Consumers Are Primed For Open Banking
Alexandre Gonthier is the CEO of Trustly, Inc., a global leader in Online Banking Payments.
When it comes to payments, consumer behaviors are dependent on a variety of factors. However, 2023 is a unique year in that almost all consumers feel the impact of two major events: society’s continued recovery from the Covid-19 pandemic, and the inflationary pressure and downturn of the economy.
The massive rise of the digital economy and online shopping during 2020 and 2021 shifted consumer mindsets on alternative payment methods, accelerating their adoption. With prices up nearly 8% year over year in 2022, consumers are consciously tightening their spending and seeking ways to avoid debt.
With stricter budgets and heightened expectations, merchants will look to strike a balance between payment methods that modernize their checkout experience and cost-saving strategies. Open banking, a technology paradigm where banks make banking information and services available to third-party developers via API, is one method in which merchants are able to serve consumers an innovative “pay with bank” option while cutting down on the fees traditionally associated with card acceptance.
Digital Payment Preferences Align With A Post-Pandemic World
The pandemic represented a shift in trajectory for the payments industry. One study shows that between 2020 and 2021, 1 in 3 consumers surveyed moved away from cash and began to use digital payments for the first time. While sweeping digital payments adoption occurred out of necessity during lockdowns, it also helped increase consumers’ comfort with digital options—49% said they are more comfortable using digital payments after Covid-19, according to the same study.
In the latter half of 2022 and into 2023, Covid-19-related uncertainty is being replaced by economic uncertainty. Stimulus checks and savings had consumers rushing toward card-based payments during the pandemic. Now, however, most consumers aren’t as liquid, and 44% of consumers surveyed have admitted to changing the way they use certain payment methods. With the average interest rate for credit cards around 19% and an estimated 1 in 5 Americans possessing three cards, consumers can benefit from a less risky payment option.
I believe the increasingly digitally savvy, post-pandemic consumer is ready for and will gravitate toward bank-based payments. First, they’ll ensure recurring payments like cell phone bills, utilities, and other set-it and forget-it payments are paid using their bank accounts. Further innovations like real-time payments will heighten the consumer’s preference for “pay with bank.” They’ll use it for more diverse use cases: receiving instant payouts, subscription payments, tuition payments and more.
Merchants Seek To Innovate While Cutting Costs
Even amid surging consumer preferences, merchants will only adopt nontraditional payment methods if it makes financial sense, especially during inflationary periods. But, the card networks’ interchange hikes mean merchants are reluctant to adopt innovative payment methods reliant on cards. With merchants feeling held hostage by increasingly mounting card acceptance fees, they’ll look for cost-cutting alternatives in 2023.
Open banking and bank-based payments won’t be the only alternative payment option merchants consider in 2023, but they will continue to become more favorable for various reasons. First, new legislation from the U.S. Consumer Financial Protection Bureau (CFPB) will make open banking mainstream by guaranteeing reliable, consumer-permissioned access to online banking data and services across multiple providers, bolstering financial inclusion.
Second, the benefit of reduced payment acceptance fees will be compounded by open banking’s ability to aid merchants with fraud and risk mitigation strategies. Consumer-permissioned financial data obtained via open banking can feed AI- and ML-based risk models to build more robust authentication strategies and protect consumers against fraud.
While open banking has been building momentum in the U.S. for years, 2023 will be an inflection point. Forrester predicts that in 2023 consumers will start routinely utilizing account-to-account payments as merchants will incentivize “pay with bank” adoption to reclaim independence from the card networks, cut costs and manage fraud.