Open banking payments have the potential to be a standard payment method alongside credit cards, digital wallets, and BNPL in the near future, due to a range of compelling advantages for merchants and customers alike. These include vastly cheaper costs per transaction, lower fraud, and a smoother payment experience.
However, open banking payments providers are not the same. As a merchant, understanding the differences and what to ask about when talking to a prospective partner is important to ensure you will get the full benefit of offering this payment option to your customers.
Here are some critical things to look out for.
1. Percentage of bank accounts connected
There are currently over 4,000 FDIC-insured commercial banking institutions in the U.S. But a small number of big banks have an outsized share of consumer checking accounts. What this means is that if you are talking to a prospective partner, you need to find out what percentage of checking accounts they have connections to, rather than how many banks they are integrated with, because what appears to be a high percentage of banks may only be a relatively low percentage of checking accounts.
This is an important distinction because offering your customers pay-by-bank at the checkout and then failing to offer their bank is a surefire way to negatively impact the customer experience and drive down conversion.
By way of example, Link Money is connected to over ninety percent of all U.S. checking accounts, and 3,400 banks, and is continuing to expand its reach.
2. Integration simplicity, documentation, and support
A fast integration has benefits including lower costs and getting customers to use the product more quickly. And if there are issues, getting them solved immediately is critical for similar reasons. So having a partner which is fast to integrate with and has clear documentation and support is very valuable.
When looking at prospective partners, some things you can do include:
Make sure their documentation is current, clear, and accessible.
Ask them what they offer in terms of support if it is necessary to open tickets, or talk to a person.
Beyond these basic items, you may also want to ask them directly if they have put in work to reduce the amount of effort that consumers of the API need to do to complete integration, and if their APIs follow standard naming conventions and patterns for APIs and data models to minimize any confusion during the integration process. Questions such as these will also give your prospective partner an opportunity to talk about what makes their APIs and product different from others.
3. End-user experience
Most providers focus on the business customers consuming the API or SDK, leaving the end-user experience in the hands of the merchant. And if you have strong UX and front-end development teams to ensure a frictionless experience for customers, this can seem like a decent proposition.
However, it doesn’t actually make a lot of sense for individual merchants to reinvent a UX journey every time they want to create an open banking payments flow for their customers, when their provider should be able to create the experiences at scale, solving edge cases, conducting user research, and constantly fine-tuning the UI. Remember; even seemingly simple projects such as these frequently cost more and have greater complexity than expected, and also incur technical debt as the UX needs to be maintained and fine-tuned indefinitely.
Since it is their core business, your prospective partner should have greater resources and better insights to optimize your end-user experience, and it is highly advisable to ask them what they offer on this front.
Security is, of course, a critical question with any financial technology, since you are dealing with other people’s money. But with open banking, it is arguably even more critical. This is because while open banking has a huge potential to create a fairer, cheaper, better way to pay online, any data breach or security failure has the potential to undermine trust in the open banking ecosystem as a whole.
With that in mind, here are some questions you can ask your prospective partner:
Testing — Do they embrace security testing? Are their security practices independently tested and verified by a neutral third party?
Transparency — Are they willing to talk you through how they approach security? Do they have security as a top priority?
Certifications — What compliance certifications (SOC2 and others) do they have?
Data collection methods — Do they avoid unfavorable practices such as screen scraping, and reverse engineering of APIs?
5. Product roadmap and long-term collaboration
Open banking payments are still nascent and there is plenty of innovation to come. Whether you already have an idea of where you want to go in the coming years with your open banking offering or are still figuring it out, a collaborative partner can be a valuable asset to get you there. Providers such as Link Money — while having their own product roadmaps — tend to also be driven by merchant demand. So they are also looking to merchants for input as to what features and products they should build. Partnering with such a provider can help you create a differentiated experience and build competitive advantages well into the future.
Making the right choice in partners will pay long-term dividends
Payments is a critical part of the customer journey — the narrowest part of the sales and marketing funnel and the step where uptime and a frictionless experience are absolutely critical.
Choosing the right partner, not just for where they are now, but where they are going, can help you power ahead.
To find out more about open banking payments, contact us.