Open Banking and Beyond: Rethinking Payment Solutions for E-Commerce

Credit card payments have long dominated non-cash transactions in Europe, accounting for 54% of the market. Yet, as customer preferences shift toward faster, more secure, and cost-effective alternatives, the payment landscape is evolving. Businesses, especially in sectors like e-commerce, are exploring new options to overcome the limitations of traditional credit card systems.

The Problem with Credit Cards

Credit card payments, though widely accepted, come with inherent drawbacks:

1. High Fees: Transaction fees can range from 1.5% to 3.5%, significantly impacting profit margins for businesses processing large volumes.
2. Fraud Risks: Card-not-present (CNP) fraud accounted for 63% of card fraud losses in Europe in 2022 and is expected to rise further.
3. Chargebacks: Disputes cost businesses over $100 billion annually in lost revenue and additional fees.
4. Delayed Settlements: Traditional processing times disrupt cash flow, delaying reinvestment opportunities.

These challenges highlight the need for alternative payment solutions that address cost, security, and efficiency.

Exploring Payment Alternatives

New payment methods are emerging to complement or replace credit cards, offering distinct advantages for businesses:

• Open Banking Payments:
  Open banking allows direct bank-to-bank transactions, eliminating intermediaries and reducing fees. With strong customer authentication (SCA) and instant settlements, it’s an increasingly popular option. Businesses processing €1 million annually could save up to 97% on fees compared to credit cards.

"Open banking not only reduces transaction costs but also increases approval rates, offering merchants a scalable and secure payment solution," says Michael Bystrov, Chief Revenue Officer, Noda.

• Digital Wallets:
  With over 4.3 billion global users in 2024, digital wallets like Apple Pay offer convenience and enhanced security through biometric authentication and tokenisation. They’re ideal for in-store and online purchases, though fees remain variable.

• Buy Now, Pay Later (BNPL):
  BNPL solutions like Klarna enable customers to split payments into instalments. They boost conversion rates and attract younger demographics but come with higher merchant fees and potential regulatory challenges.
• Local Payment Methods:
  Region-specific options, such as PIX in Brazil or iDEAL in the Netherlands, offer low fees and fast processing times. These methods align closely with consumer preferences in local markets.

Benefits of Diversified Payment Strategies

Offering a mix of payment methods enhances customer satisfaction, drives loyalty, and supports business growth. Key advantages include:

• Reduced cart abandonment: Customers are more likely to complete purchases when their preferred payment option is available.
• Improved cash flow: Instant or near-instant settlements streamline operations.
• Increased security: Advanced fraud detection measures protect businesses and customers alike.

The Future of Payments

The move away from credit cards signals a broader transformation in payment processing. As businesses adopt open banking and other alternatives, the focus shifts toward creating seamless, secure, and customer-centric experiences. Diversifying payment strategies is no longer optional — it’s a necessity to stay competitive in a rapidly evolving market.

By embracing modern payment solutions like open banking, businesses can reduce costs, enhance security, and build trust with their customers, paving the way for sustained growth in the digital economy.