Amazon and Visa: Open Banking payments take center stage

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Account-to-account payments through open banking are set to explode as retailers seek lower-cost options for online shoppers, writes Roger De’Ath, ecommerce manager, TrueLayer.

Image source: Photo by cottonbro from Pexels

Importantly, Amazon announcing that it would end its relationship with Visa, and from January 19, 2022, will no longer accept payments from UK customers for the card giant’s credit cards. One of the biggest ecommerce companies referring to the “high fees Visa charges for processing credit card transactions” cannot be understated even though, at the end of the day, they negotiate and continue to work together .

There are several factors behind this decision, however, Amazon has already phased out Visa cards in Australia and Singapore in recent months, so this cannot be seen in isolation from a decision in one market.

There is a larger trend at play. The British Retail Consortium, the Payments System Regulator (PSR) and many business leaders have raised the specter of card fees and how they affect merchants of all sizes, increasing their transaction costs and directly impacting their income.

Online sales now represent more than a third of total retail trade in the UK and growing at an exponential rate, retailers are under increasing pressure to optimize their online presence and checkouts in order to attract customers and drive sales.

The high cost of cards

The harsh truth is that cards have reached their expiration date in a world of instant payments and borderless trading. For years, they’ve been integrated with online checkouts, creating an invisible web of hidden costs and cumbersome payment structures.

The high cost of card payments is the biggest issue for many retailers – and clearly, Amazon is one of them. This cost stems from the processing fees and the high number of chargebacks associated with the growing volume of returns, as well as the increased risk of fraud.

For those with a high average order value, i.e. orders that often exceed £ 500 (e.g. luxury goods, travel, electronics and furniture), the annual chargeback fee can be a significant financial burden, 235,000 £ being the tempting average annual cost. by retailer.

The business impact of ineffective cards cannot be overstated when it comes to the customer experience either. How many times have you tried to buy something just so that the card wouldn’t be accepted – whether it was because of a typo or a fraud block? The risk of customer deposits at the cash register is high and has an impact.

Card conversion will be further impacted by the introduction of Strong Customer Authentication (SCA), designed to help fight fraud by asking the customer for additional information to confirm the transaction. It has been in force in the EU since December 31, 2020 and is expected to enter into force in the UK for e-commerce transactions on March 14, 2022.

Most live examples today show that this adds significant friction to the online payment experience. We’ve analyzed a number of SCA payment flows and found that consumers typically need to take more than 10 steps to complete a purchase. Some studies suggest it could reduce the conversion of card payments by 30%, and businesses could lose billions of dollars in online sales.

Open Banking: already a better way to pay

The opportunity and need to create the ultimate online shopping experience, where payments aren’t just geared towards the online world, is huge. With the technology at our fingertips, there is no longer a good excuse to rely solely on debit and credit cards. It’s increasingly clear that shoppers are ready to embrace new payment methods that improve their overall experience.

The UK is leading the way with account-to-account payments made through Open Banking regulations. Buyers can log into their bank account directly at checkout, so payment can be completed in seconds. Payments are authenticated directly with the bank. There’s no need to enter card details or fill out any forms – payment can be made with a few clicks with facial recognition or a fingerprint – making them SCA compliant and dramatically reducing fraud.

It is also advantageous for the trader, as the funds are received immediately, allowing them to ship the goods with confidence.

As a payment method designed for the mobile age, it lowers the cost per transaction while playing an important role in creating a smoother payment experience that increases conversion as retailers create the intuitive online experiences. that their customers expect.

The data backs it up: These payments have a 15-20% higher acceptance rate than online cards at checkout, which means higher income for the merchant.

The ability to process refunds quickly and transparently, without customers needing to jump through the hoops, has become an increasingly important part of the customer journey.

Refunds, a huge issue for retailers, were often seen as the Achilles heel of open banking because they don’t include them as a native feature. However, by improving the open banking experience, we have also improved the refund process; eliminate the friction and delays to make refunds as instant as the initial payment at checkout.

A merchant-led evolution

As an industry, we are often asked how open banking ended up becoming mainstream. The answer is adoption by merchants outside of financial services, replacing cards and other methods as the primary payment option. You can already pay your taxes at HMRC, or buy or sell your car on Cazoo using open banking and that’s just the start.

As the Amazon / Visa news revealed, e-commerce as a whole is creating a huge demand for faster shopping experiences that protect customer data and, most importantly, are more profitable. Account-to-account payments through open banking are the next necessary step in this evolution.

The views and opinions expressed are not necessarily those of AltFi.

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