Open Banking adoption in eCommerce - what are the challenges and opportunities?

Imagine a world where eCommerce payments are not only faster but also cheaper and more secure—this is the promise of Open Banking. 

Open Banking has the potential to revolutionise the way we make and take payments. By its very nature, its ability to work well and integrate with other finance systems can simplify long processes and reduce transaction costs This is a clear win for eCommerce businesses, who are looking to enhance their customer experience while keeping costs as low as possible.

However, despite Open Banking’s potential being strong, it has not yet reached the level of stability and reliability that businesses expect. 

There are a number of key challenges that need to be addressed, including the need for clear guidelines for user protection and refund handling, and the need for greater communication and transparency around Open Banking for consumers, so they can understand the benefits, and be fully educated on the sort of data they’re sharing and who with.

At the Payment Leaders Summit Europe last week, I joined a panel of experts to discuss the challenges around Open Banking, and how the industry needs to work together to address them.

We covered a lot of interesting ground, but there were three main takeaways that shone through: 

• Open banking’s potential is strong, but stability and reliability must improve  

• User protection, refund handling, and fraud prevention need to be enhanced 

• Simplifying the consumer experience is crucial for adoption

Open Banking’s potential is strong, but stability and reliability must improve 

Unlike the 24/7 reliability of card payments, Open Banking systems struggle with instability and inconsistent provider performance. To reach its full potential, Open Banking must offer the same level of reliability that businesses expect from traditional payment methods.

A major challenge to achieving stability is the absence of consistent standards across different regions. This inconsistency makes it difficult for global financial institutions to create a unified strategy, forcing providers to deal with a confusing mix of regulations and practices. Consequently, many providers end up creating their own rules as they go, which leads to more confusion and inconsistency in the Open Banking system.

The UK has set a strong example with its Open Banking framework, which ensures reliability for APIs and strong consumer protection. For the rest of Europe to keep pace, banks need to be incentivised to improve their API infrastructure. 

Market-led advocacy can help to drive this innovation, but without harmonised regulations, scaling Open Banking across regions will remain difficult. Collaboration between regulators, fintech companies, and financial institutions is essential to overcoming these barriers and creating a consistent, reliable payment infrastructure.

User protection, refund handling, and fraud prevention need to be enhanced

For Open Banking to gain broader acceptance and be more widely used, issues like user protection, refund handling, and fraud prevention need to be addressed. Open Banking payments are often real-time, using payment rails like Faster Payments (FPS) in the UK and SEPA Instant in the EU. These systems, originally designed for peer-to-peer transactions, lack the consumer protection mechanisms found in traditional card payments.

Prior to open banking, FPS was predominantly used in a retail context for making payments to friends and family. Open banking means FPS is now being used every day to pay individuals, businesses and governments.

To make Open Banking more suitable for consumer-to-business transactions, there needs to be a focused effort to enhance these payment rails. This includes developing better consumer protection and dispute resolution features. By working together, regulators, banks, and payment service providers (PSPs) can create a secure, reliable infrastructure that supports the unique needs of B2C transactions.

Simplifying the consumer experience is crucial for adoption

For Open Banking to truly take off, the consumer experience must be simplified. Unlike universally recognised brands like Visa and Mastercard, Open Banking services suffer from inconsistent branding and messaging, leading to consumer confusion. There must be a focus on creating clarity – making the payment process easy to understand and building trust through familiar, user-friendly methods.

Gaining consumer awareness and trust remain significant barriers. Many people are either unaware of Open Banking or hesitant to engage with it due to concerns about data security. To build trust, banks and fintech companies must prioritise education and transparency. Simplifying the messaging around Open Banking and ensuring that consumers clearly understand its benefits is key to driving adoption. Additionally, education on how data is being used and its benefits can help to reduce confusion and increase consumer confidence in using Open Banking services.

Potential waiting to be unlocked

The introduction of Open Banking was game-changing. It has the ability to entirely revolutionise the payments industry, enabling interoperability, minimising cumbersome transaction processes and reducing transaction fees. 

To unlock the potential for merchants and consumers we must create a consistent, reliable and enhanced service, which puts consumer protection and experience at the forefront of all considerations.