Managing payments and customer data can feel overwhelming for merchants. High fees, slow settlements, and outdated processes often hold businesses back. Open banking platforms promise a faster, more efficient way to handle payments and access data, but with so many providers out there, how do you choose the right one?
Understanding the differences between open banking providers and what they offer is key to making an informed decision. Whether you need seamless payments, advanced data insights, or both, this guide will help you navigate your options and choose a provider that supports your business growth.
What Are Open Banking Providers?
Open banking providers enable businesses to use secure APIs to access financial data or process payments directly from customers’ bank accounts. They operate under the EU regulations set by PSD2, which requires banks to share customer data with licensed third parties, provided customers give their consent.
These providers fall into two main categories under PSD2: AISPs and PISPs.
AISP vs PISP: What’s the Difference?
1. AISP (Account Information Service Provider)
AISPs specialise in accessing and aggregating financial data. They don’t handle payments but provide insights into customer transactions and account details. This is ideal for merchants looking to:
- Analyse customer spending patterns.
- Perform affordability checks.
- Offer tailored financial products.
For example, an AISP might allow you to view all your customers’ financial data in one place, giving you a clearer picture of their habits and needs.
2. PISP (Payment Initiation Service Provider)
PISPs focus on initiating payments directly from a customer’s bank account. They eliminate the need for card networks, making payments faster and cheaper. Key benefits include:
- Real-time payment processing.
- Reduced transaction fees.
- No chargebacks due to direct authentication.
PISPs are perfect for merchants who want to offer seamless payments while cutting costs.
Data vs Payments in Open Banking
When evaluating open banking platforms, it’s essential to know whether they specialise in providing data, payments, or both.
Open Banking Data
Platforms that focus on data offer services like transaction categorisation, balance checks, and affordability insights. This is useful for:
- Creating personalised offers for customers.
- Enhancing financial reporting and planning.
- Gaining better insights into customer behaviour.
Open Banking Payments
Payment-focused platforms let you bypass traditional card networks. Customers can pay directly from their bank accounts, offering benefits such as:
- Instant settlement of funds.
- Lower transaction costs as open banking bypasses card networks.
- Improved security with strong customer authentication (SCA).
Some platforms combine both data and payment capabilities, providing a comprehensive solution for merchants.
What to Look for in an Open Banking Provider
Not all open banking platforms are created equal. Here’s what merchants should prioritise when choosing a provider:
1. Bank Coverage
The effectiveness of an open banking platform depends on its connectivity. A provider with broad coverage across banks in your target regions ensures a seamless experience for your customers.
Look for platforms that connect to banks in the countries where you operate. If you’re expanding internationally, check their multi-currency and cross-border payment capabilities.
2. Integration Options
A good open banking provider should offer flexible integration options.
- APIs: Essential for developers looking to create a customised payment flow.
- Plugins: Ideal for businesses using popular e-commerce platforms, enabling easy setup.
Ensure the provider’s integration options match your technical capacity and business goals.
3. Compliance and Security
Open banking relies on the secure sharing of financial data. Choose a provider that complies with PSD2 regulations and prioritises security.
- Strong Customer Authentication (SCA): Ensures every transaction is securely authorised by the customer.
- Data Encryption: Protects sensitive customer information.
- Regulatory Compliance: Look for providers registered with national authorities and adhering to GDPR requirements.
4. User Experience
Smooth and intuitive payment flows are crucial for reducing cart abandonment and boosting revenues.
Check if the provider’s interface is easy for customers to use. Look for features like real-time payment notifications and verification of payee to build trust and confidence.
5. Pricing Transparency
Hidden fees can eat into your profits. Look for a provider with transparent pricing. It’s worth asking the following questions:
- Are there setup fees or monthly charges?
- Do they charge per transaction or offer flat-rate pricing?
- Are additional features like data tools included, or do they come at an extra cost?
Why Open Banking Payments Are a Smart Choice for Merchants
Switching to open banking payments offers clear advantages over traditional payment methods.
For example, merchants can say goodbye to expensive card network fees and chargebacks. Open banking payments are direct and cost-efficient. Funds are transferred instantly, improving your cash flow and reducing waiting times.
Plus, payments are authenticated through the customer’s bank, reducing fraud risk. Customers can skip entering card details and instead pay securely via their bank’s interface.
Final Thoughts
Choosing the right open banking provider can transform how your business handles payments and data. Focus on bank coverage, integration options, compliance, and user experience when evaluating providers. And don’t forget to consider the cost, transparent pricing can make a big difference to your bottom line.
