Open banking is reshaping how businesses and consumers process payments. By enabling pay-by-bank account-to-account payments, it offers a faster, cheaper, and more secure alternative to traditional payment methods. But what makes it better? Let’s break down the key advantages.

Faster Payments With Instant Settlement

Traditional payment methods often involve multiple intermediaries, leading to delays. Card payments can take days to settle, and bank transfers might be held up by processing times. Open banking enables instant or near-instant payments, helping businesses improve cash flow and reduce waiting times. Money moves directly from a customer’s account to a merchant which means quicker payments.

Table of Contents

For consumers, this means faster transactions with no unnecessary hold-ups and a better user experience. For merchants, this means better cash flow management.

Lower Transaction Costs

Card networks charge fees for processing transactions, such as scheme fees and interchange fees. These charges can be significant, especially for businesses with high transaction volumes. Open banking bypasses card networks, making transactions more cost-effective.

With fewer middlemen taking a cut, businesses retain more revenue, while customers may benefit from lower prices or fewer surcharges.

Enhanced Security and Fraud Protection

Card payments rely on static details like card numbers, which can be stolen or used fraudulently. Open banking operates on secure, bank-verified authentication methods such as biometrics or two-factor authentication (2FA). Data between banks and licensed payment providers is shared via secure APIs, which are regulated under PSD2. This reduces the risk of fraud and unauthorized transactions.

Also Read: Hiring a Game Developer: How to Find the Right Company with Experience in Gamedev

Since transactions are authorized directly by the customer through their bank, the likelihood of chargebacks and fraudulent disputes is much lower compared to traditional card payments.

Frictionless User Experience

Speed and simplicity matter. Open banking payments eliminate the need for card details, passwords, or lengthy checkout processes. Users simply authenticate via their banking app and approve the payment in seconds.

Good UX matters for merchants. Here are some stats:

88% of online shoppers won’t return after a bad experience (Toptal).
49% of consumers have abandoned brands due to poor UX (Emplifi).

Open banking enables a smoother payment process, which reduces cart abandonment, improving conversion rates for businesses. It also enhances customer satisfaction, as there are fewer steps and no risk of card declines due to expiry or incorrect details.

Real-Time Data and Insights

Traditional payment systems often limit access to customer data, making it harder for businesses to analyze payment trends. Open banking provides real-time transaction insights, helping businesses optimize operations, improve customer experience, and build data-driven marketing strategies.

For consumers, open banking can enable better personal finance management, as it allows for clearer visibility of spending and budgeting tools that connect directly to bank accounts.

No Chargebacks

One of the major pain points in card payments is chargebacks, where customers dispute a transaction and request a refund from their bank. This can be costly and time-consuming for businesses.

Since open banking payments are authorized directly by the customer, chargebacks are significantly reduced. This ensures merchants receive their payments without the risk of costly reversals, and customers have to work with the merchant to get a refund.

Also Read: A 6-Step Guide To Incorporate in Ontario

Compliance With Regulatory Standards

Open banking operates under strict regulatory frameworks, ensuring security and transparency. Open banking is built on modern, API-driven technology designed for compliance with data protection and financial regulations. In Europe, open banking is fully regulated under PSD2 (which will soon become PSD3).

This means businesses and consumers can trust that their transactions meet high security and privacy standards.

Future-Proofing Payments

The financial landscape is evolving, with digital payments becoming the norm. Open banking is at the forefront of this change, offering a payment method that aligns with today’s consumer expectations.

As more banks and businesses adopt open banking, it will become a standard payment option, reducing reliance on outdated systems and improving the overall payment ecosystem.

Not convinced yet? Here are some stats on open banking adoption:

In 2018, there were just 320,000 pay-by-bank payments in the UK. By 2024, that number exploded to 224 million. (GDS Link)
The UK leads Europe, with 13% of digitally active consumers and 18% of small businesses already on board. (Open Banking UK)
The global open banking market is set to hit $164.8 billion by 2032. (Spherical Insights)

The benefits of open banking make it a superior choice over traditional payment methods. Faster transactions, lower costs, enhanced security, and a seamless user experience all contribute to its growing adoption.

Benefits of Open Banking vs Other Payment Methods