What Merchants Need to Know About Open Banking

Open Banking is transforming the financial landscape for merchants. It’s not just about banks sharing data with third parties; it represents a fundamental change in how merchants conduct business and interact with customers.

The current financial infrastructure makes it difficult for merchants to work seamlessly with different financial service providers. At the same time, customers often struggle to gain a complete overview of their finances. Open Banking offers a solution by replacing isolated financial systems and siloed data with interconnected platforms and marketplaces.

Open Banking is based on open interfaces, known as APIs (Application Programming Interfaces). These enable seamless and secure data exchange between banks, fintechs, and businesses. APIs act as messengers, allowing different software systems to communicate with each other. This not only represents a significant technological advancement in the financial world, but also fosters a collaborative ecosystem that drives innovation and creates customer-centric services.

Redefining Payment Processes

Traditionally, merchants have depended on fee-based credit card networks. Open Banking simplifies payments directly from the customer’s bank account. This reduces costs for merchants and speeds up the transaction process for consumers, who can approve payments immediately and in real time, including via instant transfers.

Although Open Banking offers significant advantages, it is unlikely to completely replace credit cards. Instead, merchants are likely to experience a dual system, with Open Banking becoming increasingly popular in areas such as online transactions, while credit cards will continue to play an important role thanks to features like global acceptance.

Are Variable, Recurring Payments the New Standard?

Variable Recurring Payments (VRPs) present an exciting opportunity for merchants. They offer a safer and more flexible alternative to direct debits and can help reduce payment failures and fraud. VRPs are authorised by the customer for each transaction, authenticated via secure APIs, making them both safer and more convenient than traditional direct debits. Nevertheless, it is expected that VRPs will be introduced gradually to allow both merchants and consumers to be thoroughly informed about their benefits and usage. 

The Search for Alternatives to Giropay and Sofortüberweisung

With the integration of Giropay and Sofortüberweisung into larger platforms like Klarna, merchants are exploring new payment methods. Open Banking provides a secure, direct payment option that replicates the functionality of these services, but with improved security and greater customer control. The forthcoming regulation on a single euro payments area will likely drive the adoption of Open Banking and set the stage for real-time payments to become standard throughout the EU. 

As the financial sector continues to evolve, Open Banking stands out as a crucial development that merchants should watch closely. It’s not merely a technological shift, but a paradigm change in services for merchants. 

About the Author:

Niv Liran is Chief Product and Technology Officer at Unzer, leading the company’s product and development strategy and teams, and drawing on extensive experience scaling technology departments. The Unified Commerce Platform designed under Niv’s leadership integrates multiple sales channels into a single real-time solution, ensuring a consistent customer experience and providing businesses with comprehensive data across all touchpoints.