accessing customers accounts. For that you need specialist digital expertise.
Cards work fine, so why bother with Open Banking?
Quite simply, cost. It will most likely be cheaper to initiate payment requests from customer accounts via Open Banking than pay card fees. That can be a significant amount for high volumes.
OK, sounds interesting, what about the data?
So this is the holy grail. Open Banking gives you access to customer transaction history. You will be able to see where your customers are spending their money and how much. That’s useful information for incentivising customers to come to you. We already know Retailers find real value in loyalty schemes, which give rich data on customer behaviour. But that’s data about what customers buy from you. Open Banking tells you what customers bought from your competitors. This amplifies the possibilities significantly.
Sounds great, but I assume I have to be careful with the data?
Yes. Retailers will have to be very careful how they use this data and ensure they have customer consent to source the data. If you haven’t heard of GDPR, I suggest you look it up.
What’s in it for the customer to give me access to their account?
Well, the idea behind Open Banking is to encourage innovation. So customers can expect better online experiences, as well as more competition to offer them cheaper deals. If they consent to you accessing their account data, they will be expecting personalised discount offers to tempt them into your store.
OK, you got me interested. What do I do next?
I’m glad you asked. Answer Digital is a digital transformation consultancy. We have been working on Open Banking for the past few months. We sit on industry Open Banking working groups, and are already working with Financial Institutions and Retailers on maximising the value from Open Banking.