《TrueLayer:电子商务支付的未来研究报告(英文版)(40页).pdf》由会员分享,可在线阅读,更多相关《TrueLayer:电子商务支付的未来研究报告(英文版)(40页).pdf(40页珍藏版)》请在三个皮匠报告上搜索。
1、The future of ecommerce paymentsWhy open banking will challenge card dominanceRESEARCH REPORT2THE FUTURE OF ECOMMERCE PAYMENTS WHY OPEN BANKING WILL CHALLENGE CARD DOMINANCETable of contents3 Foreword from TrueLayer4 Executive summary5 Methodology6 Chapter 1:The rapid growth of open banking payments
2、20 Chapter 2:How merchants and consumers will benefit from open banking payments29 Chapter 3:What we can learn from non-card payment methods in Europe34 Chapter 4:Digital payments for a digital ageTap this logo to return to this page3THE FUTURE OF ECOMMERCE PAYMENTS WHY OPEN BANKING WILL CHALLENGE C
3、ARD DOMINANCEOne of the key motivations behind open banking has been to enable the growth of alternative payment methods to cards.This report demonstrates that the policy drivers,the industry development and the innovation have all worked together to deliver that alternative in the form of open bank
4、ing payments.The simplicity of the open banking payment chain,made possible by API technology,is key to the cost savings,reduced fraud and improved conversion for merchants.It also increases convenience for consumers,who increasingly want to make and receive all payments instantly and seamlessly.The
5、 development of capabilities for instant refunds,such as TrueLayers own PayDirect,will enable open banking to be used successfully in ecommerce.At the same time,the growth of ecommerce is beginning to show merchants reliance on card payments creates problems of its own.Card schemes and the chargebac
6、k approach,which is the target of increasing fraud and which suffers from slow resolution,will only further impact merchants if they are unable to add new payment methods to their checkout as ecommerce payments continue to grow.Strong customer authentication(SCA),while seamlessly integrated into ope
7、n banking payments,is also creating issues for merchants who collect card payments,as SCA is retro-fitted onto an existing and ageing infrastructure.So while ecommerce merchants will continue to feel the pain of collecting card payments,open banking payments are truly ready for launch.TrueLayer is e
8、xcited to see many merchants across ecommerce and other industries develop new payment experiences using open banking.We believe open banking payments will become the default way to collect money online in the coming years.Foreword from TrueLayerFrancesco SimoneschiCEO&Co-founder4THE FUTURE OF ECOMM
9、ERCE PAYMENTS WHY OPEN BANKING WILL CHALLENGE CARD DOMINANCEThis research report examines the development of open banking payments(payment initiation services)since PSD2(2015)and looks at the most important reasons why this payment method is becoming a competitive alternative to card payments.The re
10、port finds that:Open banking has led to the emergence of new payment providers with the potential to challenge the dominance of card networks.The growth of open banking payments has been encouraged by the decline of cash in retail transactions(which fell by 35%between 2019 and 20201);the expansion o
11、f ecommerce;and an increased focus from policymakers on the persistently high costs of card acceptance.Greater competition between open banking payments and card payments is likely to bring significant benefits to merchants and consumers.These benefits include:lower merchant fees for accepting elect
12、ronic payments reduced risk of unauthorised payments and fraud,thanks to embedded strong customer authentication(SCA)and pre-populated payment details increased convenience for consumers(and conversion rates for merchants)as a result of shorter payment journeys Non-card payment providers in other co
13、untries with similarities to open banking payment providers have achieved high take-up rates,strong popularity with consumers,low fees and low fraud rates.These providers include:bank schemes such as iDEAL(Netherlands)and Swish(Sweden)third-party providers such as SOFORT(Germany)Open banking provide
14、s digital payments for a digital age.It reduces the number of parties to transactions,increasing efficiency and speed,which should translate into customer satisfaction.Executive summary1Source:UK Finance,UK Payment Markets Summary 2021,p.4.5THE FUTURE OF ECOMMERCE PAYMENTS WHY OPEN BANKING WILL CHAL
15、LENGE CARD DOMINANCEConsumersUK and EU representativesBanksInternational banks and industry bodiesMerchantsLarge merchants and advisory firmsOther partiesScheme operators and independent expertsTrueLayer commissioned an independent research consultancy with experience in payments and open banking to
16、 create this report.The report draws on existing research into open banking in the UK and the EU,recent documents produced by the regulators and government,and a series of interviews with stakeholders and experts to evaluate specific policy issues and other aspects of open banking payments.Stakehold
17、er input was gathered anonymously to encourage candour.Input came from across the ecosystem:Methodology6THE FUTURE OF ECOMMERCE PAYMENTS WHY OPEN BANKING WILL CHALLENGE CARD DOMINANCEWhat is open banking?Open banking refers to a series of policy interventions and market developments since 2014,which
18、 have sought to increase competition in UK and EU payments.The UK led the way with the Competition and Markets Authoritys(CMA)20142016 retail banking market investigation.This investigation led to an order requiring the UKs nine largest banks(known as the CMA9)to enable consumers and businesses to a
19、ccess their personal and SME current accounts via third party providers(TPPs)2.The CMA also required the CMA9 to create an Open Banking Implementation Entity(OBIE)charged with setting common standards for TPP access via APIs3 and enforcing the delivery of its market order.4Key pointsOpen banking off
20、ers a new way to collect payments and has been expanding rapidly since UK and EU regulations created frameworks for its operation from 2015.This growth has been encouraged by:the decline of cash and growth of electronic payments ecommerce taking a growing share of retail purchases the high costs to
21、merchants of accepting card paymentsOpen banking has sometimes been hampered by slow progress on rolling out necessary infra-structure and ensuring its reliability,but both of these are now improving.Chapter 1:The rapid growth of open banking payments2Competition and Markets Authority,The Retail Ban
22、king Market Investigation Order 2017.3API stands for application programming interface.APIs allow third-party providers to access consumer account and payment data with the consumers consent.In the case of Open Banking in the UK,the OBIE sets API standards for third-party account access that the CMA
23、9 must implement.4Competition and Markets Authority,The Retail Banking Market Investigation Order 2017,pp.1920.7THE FUTURE OF ECOMMERCE PAYMENTS WHY OPEN BANKING WILL CHALLENGE CARD DOMINANCECUSTOMERMERCHANTAPIOPENBANKINGPROVIDEROpen banking provider can provide payment services to customer via merc
24、hantOpen Banking provider connected to customers bankThe EU took a similar approach in 2015 with the Revised Payment Services Directive(PSD2),which introduced various open-access obligations on EU banks.Like the CMAs retail banking market order,PSD2 sought to boost competition and increase the range
25、 of payments functionality available to EU consumers and businesses using their payment accounts.It codified two types of open banking services:account information services(AIS)and payment initiation services(PIS).PIS are referred to as open banking payments throughout this report.Open banking APIs
26、power new financial service networks Open banking has been implemented largely through application programming interfaces(APIs).APIs are a technology which connects different IT systems together so that they can exchange data.One system can call or request data from the other system using an API,and
27、 receive that data in a standard format.Under PSD2 and the UK CMA order,banks and other payment account providers have opened up access to payment accounts by building APIs that third party open banking providers can connect to.In order to provide its services,a TPP will connect to all the banks tha
28、t its own customers use.This will allow it to serve the largest number of customers with open banking services.This creates new networks and platforms that,for example,can be used instead of existing card networks.Fig.1 Open banking networks Chapter 1:The rapid growth of open banking payments8THE FU
29、TURE OF ECOMMERCE PAYMENTS WHY OPEN BANKING WILL CHALLENGE CARD DOMINANCECustomer inputs payee account details(e.g.sort code and account number)Payees account creditedCUSTOMERPAYEESBANKPAYEECredit transferPISPWhat are open banking payments?Open banking payments involve a third party provider accessi
30、ng a consumers bank account to initiate the transfer of funds on their behalf and with their consent and authentication.There are two main types of use case for open banking payments,worth noting separately because the consumer journey is different in each case:Peer-to-peer payments:an open banking
31、provider enables a consumer to transfer funds to an account of their choosing,either belonging to themselves(me-to-me payments)or to someone else.The consumer can either enter the recipients account details directly into the open banking payment app or select an existing account from a stored list o
32、n the app.This type of open banking payment is generally used for transfers between accounts rather than purchases.Payments to businesses:some providers of open banking payments enable consumers to pay businesses from their bank account,instead of using a card or another payment method.This form of
33、open banking payment is increasingly widespread in ecommerce and may soon expand into point-of-sale(POS)transactions.The open banking provider has a contractual relationship with the business to enable it to receive open banking payments.When the consumer chooses open banking as the payment method a
34、t checkout,the open banking provider initiates the payment from the consumers account to the business account.The open banking payment provider is responsible for populating the business payee details in the payment order to the bank,rather than the Fig.2 Open banking payment where consumer inputs r
35、ecipient details Chapter 1:The rapid growth of open banking payments9THE FUTURE OF ECOMMERCE PAYMENTS WHY OPEN BANKING WILL CHALLENGE CARD DOMINANCEPAYEESBANKMerchants account creditedPISPCredit transferCUSTOMERMERCHANTPISP populates merchant(payee)details in payment order to bank(PISP has contract
36、with merchant)Fig.3 Open banking payment to merchant:open banking provider populates the merchants account details customer.This prevents misdirected payments from occurring.5 Misdirected payments have long been an issue,with the UK Financial Ombudsman signalling its concerns back in 2014.6 Growth o
37、f open banking paymentsThe number of open banking providers in the UK and EU has grown steadily in recent years,rising from just over 100 in early 2019 to nearly 500 in Q1 2021.7 As of Q1 2021,just over half of these providers(252)were authorised to provide open banking payments.The UK has the highe
38、st number of open banking providers,followed by Germany.As of July 2021,there were 98 open banking payment providers in the UK(see figure 4).Table 1 Total open banking registrations by country Source:Vocalink Open Banking Tracker.Q1 2021Q1 2020UK205129Germany3535Sweden3424Netherlands2310France2315Re
39、st of EU15466Chapter 1:The rapid growth of open banking payments10THE FUTURE OF ECOMMERCE PAYMENTS WHY OPEN BANKING WILL CHALLENGE CARD DOMINANCE Fig.4 Open Banking payment providers on the UK FCA register as of July 2021 Source:FCA Account Information&Payment Initiation Service Providers1.Afterbank
40、s Ltd2.Aj Bell Management Limited3.Appfleet Ltd4.Authoripay Emoney Ltd5.Access Systems(uk)Limited6.Acquired Limited7.Allpay Limited8.Alpha Fx Limited9.American Express Payment Services Ltd10.American Express Services Europe Limited11.Ardohr Limited12.Automated Payment Transfer Limited13.Banked Ltd14
41、.Billx Ltd15.Bottomline Payment Services Limited16.Bud Financial Limited17.By Miles Payment Services Limited18.Crezco Limited19.Cashfac Plc20.Caxton Fx Ltd21.Cheddar Payments Limited22.Chip Financial Ltd23.Citadel Commerce Uk Limited24.Citizen Uk Holding Limited25.Coupay Limited26.Creditladder Ltd27
42、.Currency Uk Limited28.Currensea Limited29.Curve Os Limited30.Ecospend Technologies Limited31.Equire Limited32.Expensedoc Ltd33.Fire Financial Services Limited34.Fluidly Limited35.Fumopay Ltd36.Faizpay Ltd37.Finexer Ltd38.Flagstone Investment Management Limited39.Fondy Ltd40.Fractal Labs Ltd41.Globa
43、l Private Solutions Ltd42.Gocardless Ltd43.Google Payment Limited44.Hope Macy Ltd45.Ipagoo Llp46.Isx Financial Uk Ltd47.Income Group Limited48.Indigo Michael Limited49.Insignis Asset Management Limited50.Kikapay Limited51.Kashet Ltd52.Ksher Wikaas Uk Ltd53.Mbna Limited54.Mmob Ltd55.Monese Ltd56.Mia
44、Pago Ltd57.Modulr Fs Limited58.Moneyhub Financial Technology Ltd59.Naudapay Limited60.Obn Global Limited61.Obconnect Limited62.Osu Ltd63.Paysend Plc64.Paydog Ltd65.Paylink Solutions Limited66.Paymentwall Ltd67.Paymentz Ltd68.Pelican Payment Services Ltd69.Plaid Financial Ltd.70.Pollen Technologies L
45、imited71.Promptly Paid Ltd72.Reflow Zone Limited73.Revolut Ltd74.Roqqett Ltd75.Safeconnect Ltd76.Safened-fourthline Limited77.S Ltd78.Sync.money Uk Ltd79.Saturn Technologies Ltd80.Sentenial Limited81.Skrill Limited82.Soldo Financial Services Ltd83.Stripe Payments Uk Limited84.The Smart Request Compa
46、ny Ltd85.Thirdfort Limited86.Tide Platform Limited87.Token.io Ltd88.Trilo Group Limited89.Truelayer Limited90.Vibe Pay Limited91.Volt Technologies Limited92.Vyne Technologies Limited93.Wealthkernel Limited94.Wise Payments Limited95.Worldpay Ap Ltd96.Yoello Limited97.Yolt Technology Services Limited9
47、8.Zeux Limited(From previous page)5A misdirected payment occurs when a customer is sending a bank transfer and mistypes the recipients bank account details e.g.sort code/account number,or IBAN in the EU.6The Guardian,Banks told to respond faster over misdirected payments,24 April 2014.7Vocalink,Q1 2
48、021 Open Banking tracker.Chapter 1:The rapid growth of open banking payments11THE FUTURE OF ECOMMERCE PAYMENTS WHY OPEN BANKING WILL CHALLENGE CARD DOMINANCEOpen banking payments were slower to develop than other open banking services-such as account information services-in the early years after PSD
49、2 came into force,but both the number of providers and the range of use cases is now expanding(see table 2).Use cases to date have involved a mix of peer-to-peer payments and payments to businesses,such as transfers to investment providers.Several providers already allow merchant payments for a rang
50、e of ecommerce purchases,with more set to do so in 2021 and beyond.For example,the online car retailer Cazoo recently enabled open banking payments,powered by TrueLayer(see figure 5 below).This acceleration in the growth of open banking payments can be explained by a number of trends reinforced by t
51、he COVID-19 pandemic,as well as the removal of friction that had made it unattractive to launch these payment solutions earlier.Source:Cazoo Fig.5 Online checkout featuring card and open banking payment optionsChapter 1:The rapid growth of open banking payments12THE FUTURE OF ECOMMERCE PAYMENTS WHY
52、OPEN BANKING WILL CHALLENGE CARD DOMINANCENameUse case(s)AdyenOpen banking payments for flight bookings(offered in partnership with KLM)GoCardlessRecurring and one-off payments focused on SMEsIATA PayBank transfer payments for flight bookings(currently available with Emirates in Germany and the UK)T
53、rueLayerOpen banking payments for investment,gaming,trading and ecommerceTrustlyOpen banking payments,typically for ecommerce,financial services and igamingYapilyPeer-to-peer payments and bulk payments YoltYoltPay,peer-to-peer transfers can be set-up by a YoltPay user on the Yolt appThree distinct t
54、rends in retail payments have created an opportunity for open banking payments:1 Cash has declined as electronic payments have grown.2 Ecommerces share of retail purchases has increased,highlighting the need for smooth customer journeys and boosting alternatives to card payments.3 Regulators have pr
55、essed forward with reforms,concerned that the costs of accepting card payments remain high,even after the introduction of the EUs Interchange Fee Regulation(IFR).8Trends favouring the growth of open banking payments Table 2 Noteworthy open banking payment providers and relevant use cases8The IFR,dis
56、cussed in more detail in chapter 2,capped interchange fees for consumer credit and debit cards in the EU from 2016.See Regulation(EU)2015/751 of the European Parliament and of the Council of 29 April 2015 on interchange fees for card-based payment transactions.(Link)Chapter 1:The rapid growth of ope
57、n banking payments13THE FUTURE OF ECOMMERCE PAYMENTS WHY OPEN BANKING WILL CHALLENGE CARD DOMINANCETrendDescriptionSignificance for open banking paymentsDecline of cash/growth of electronic paymentsCash accounted for more than 50%of retail payment volume in 2010 but less than 20%in 2020.The decline
58、of cash has made cards more dominant and consumers more comfortable with electronic payments,creating an opportunity for competing alternatives.Growth of ecommerce in retail salesInternet sales have grown from less than 5%of all sales in 2006 to around 30%in 2020.More merchants are participating in,
59、and making a growing share of their sales through ecommerce channels.Here,open banking payment providers offer a lower-cost alternative to cards that is also less vulnerable to fraud.Policy concerns and interventions to lower the cost of card acceptanceEven after the Interchange Fee Regulation,the c
60、ost to merchants of accepting card payments remains high.Since 2018,merchants have also been banned from recouping these costs through surcharging.Open banking payments would put downward pressure on card fees by increasing competition with cards,which still dominate electronic payments.Table 3 Tren
61、ds favouring the growth of open banking paymentsGrowth of electronic payments Electronic payments have steadily increased their share of all UK payments by volume and value since 2000.Even before the COVID-19 pandemic,cash use for transactions had been declining at a rapid rate,which accelerated ove
62、r 2020 with a drop of 35%from 2019.9 Debit and credit cards currently account for 60%of UK POS retail payments and 50%of ecommerce payments.109UK Finance,UK Payment Markets Summary 2021,p.2.10Worldpay,The Global Payments Report 2020,pp.128129.35%CASH TRANSACTIONS BETWEEN 20182019Chapter 1:The rapid
63、growth of open banking payments14THE FUTURE OF ECOMMERCE PAYMENTS WHY OPEN BANKING WILL CHALLENGE CARD DOMINANCE05,00010,00015,00020,00025,0002001620182020CashCredit/charge/purchasing cardDebit Card29%21%6%5%8%32%Digital/mobile walletDebit cardCredit cardBank transferBuy now,pay laterOthe
64、r Fig.6 Payment volume(millions)in the UK,2010 to 2020Source:UK Finance,UK Payment Markets Summary 2021,p.1.The spread of smartphones has enabled new payments functionality such as mobile wallets(e.g.ApplePay,GooglePay).These can be more convenient and secure than physical cards,as they are already
65、subject to strong customer authentication(SCA,see pp.1923)and payments made with them are tokenised.11 Mobile and digital wallets,often but not always used for card payments,are now the most popular payment method in ecommerce and increasingly popular for POS payments12.Fig.7 UK ecommerce mix by pay
66、ment method,2020Source:FIS Worldpay Global Payments Report 2021,p.129.11Tokenisation in payments is the process of replacing sensitive card or account data with a randomly generated transaction identifier.Tokenisation provides additional protection for sensitive data.12Worldpay,The Global Payments R
67、eport 2020,pp.128129.13Other includes cash on delivery,charge and deferred debit card,prepay,Direct Debit and prepaid card.13Chapter 1:The rapid growth of open banking payments15THE FUTURE OF ECOMMERCE PAYMENTS WHY OPEN BANKING WILL CHALLENGE CARD DOMINANCE010%20%30%40%200709021With custo
68、mers more comfortable making electronic payments instead of using cash,adoption of open banking payments becomes easier.The growth of electronic payments has also highlighted card acceptance costs for merchants and made them more receptive to lower-cost alternatives.Growth of ecommerceThe share of i
69、nternet sales in total UK retail sales has steadily increased since 2006,and it accelerated significantly with the onset of the COVID-19 pandemic.The growth of ecommerce has boosted existing electronic payment methods and led to new options such as buy now,pay later(BNPL),although BNPL tends to be c
70、ostlier to merchants than cards.Ecommerce payments have lower barriers to entry than POS payments because they dont require merchants to upgrade their physical infrastructure(such as card acquiring terminals)in order to accept new payment methods.Instead,alternative options such as open banking paym
71、ents,BNPL and digital wallet payments can be integrated into the ecommerce customer journey relatively easily.Different payment options are displayed transparently at the online checkout,reducing friction and expanding choice for consumers.Fig.8 Internet sales as a percentage of all UK retail sales,
72、20062021Source:Office for National Statistics,2021.Chapter 1:The rapid growth of open banking payments16THE FUTURE OF ECOMMERCE PAYMENTS WHY OPEN BANKING WILL CHALLENGE CARD DOMINANCEPayment innovations first applied to ecommerce tend to spill over into POS payments later on.For example,several chal
73、lengers that started and grew in ecommerce(from acquirer Stripe,to BNPL firm Klarna)have later expanded into payments at physical shops.From the perspective of merchants,while each additional customer may be served at low cost,ecommerce poses new challenges.Ecommerce purchases are riskier for mercha
74、nts,as they are associated with higher decline and fraud rates,both of which can considerably dent merchant margins.14 Card-not-present fraud in ecommerce is now the single-largest category of card fraud in the UK,which itself accounts for 45%of all retail financial fraud.15 Open banking payments ca
75、n help to reduce some of these merchant risks,as explored in more detail in the next chapter.Regulatory drive towards new payment mechanismsAnother push in favour of open banking payments has come from regulators,who are concerned about the persistently high cost of card payments,especially for smal
76、ler merchants.They have sought to promote competition by allowing third-party access to payment accounts.The high cost of accepting card paymentsInterchange fees,the largest component of the merchant service charge(MSC)that merchants must pay to accept card payments,were capped in the UK and the EU
77、by the 2015 Interchange Fee Regulation(IFR).While this cap did effectively lower interchange costs for merchants,a subsequent study of the UK card payment market found that savings from the cap were only partially passed through to OF ALL RETAIL FRAUD IS CARD FRAUD45%14Callum Godwin,The dark side of
78、 ecommerce:fraud and lost customers,4 June 2020.https:/ Finance,Fraud:the facts 2021,pp.16 and 18.Chapter 1:The rapid growth of open banking payments17THE FUTURE OF ECOMMERCE PAYMENTS WHY OPEN BANKING WILL CHALLENGE CARD DOMINANCEmerchants,while other components of the MSC such as scheme fees increa
79、sed.16 UK SMEs with turnover under 50 million,for example,have seen their total card acceptance costs stay the same or increase even as the IFR caps caused the interchange fee component to decline.17In the UK,the Payment Systems Regulator(PSR)is reviewing the card acquiring market and has published
80、a set of proposed measures to improve outcomes for merchants.18 In the EU,there are several independent initiatives aimed at boosting competition,including the European Payments Initiative(EPI),which seeks to create a new scheme to rival Visa and Mastercard in cross-border payments,and the forthcomi
81、ng review of PSD2,which is due to launch in late 2021.Increasing third-party accessIn addition to intervening directly in card payment markets,regulators in the UK and the EU have sought to promote competition by facilitating alternatives to cards.This has involved measures to ease access to custome
82、r bank accounts by third-party providers(TPPs),including open banking payment providers,as well as measures to open up the interbank payments infrastructure to non-banks,including payment firms.The European Commission is consulting on the creation of pan-European instant payments solutions.18 These
83、measures are based on the idea that greater TPP participation will increase choice for consumers and strengthen incentives to create user-friendly options in interbank payments.16Payment Systems Regulator,Market review into the supply of card-acquiring services:Interim report(September 2020),p.61;An
84、nex 4:Scheme fees,p.22.17Payment Systems Regulator,Market review into the supply of card-acquiring services:Interim report,p.61.18Payment Systems Regulator,Market review into the supply of card-acquiring services:Interim report,pp.1112.Chapter 1:The rapid growth of open banking payments18THE FUTURE
85、OF ECOMMERCE PAYMENTS WHY OPEN BANKING WILL CHALLENGE CARD DOMINANCE0.28JUL2020AUG0.41SEP0.53OCT0.64NOV0.74DEC0.88JAN20211.22FEB1.30MAR1.35APR1.49MAY1.82JUN1.83+1.55 million successful payment initiations 2020/21554%YoY After a slow start,open banking payments are growing fastIn the UK as elsewhere,
86、payment solutions were initially slower to develop than other open banking services(account information services),but they are now growing quickly.The growth of open banking payments has hugely accelerated in the last year.Successful payments made using open banking providers have increased from 280
87、,000 in July 2020,to 1.83 million in June 2021.We can expect this number to increase as open banking payments become more widely available.Already,there are over 3 million open banking users in the UK20,equating to 5%of the population.On its current growth trajectory,60%of the pop-ulation will be op
88、en banking users by September 2023.The growth of successful open banking payments should follow suit.19Communication from the European Commission to the European Parliament,the Council,the Economic andSocial Committee and the Committee of the Regions on a Retail Payments Strategy for the EU,24 Septe
89、mber 2020.20European Commission,Consultation strategy for the initiative on instant payments in the EU.Fig.9 The number of successful payment initiations made by third party providers using account providers(ASPSPs)Open Banking APIs.Source:OBIE.Successful payment initiations are based on data submit
90、ted by banks to Open Banking since July 2020.Since July 2020,19 UK banking brands have submitted this data.Chapter 1:The rapid growth of open banking payments19THE FUTURE OF ECOMMERCE PAYMENTS WHY OPEN BANKING WILL CHALLENGE CARD DOMINANCEThe initial slow growth of open banking payments was linked t
91、o:bank API availability bank API performance friction in the consumer journey caused by bank authentication stepsAPI availability at the CMA9 took longer to deliver than the OBIE had planned.Both the OBIE and the CMA repeatedly took banks to task for dragging their feet on API delivery.There was als
92、o fragmentation in the type of access banks were required to provide to third party providers.While the CMA9 were required to deliver APIs according to the CMA order and the OBIEs standards,smaller bankstogether accounting for around 1520%of deposit accountscould choose whether or not to provide API
93、s,or to offer less efficient access channels(modified customer interfaces).In reality,many non-CMA9 banks did provide APIs,and third party providers have been increasing coverage of these banks consistently.To address access issues at the banks who chose to provide non-API access methods,the FCA rec
94、ently proposed to require all but the smallest banks and electronic money providers to offer dedicated APIs.This extension will take at least another 18 months to come into effect.21API performance was also less-than-optimal initially because bank APIs were slow to respond and often unavailable.Slow
95、 API speeds discouraged open banking take-up and made open banking providers reluctant to develop use cases,particularly payments-related ones,until bank APIs were more reliable.API performance has since improved,with average response speeds dropping from 2,500 milliseconds in mid-2018 to 550 millis
96、econds by March 2021.API availability has also improved,increasing from an average of 9697%in 2018 and 2019 to 9899%in 2020 and 2021.22OF THE UK POPULATION WILL BE OPEN BANKING USERS BY SEPTEMBER 202360%21Financial Conduct Authority,Changes to the SCA-RTS and to the guidance in Payment Services and
97、Electronic Money Our Approach and the Perimeter Guidance Manual,consultation paper(January 2021),pp.1112.22Open Banking Implementation Entity,Open Banking APIs performance,March 2021.Chapter 1:The rapid growth of open banking payments20THE FUTURE OF ECOMMERCE PAYMENTS WHY OPEN BANKING WILL CHALLENGE
98、 CARD DOMINANCEKey pointsWithout alternatives to card payments,many merchants currently face:persistently high fees for accepting electronic payments high rates of card-not-present fraud and purchase abandonment in ecommerceConsumer payment journeys are often longer and less convenient for cards whe
99、n buying goods and services online than at the point-of-sale.Greater competition from open banking payments could bring about:lower fees for merchants greater payments security,benefiting merchants and consumers increased convenience for consumersLower feesLower and more predictable than cards,compe
100、titive with other payment methods Improved securityStrong Customer Authentication and app-to-app user journey reduce fraudConveniencePre-populated payment details increase conversions and reduce payer errorsCost savingsReduced fraud riskIncreased conversionsIncreased competitionChapter 2:How merchan
101、ts and consumers will benefit from open banking payments Fig.10 Key consumer and other benefits of open banking payments21THE FUTURE OF ECOMMERCE PAYMENTS WHY OPEN BANKING WILL CHALLENGE CARD DOMINANCEChapter 2:How merchants and consumers will benefit from open banking paymentsLower fees for merchan
102、tsFor card payments,merchant service charges(MSCs)average 1.9%for UK merchants with turnover less than 380,000,and 1%for those with turnover between 380,000 and 1 million.These turnover groups together represent 97.8%of all UK merchants.The MSC is the most significantbut not the only feethat merchan
103、ts pay for accepting card payments.Other card fees include authorisation fees,card terminal hire fees,PCI compliance fees and chargeback fees.Chargeback fees,discussed in greater detail in chapter 4,have become of particular concern to merchants in ecommerce.In its interim report on the UK card acqu
104、iring market,the PSR found that MSCs had not noticeably changed since 2014,before the Interchange Fee Regulation(IFR)came into force.23 The European Commissions report on the IFR,published in July 2020,found that MSCs had declined following the IFRs introduction,but unlike the PSR it did not break d
105、own these findings by merchant turnover.24 The Commission report also found that the decline in interchange fees had been partly offset by an 23Payment Systems Regulator,Market review into the supply of card-acquiring services:Interim report,p.48.24European Commission,Report on the application of Re
106、gulation(EU)2015/751 on interchange fees for card-based payment transactions(July 2020),p.5.Fee nameDescriptionCostMerchant service charge(MSC)Standard fee on every card transaction.Consists of an interchange fee,a scheme fee and an acquirer fee.11.9%Authorisation feeAdditional fee on every card aut
107、horisation13p per transactionCard terminal hireMonthly rental fee for a card terminal to accept point-of-sale payments1424 per monthPCI compliance feeFee to ensure compliance with personal data protection standards and regulation2.505.50 per monthChargeback feeContingent fee payable every time a con
108、sumer requests that a payment be reversed1525 Table 4 Representative cost of card acceptance in the UK,by fee categorySource:CardSwitcher.co.uk,What are payment processing fees?,18 January 2020;Rob Binns,PCI compliance guide 2021:everything you need to know,ExpertM,8 April 2021.22THE FUTURE OF ECOMM
109、ERCE PAYMENTS WHY OPEN BANKING WILL CHALLENGE CARD DOMINANCEincrease in scheme fees for regulated cards and interchange fees for commercial cards,which are not subject to the same caps.In addition,from 2018,UK and EU merchants are no longer allowed to add a surcharge at checkout to reflect the incre
110、ased cost of processing different forms of payment,so they must either limit customer payment options,raise prices for everyone or absorb the incremental cost if costlier payment methods are used.The surcharging ban has increased margin pressure on merchants and encouraged them to seek out less expe
111、nsive payment methods.Open banking payments are one such option,as they can offer lower and more predictable merchant processing fees than card acquirers do.For example,TrueLayers average fee is less than 1%of transaction value,while Trustlys standard fee is 1.5%25.Open banking payments also do not
112、involve additional fees such as authorisation fees,card terminal fees,chargeback fees or fees for PCI compliance.They can therefore bring direct cost savings to a large number of merchants and place competitive pressure on costlier electronic payment methods.This is especially true for the ecommerce
113、 sector,where the use of cash as an alternative to cards is highly impractical or impossible.25Trustly(link)26Contingent charges refers to chargeback fees in the case of cards and fees for late payment in the case of BNPL products.27This figure is based on the merchant indifference test,which seeks
114、to find the level of MSC at which merchants are indifferent between accepting cards or cash.The figure is therefore a measure of the cost of accepting and processing cash.CardsBuy now,pay laterCashOpen banking paymentsMerchant service charge11.9%46%N/A11.5%Contingent charges2615+636N/AN/AOther costs
115、N/AN/A0.2%27N/A Table 5 Taxonomy of retail payment methods(representative merchant with turnover 1 million)Source:PSR card-acquiring market review interim report(for card MSCs),FCA Woolard Review(for BNPL fees),European Commission study on interchange merchant indifference test(for cost of processin
116、g cash).Chapter 2:How merchants and consumers will benefit from open banking payments23THE FUTURE OF ECOMMERCE PAYMENTS WHY OPEN BANKING WILL CHALLENGE CARD DOMINANCE Fig.11 Open banking ecommerce payment with redirectionSource:TruelayerGreater payments securityConsumers using open banking payments
117、must authorise every payment with their bank using strong customer authentication(SCA).SCA means that a consumer must provide at least two separate types of identification from three categories,in order to prove who they are:In the UK and most of the EU,SCA has been implemented for open banking in t
118、he form of redirection,where consumers are sent from the open banking app to their bank in order to provide the required credentials.28 Redirection uses secure APIs and ensures that banking credentials do not leave the banking domain.KNOWLEDGE Something they know,like a password or PINPOSSESSION Som
119、ething they own,like a phone or payment cardINHERENCE Something they are,referring to biometrics like fingerprint or facial recognitionCamden,LondonFree shippingDeliver to:175.00Total412 reviewsHeadphonesORDER SUMMARYCheckoutHOW TO PAYManual Bank TransferCredit/Debit CardOtherRECOMMENDEDConnect your
120、 bank account and payinstantly with Open Banking.Instant Bank TransferAmexBank of ScotlandBarclaycardBarclaysCapital OneDanskebankFirst DirectHSBCSELECT YOUR BANKEXECUTE PAYMENT850You will be redirected to:ROYAL BANKOF SCOTLANDAmount:POWERED BYBy continuing you are permitting TrueLayer to initiate a
121、 payment from your bank account.You also agree to TrueLayers End-User Terms,Conditions and Privacy PolicyConfirmAuthenticate ID28In Germany,the embedded approach has been supported by banks,which requires customers to give their banking credentials to an authorised open banking provider,which then t
122、ransmits these credentials securely to the bank.Chapter 2:How merchants and consumers will benefit from open banking payments24THE FUTURE OF ECOMMERCE PAYMENTS WHY OPEN BANKING WILL CHALLENGE CARD DOMINANCEOpen banking payment providers have had SCA in place since 2018,whereas some banks have been s
123、lower to implement SCA for card payments.The Financial Conduct Authority recently delayed SCA compliance for card-based ecommerce payments until March 2022,citing disruption to customers and merchants29.Open banking payments also reduce the need for risky information-sharing among parties to a trans
124、action compared with cards.Card payments typically require unique customer credentials,such as the long card number and CVV,to be shared with retailers or their payment service providers.If stolen,these can be used to make unauthorised transactions.This is not the case with open banking payments,whe
125、re consumers provide their credentials directly in the banks domain.Because they enable SCA and remove the need for consumers to share sensitive information,open banking payments can be more secure than cards.This is relevant because card fraud accounts for 45%of all financial fraud in the UK,with 2
126、.8 million cases of unauthorised card fraud in 2020,valued at 574m.30 As the share of open banking payments in all retail purchases increases,instances of fraud would be expected to also increase,but the security features of open banking payments could help to reduce the incidence of fraud per trans
127、action.“Safety and security is the top of the tree,something consumers expect and assume.If you fail there,consumer trust breaks down.”Merchant representativeCASES OF UNAUTHORISED CARD FRAUD IN 2020 VALUED AT 574M2.8m29Financial Conduct Authority,Deadline extension for Strong Customer Authentication
128、,20 May 2021.30UK Finance,Fraud the facts 2021,p.20Chapter 2:How merchants and consumers will benefit from open banking payments25THE FUTURE OF ECOMMERCE PAYMENTS WHY OPEN BANKING WILL CHALLENGE CARD DOMINANCEFinally,open banking payments used in ecommerce offer security benefits relative to manual
129、bank transfers.Manual bank transfers involve entering the merchants sort code and account number.This increases the risk of misdirected payments,where the consumer makes a mistake entering payment details,and authorised push payment(APP)scams,where customers are tricked into sending money to a fraud
130、ster masking as a legitimate payee.According to the OBIE,64%of APP fraud cases and 13%of financial losses are in an ecommerce context.31As noted in Chapter 1,figure 2,With open banking payments in ecommerce,open banking providers handle the payment instruction to the consumers bank,including pre-pop
131、ulating the merchant or businesses sort code and account number(IBAN for EU payments),eliminating the risk of payment errors and significantly reducing the risk of APP scams.Increased convenience for consumersSome of the features mentioned above help to make open banking ecommerce payments more conv
132、enient for consumers,by enabling a faster checkout process that requires less effort from them.For example,by pre-populating the merchants payment details,open banking providers reduce the steps of a transaction down to simply redirecting a consumer to their bank to authenticate the transaction(e.g.
133、with a thumbprint).This speeds up transactions and helps to reduce purchase abandonment.“I hope that,in the near future,we will be able to pay in shops with a convenient alternative.Right now,the options are limited to cash and cards.”Consumer representative31Open Banking Implementation Entity,Open
134、banking standards relating to Confirmation of Payee and Contingent Reimbursement Model Code,July 2021,p.8.Chapter 2:How merchants and consumers will benefit from open banking payments26THE FUTURE OF ECOMMERCE PAYMENTS WHY OPEN BANKING WILL CHALLENGE CARD DOMINANCESCA:cards vs.open banking paymentsWh
135、ile SCA can significantly reduce fraud risk,especially for online transactions,it can also introduce significant additional friction for consumers,leading them to abandon purchases they would otherwise have made.A 2021 study found that as many as 14%of browser-based card transactions,and a quarter o
136、f app-based ones,were discouraged by SCA.32 Another recent study looking at EU markets found that a mix of friction and lack of preparedness from banks could lead to up to 108 billion in lost online sales over 2021.33One merchant advocate interviewed for this report cited the introduction of SCA for
137、 card payments as a key driver of purchase abandonment,given that it typically involves the elements of possession(a card or device)and knowledge(a PIN or 3D-secure password).Verification takes longer in this case than under other forms of SCA,and some consumers may not be able to authenticate,for e
138、xample because they do not remember their password.Fig.12 Illustration of SCA card payment journeyCards with SCASource:NatWest,2020.Chapter 2:How merchants and consumers will benefit from open banking payments27THE FUTURE OF ECOMMERCE PAYMENTS WHY OPEN BANKING WILL CHALLENGE CARD DOMINANCE Fig.13 Il
139、lustration of SCA in open bankingOpen banking with SCA32Fi911,Strong Customer Authentication:the state of SCA adoption in 2021,p.9.33CMSPI,SCA Economic Impact Assessment(September 2020).34EuroCommerce and Ecommerce Europe,Re:Measuring the impact of Strong Customer Authentication in Europe,letter to
140、the European Banking Authority,30 April 2021.35CMSPI,SCA Economic Impact Assessment,p.14.36OBIE,Open Banking Customer Experience Guidelines,Version 1.0(September 2018).Concerns about purchase abandonment have partly motivated regulatory delays to the full rollout of SCA for cards in the UK.In the EU
141、,EuroCommerce and Ecommerce Europe recently wrote to the European Banking Authority to highlight problems with SCA for card payments and the direct cost impact of SCA implementation for merchants in the form of higher scheme fees.34Open banking payments appear to have adapted more successfully to in
142、corporating SCA in the consumer journey.Studies of the impact of SCA on purchase abandonment find it to be smaller in EU countries where bank transfer apps are popular,because consumers tend to already be familiar with SCA.35 In the UK,the open banking payments journey was significantly improved by
143、the OBIEs September 2018 customer experience guidelines,which set out the steps for open banking payments in order to reduce friction for consumers.36 As a result,existing open banking SCA journeys are significantly shorter than the SCA journeys for some card payments.Figure 13 illustrates the SCA s
144、teps in an open banking journey compared with a card-based payment for a customer who banks with NatWest.Chapter 2:How merchants and consumers will benefit from open banking payments28THE FUTURE OF ECOMMERCE PAYMENTS WHY OPEN BANKING WILL CHALLENGE CARD DOMINANCEIn addition to strong customer authen
145、tication,several other forms of protection apply to open banking payments:PSD2 ensures that consumers are refunded by their payment provider if the provider makes a mistake with the payment.This applies to all types of electronic payment,including open banking payments.PSD2 also ensure that consumer
146、s are refunded for unauthorised transactions,with limited loss-sharing by the consumer in some cases.When a payment is made through an open banking provider,it is the consumers bank who is responsible for processing the refund in the first instance.37 Confirmation of Payee protects consumers from mi
147、sdirecting payments in cases where the consumer is inputting the recipients details.It also helps to prevent manipulation fraud,where scammers trick customers into sending funds to the wrong account.In addition,providers of open banking merchant payments mitigate the risk of this harm by pre-populat
148、ing the merchants payment details,avoiding the risk of consumer error or fraudulent acts.The Contingent Reimbursement Model Code helps to protect consumers against fraudulent acts,by ensuring banks place risk warnings within the payment journey to discourage consumers from sending funds to scammers.
149、With open banking payments,these risk warnings are presented to consumers when they are redirected to their bank to provide authentication.The OBIE recently published standards governing these warnings and the merchants account verification for open banking payments.38 Statutory protections,retailer
150、 protections,dispute resolution schemes and non-profit advice services allow consumers to seek redress when there is a fault with the goods or services purchased.Some open banking payment providers enable speedy reimbursement of cons-umers by providing merchants with instant refund functionality.37F
151、inancial Conduct Authority,Account information and payment initiation services,19 March 2021.38Open Banking Standards Relating to Confirmation of Payee and Contingent Reimbursement Model Code Chapter 2:How merchants and consumers will benefit from open banking payments29THE FUTURE OF ECOMMERCE PAYME
152、NTS WHY OPEN BANKING WILL CHALLENGE CARD DOMINANCENon-card payments elsewhere in EuropeWhile open banking payment providers are relatively new ecosystem participants,other forms of non-card electronic payments were already popular in some EU countries before PSD2 came into force.Some of these are sc
153、hemes owned and operated by domestic banks,while others are run by third-party providers that launched before API-enabled access to accounts became the norm.Key pointsNon-card payments have gained wide adoption in EU jurisdictions.Some arrangements are schemes owned and operated by domestic banks,as
154、 in the case of iDEAL in the Netherlands and Swish in Sweden.Others are run by third-party providers and operated before PSD2 came into force,such as SOFORT(now owned by Klarna)in Germany.Non-card payment providers have achieved:high rates of consumer adoption in ecommerce transactions low merchant
155、fees,below those charged for card payments low rates of fraudThese providers are generally well-liked by merchants and consumers.Their experience shows that non-card methods of payment can become the norm if market conditions are right.However,unlike these payment methods,open banking has the potent
156、ial to be truly pan-European,giving it the scope and scale to challenge the dominance of cards.Chapter 3:What we can learn from non-card payment methods in Europe30THE FUTURE OF ECOMMERCE PAYMENTS WHY OPEN BANKING WILL CHALLENGE CARD DOMINANCEBank scheme modelBefore PSD2 created a formal procedure f
157、or consumers to grant third parties access to their accounts,alternative payment methods to cards in the EU were often run jointly by banks.This is the case with iDEAL in the Netherlands and Swish in Sweden,which are each owned by the largest banks in those countries.The bank scheme model has the ad
158、vantage of relying on trusted participants to facilitate online transactions at a lower cost than using card rails.Each bank has a direct relationship with either the merchant or the consumer.An independent expert interviewed for this report cited trust between banks and the ability to sort things o
159、ut between themselves as a factor behind consumer satisfaction with these payment systems.Ongoing cooperation between banks and the existence of a long-term relationship with consumers appear to have enabled their growth while keeping both fees and fraud rates low.However,relying only on the bank sc
160、heme model presents a number of drawbacks.First,bank scheme options may pose competition concerns if they entrench the dominance of banks in the payments ecosystem.The motivation for open banking was to increase competition and innovation by giving third parties the ability to access account data an
161、d payments functionality with consent.This was based on the belief that banks were not sufficiently innovative and consumers were unlikely or unable to switch.While bank schemes can make consumers better off by expanding the payments functionality available to them,they may not help to erode banks m
162、arket power.Chapter 3:What we can learn from non-card payment methods in EuropeNameCountryStructure/typeEcommerce market shareMerchant fee/txiDEALNetherlandsBank scheme60-70%0.25SOFORT39GermanyThird party provider2030%0.9%+0.25SwishSwedenBank scheme32%(2019)SEK2(0.2)Table 6 Selected EU mobile paymen
163、t systems39SOFORT is active in 12 EU markets in addition to Germany,its main market.Merchant fees are illustrative and may vary.31THE FUTURE OF ECOMMERCE PAYMENTS WHY OPEN BANKING WILL CHALLENGE CARD DOMINANCEChapter 3:What we can learn from non-card payment methods in EuropeCASE STUDYSwish is a Swe
164、dish mobile payments service launched in December 2012.While initially focused on peer-to-peer transfers,Swish use cases have steadily expanded,first to ad hoc payments to small businesses and charities(2014),and later to ecommerce(2017)and POS payments(2018).40As cash use for retail transactions de
165、clined in Sweden(faster than in any other EU country),take-up of Swish has grown rapidly.Around 80%of the Swedish adult population used Swish in 2019,the same percentage who owned a smart-phone.As of 2020,22%of ecommerce purchases in Sweden were made by bank transfer,higher than the share of debit(1
166、9%)and credit cards(11%)and surpassed only by BNPL(23%).41 Around 70%of Swish transactions are for amounts below 300 krona(25/30).42Past experience of cooperation between Swedish banks helped the growth of Swish,as it ensured sufficient investment in common infrastructure to take advantage of networ
167、k externalities and promoted consumer trust in the new payment system.43 Two factors incentivised Swedish banks to promote Swish:the opportunity to offer it as an added benefit from holding a bank account,and the potential to eventually phase out the costly infrastructure around cash.Swish has gaine
168、d impressive market share in Sweden,with a user base of 7.9 million,60 million monthly transactions and 13,500 merchants accepting Swish payments as of April 2021(up from 8,000 in April 2020).44 Retail payments represent 20%of Swish transactions by volume and 16%by value.The value of merchant paymen
169、ts made on Swish was over 55 billion krona(4.7 billion/5.5 billion)in 2020,double the 2019 figure.4540Craig Beaumont,Tommaso Mancini-Griffoli,Maria Soledad Martinez Peria,Florian Misch,and Bjrn Segendorf,The diffusion of payment innovations:insights from the stellar rise of Swish(November 2019),p.4.
170、41Worldpay,Global Payments Report 2021,pp.118119.42Beaumont et al.The diffusion of payment innovations,p.5.43Bjrn Segendorfand anna-Lena Wretman,The Swedish payment market in transformation,Sveriges Riksbank Economic Review 2015:3,pp.52 and 5960.44Swish statistics,April 2021,p.16.45 Swish statistics
171、,20122020,p.15.32THE FUTURE OF ECOMMERCE PAYMENTS WHY OPEN BANKING WILL CHALLENGE CARD DOMINANCESuch competition concerns were recently raised in connection with plans by Irish banks to launch a mobile payments scheme.46Second,bank schemes require a degree of trust and coordination between banks tha
172、t may not be present in all jurisdictions.Even if banks join together to develop alternatives to card payments,consumer adoption will be low if the functionality is limited.This appears to have been the case with Paym,a mobile payment system developed by UK banks.Since its launch in April 2014,Paym
173、has attracted just 5.8 million users(11%of the adult population)and processed 1.9 billion worth of payments,less than 0.1%of all consumer payments over that period.47Third-party modelGermany-based SOFORT(now owned by Swedish BNPL provider Klarna)was a successful early non-bank payment provider focus
174、ed on ecommerce payments.It used screen scrapingthe practice of collecting and exporting screen display data from one application to anotherto assess whether a consumer had sufficient funds in their bank account to pay a merchant and decide accordingly whether to authorise the transaction.Because of
175、 its use of screen scraping,SOFORT drew criticism from competitors that it compromised user data and competed unfairly with bank-owned schemes such as Giropay.In response,some German banks introduced restrictions in their terms and conditions regarding third-party use of online banking credentials.H
176、owever,the German competition authority ruled such restrictions illegal in 2016,stating that they had:significantly impeded the use of non-bank and innovative payment solutions for the purchase of goods or services on the Internet.The providers of these payment solutions have developed an offer of s
177、ervices which provides a lower-priced alternative to the payment solutions already established in the market and have responded to the needs of online customers and sellers for a cheap and fast payment option.48Chapter 3:What we can learn from non-card payment methods in Europe46See M/21/004AIB/BoI/
178、PTSB Synch Payments JV(8 April 2021)for the banks submission notifying the Irish Competition and Consumer Protection Commission.See Electronic Money Association,Re:Synch Payments JV between Allied Irish Banks,Bank of Ireland,Permanent TSB and KBC Bank Ireland (28 April 2021),for other market partici
179、pants concerns47Paym,FAQs.48Bundeskartellamt,Restriction of online payment services by German banking industry in violation of competition law,5 July 2016.33THE FUTURE OF ECOMMERCE PAYMENTS WHY OPEN BANKING WILL CHALLENGE CARD DOMINANCEThe German ruling helped to lay the groundwork for PSD2 implemen
180、tation,which created new opportunities for third-party participation in payments via bank transfer.By mandating explicit customer consent to conduct different types of operations and requiring third party providers to connect with banks via dedicated APIs(with screen scraping as a residual option),P
181、SD2 has helped to address the privacy and data protection challenges that banks had raised against SOFORT.Non-card options are well liked by consumers and have low fraud ratesSeveral of those interviewed for this report stated that the three non-card payment systems discussed above are well-liked by
182、 consumers and merchants.Low fees are especially appealing to merchants,while consumers value the familiarity and convenience of the consumer journey.In the case of iDEAL and SOFORT,consumers also have a strong perception of security from the fact thatas with open banking paymentstransactions on the
183、se systems are authenticated via their bank accounts using SCA.iDEAL,SOFORT and Swish appear to have lower fraud rates than cards.When asked what might explain this performance,stakeholders pointed to the use of SCA and the consumers bank login details in the case of iDEAL and SOFORT.For Swish,the h
184、igh prevalence of peer-to-peer payments to known individuals and organisations may contribute to a relatively low fraud rate.Chapter 3:What we can learn from non-card payment methods in Europe34THE FUTURE OF ECOMMERCE PAYMENTS WHY OPEN BANKING WILL CHALLENGE CARD DOMINANCECUSTOMERMERCHANTOPEN BANKIN
185、GPAYMENT PROVIDERCredit transferOpen banking simplifies the payments chainThe cost savings to merchants of using open banking payments(outlined in chapter 2)can be attributed to the simplicity of the open banking payments chain which is made possible because open banking payment providers send instr
186、uctions directly to the payers bank via APIs.There is no need for funds to travel through any other parties.In this sense,open banking digitises payments,and brings internet style connectivity to financial services.In an open banking payment,aside from the banks,there are just three actors involved:
187、the customer the open banking payment provider the merchant Key points Open banking provides digital payments for a digital age.In ecommerce,open banking can reduce the number of parties to transactions,increasing efficiency,speed and consumer satisfaction.In contrast,card scheme arrangements and ch
188、argeback processes suffer from high costs,high rates of friendly fraud and slow and uncertain consumer processes.Chapter 4:Digital payments for a digital age Fig.14 Open banking actors35THE FUTURE OF ECOMMERCE PAYMENTS WHY OPEN BANKING WILL CHALLENGE CARD DOMINANCECUSTOMERMERCHANTOPEN BANKINGPAYMENT
189、 PROVIDERPayments services contractCommercialcontractTerms and conditionsThere are also direct relationships between all three actors:The open banking payment provider and the customer have a payment services contract governed by the Payment Services Regulations/PSD2.The merchant and the customer ha
190、ve an arrangement governed by the merchants terms and conditions(and certain laws,such as the Consumer Rights Act).The open banking payment provider and the merchant have a commercial agreement,to enable the merchant to accept payments from customers using the open banking payment service.This simpl
191、e model is well suited to payments in the digital age.Open banking providers can integrate seamlessly with merchant checkouts,without the need for payment gateways,acquirers or schemes.The consumer benefits because if something goes wrong,only three parties,all with direct relationships,are involved
192、 in the resolution.This means there is no need to rely on arbitration methods such as chargebacks(see p37).The payment method also has built in security because of the need for the customer to strongly authenticate each payment with their bank and because payee details are populated by the open bank
193、ing payment provider.This eliminates the risk of unauthorised payments and the need for expensive PCI compliance.Fig.15 Direct relationships between open banking actorsChapter 4:Digital payments for a digital age36THE FUTURE OF ECOMMERCE PAYMENTS WHY OPEN BANKING WILL CHALLENGE CARD DOMINANCECUSTOME
194、RMERCHANTRefund instructionMERCHANTS TRUELAYERACCOUNTCUSTOMERS BANKRefund paymentRefund requestChapter 4:Digital payments for a digital age“High-value transactions require greater certainty around the timing of the refund.Getting your money back instantly,as opposed to seven days later,makes a big d
195、ifference.”Banking expert Provider solutions to facilitate refunds:PayDirectTrueLayer recently launched PayDirect,which enables merchants to initiate an instant payment to the consumer the moment they receive a refund request.This can remove friction and delays from the refund process,reducing its c
196、ost to merchants and inconvenience for consumers.Fig.16 How PayDirect facilitates refunds37THE FUTURE OF ECOMMERCE PAYMENTS WHY OPEN BANKING WILL CHALLENGE CARD DOMINANCECUSTOMERMERCHANTPAYMENT GATEWAYCARD SCHEMEPAYMENTPROCESSORMERCHANTS BANK(ACQUIRER)ISSUING BANK(ISSUER)Credit transferChapter 4:Dig
197、ital payments for a digital age Fig.17 Complex multi-party card schemeChargebacksChargeback rules within card schemes were introduced as a means of fixing onboarding incentives and dispute resolution between participants in complex multi-party schemes.Chargebacks were designed to promote card take-u
198、p when cards were a new payment method,by reassuring consumers,incentivising acquirers to onboard reputable merchants and encouraging merchants to provide refunds where appropriate.49 In practice,though,chargebacks suffer from several drawbacks.Complex multi-party card schemes In contrast,when a cus
199、tomer makes a card payment,up to five businesses are involved,not including the banks.The customer,payment gateway,merchant,payment processor,and card scheme.There are also accompanying businesses that support in terms of security,fraud and dispute management.49Chargebacks911,What is a chargeback?,3
200、8THE FUTURE OF ECOMMERCE PAYMENTS WHY OPEN BANKING WILL CHALLENGE CARD DOMINANCEChapter 4:Digital payments for a digital ageHigh costsScheme liability rules are costly to administer and run,as they entail resource,and time-intensive investigation into claims and generate uncertainty until these are
201、resolved.In the case of chargebacks,schemes charge steep fees for processing,ranging from 15 to upwards of 150 per chargeback,depending on the scheme and the type of dispute.Because card issuers hold back the disputed transaction amount while a dispute is being resolved and this process can take up
202、to 120 days,even chargebacks resolved in the merchants favour can increase its cost of doing business.There are other adverse consequences for merchants if they become frequent targets of chargebacks.Issuers and schemes run monitoring programmes for chargeback-heavy merchants,and those which show pe
203、rsistently high chargeback ratios may have their card-acquiring contracts ended.While these measures can be effective at penalising merchants who unreasonably reject legitimate consumer claims,they can also hurt other merchants facing illegitimate or fraudulent claims.In order to reduce uncertainty
204、for merchants,acquirers have developed additional services.Some acquirers bundle chargeback fees into their regular acquiring fees(Square),or they offer merchants chargeback protection,a form of insurance,at a cost of 0.4%of transaction value(Stripe).These services raise merchants fixed cost of card
205、 acceptance,even for the good merchants whose consumers do not raise disputes.Moreover,this insurance is not comprehensive,as it usually covers only certain types of disputes(mostly card-not-present fraud)up to a limit(20,000 or 20,000 in Stripes case;$250 for Square).5050See e.g.Stripe Chargeback P
206、rotection overview.“It doesnt feel like the existing system really discourages fraud.Merchants are constantly looking for alternatives to cards.”Merchant advocate39THE FUTURE OF ECOMMERCE PAYMENTS WHY OPEN BANKING WILL CHALLENGE CARD DOMINANCEChapter 4:Digital payments for a digital ageFriendly frau
207、d:a growing problem of consumer abuse Chargeback schemes can create incentives for so-called friendly fraud,the abuse of purchase protection by unscrupulous or careless consumers.Friendly fraud usually involves attempts to reverse legitimate transactions while keeping the goods purchased,either deli
208、berately or by mistake.With centralised liability rules,the scheme owners enforcing the rules may not have adequate incentives to establish who is at fault and may instead take claims at face value,leaving merchants to bear the cost of dubious chargebacks.One source quoting US figures estimated the
209、share of chargebacks that could be friendly fraud at 86%.51 This form of fraud is difficult to detect and prevent,and other sources quote lower figures.An expert stakeholder interviewed for this report added that friendly fraud is especially prominent in the US market because of the prevalence of ch
210、ip-and-signature cards,which are more vulnerable to counterfeit fraud than chip-and-PIN cards.Even with no fraudulent intent,consumer surveys find that a majority of them will file a chargeback out of convenience instead of relying on the merchants returns policy in the first instance,as they should
211、 and as the PSR expects.52Given the risk of fraud and high cost of chargebacks to merchants,both acquirers (such as Worldpays Dispute Defender and Squares Protect service)and inde-pendent providers(such as Chargebacks911)have launched dispute management services,promising to help merchants to fight
212、spurious chargeback claims.A slow and uncertain process for consumersMerchants struggle with chargeback fraud does not necessarily mean that the chargeback dispute resolution process is always easy to navigate for consumers who raise legitimate issues.There are anecdotal reports of unsuccessful char
213、geback claims and ones in which the consumer had to wait for weeks to receive reimbursement.53 Furthermore,while chargebacks may also cover purchases made at retailers that have gone out of business,there is a 120-day time limit on claims,so consumers filing disputes related to insolvent merchants c
214、ould find they have no protection if insolvency happens long after a purchase was made.51Chargebacks911,13 scary chargeback facts,20 October 2020.52Payment Systems Regulator,Consumer protection in interbank paymentscall for views(February 2021),p.34.0.53Financial Ombudsman Service.Riley couldnt get
215、her bank to do a chargeback when her holiday was cancelled,case study.Seamless payments for every checkout,powered by open bankingLet your customers pay in a few clicks and offer instant refunds.No cards,no chargebacks,and reduced fraud.TrueLayer Limited is authorised and regulated in the UK by the
216、Financial Conduct Authority under the Payment Services Regulations 2017 and the Electronic Money Regulations 2011.TrueLayer(Ireland)Limited is authorised and regulated in the EU by the Central Bank of Ireland under the European Union(Payment Services)Regulations 2018 for the provision of Payment Services(Firm Reference Number:C433487)Businesses building with TrueLayer:Ready to get started?Talk to one of our ecommerce experts at TRUELAYER SEPTEMBER 2021 ALL RIGHTS RESERVED