Open Banking and Payment Initiation Services critical to retail sector Covid-19 recovery
An international study of over 1,000 senior professionals in the banking, lending, PFM, investment, and retail sectors by leading open banking provider Yolt Technology Services has revealed that two thirds (66%) of retailers using open banking are already deploying Payment Initiation Services (PIS), a technology which will be crucial for the future of the sector.
PIS is a more secure and efficient payment method than traditional card payments. Consumers log into their bank’s digital portal to complete transactions, and therefore benefit from their security measures. This reduces transaction times and protects customer details more effectively than entering bank or card details into the retailer website.
In the current economic landscape, delivering efficient digital retail services is crucial – consumers are staying at home, for the most part, and making the majority of their purchases online. Open banking has meant that business can continue throughout the pandemic, and as we move out of the crisis in the future, it will give organisations already using the technology an advantage over their competitors – PIS will be a growing and central part of this.
Leon Muis, chief business officer at Yolt Technology Services, comments: “Digital technologies have been essential in keeping the wheels of business moving during the Covid-19 pandemic, and it’s been no different for the retail sector. Most shoppers have been making purchases from their sofa, rather than heading to the high street, so retailers have had to rely on their digital offering and experience to keep the virtual doors open. Open banking has been playing an important role, and that’s only going to increase as customer behaviours are altered for the long-term and second lockdowns come into force. We can expect the golden quarter of retail, in the run up to Christmas, to require even more dependence on open banking and digital offerings.”
Over half (56%) of retail companies who are not yet using open banking systems said they were strongly considering adoption, which is unsurprising given that the research further revealed that all open banking services can be beneficial to retail. 47% of respondents said open banking would improve customer experience, while 40% said it would deliver greater customer insights and 38% highlighted improved efficiency.
When it comes to PIS in particular, these and other benefits could be profound – over six in ten retail respondents (62%) expect over £1m per year in additional revenue as a result of utilising open banking technology, with a move to open banking saving millions each year in credit and debit card fees, for example. In addition, payments will be more secure as consumers have to log into their bank with every transaction – both retailers and their customers will therefore benefit from the bank-grade security of Secure Customer Authentication (SCA).
Muis comments further: “We’ve seen before with contactless payments, for example, how a steady adoption rate can swiftly give way to mainstream use. Customers who today need persuading to use PIS may quickly come to demand it. At some point, the failure to offer it could mean not just missing out on the savings it brings to transaction costs but losing these sales entirely. The potential complexity and long lead times of PIS projects for retailers is not, therefore, an argument against open banking. Rather, it’s the strongest reason to start working on its implementation without delay.”
However, to make this a reality across the whole industry, the third (36%) of retailers not using open banking need to overcome one principal hurdle – their own reluctance. Criticism of the technology focused primarily on data privacy (44%) closely followed by complaints that bank APIs are insufficiently reliable (41%).
The potential rewards of PIS for both the business and the consumer, however, promise to make it worthwhile and could grow rapidly.
Muis concludes: “The objections to open banking we’re seeing are likely to fade in time. Open banking significantly enhances customers’ data security, and criticism of bank APIs is overdone. Regulatory support and industry buy-in are crucial in making sure PIS becomes and remains a mainstay of the retail process – those who can move fast and adopt now will sow the best seeds for COVID recovery, and be able to meet the increasing demand for digital services.”