How Open Banking is Revolutionising the Payment Gateway Landscape
How Open Banking is Revolutionising the Payment Gateway Landscape
The New Era of Payment Gateways with Open Banking
In the ever-evolving financial landscape, businesses are constantly searching for ways to enhance efficiency, reduce costs, and streamline payments. One of the most transformative developments in recent years is open banking. By leveraging Payment Initiation Services (PIS) and Account Information Services (AIS), open banking is reshaping how payment gateways operate, offering businesses a faster, cheaper, and more secure way to process transactions.
In this article, we’ll explore how open banking is disrupting the traditional payment gateway space, why businesses should embrace it, and how it can drive operational efficiencies, reduce costs, and improve customer experiences.
What is Open Banking and How Does It Impact Payment Gateways?
Open banking is a regulatory framework that allows third-party providers (TPPs) to access financial data and initiate payments on behalf of customers via APIs, with their explicit consent. This innovation eliminates the need for traditional card networks and payment processors, enabling direct account-to-account (A2A) payments.
A payment gateway serves as a bridge between businesses and financial institutions, facilitating secure payments. With the integration of open banking, payment gateways can offer seamless, real-time payments, bypassing expensive card fees and providing a more transparent transaction process.
By leveraging PIS and AIS, businesses can reduce their dependency on costly traditional payment processors, improve transaction efficiency, and offer customers a more frictionless experience.
How Open Banking is Transforming the Payment Gateway Space
- Payment Initiation Services (PIS) – A Cheaper, Faster Alternative to Cards
Traditionally, businesses have relied on card payments, which involve multiple intermediaries (e.g., acquiring banks, card networks, and payment processors). These intermediaries not only slow down transactions but also add costs through interchange fees and processing charges.
With Payment Initiation Services (PIS), payments can be made directly from a customer’s bank account to a business’s bank account. Benefits include:
- Lower transaction fees – Unlike card payments, which can carry high processing costs, PIS transactions avoid card network fees, making them significantly cheaper.
- Instant settlement – Instead of waiting days for funds to clear, open banking payments settle in real-time, improving cash flow.
- Greater security – PIS transactions leverage bank-grade security and strong customer authentication (SCA), reducing fraud risks.
- Account Information Services (AIS) – Smarter Business Decisions with Real-Time Data
Beyond just facilitating payments, open banking offers Account Information Services (AIS), allowing businesses to access customers’ financial data (with consent). This unlocks a range of powerful capabilities:
- Real-time financial insights – Businesses can track customer spending behaviour, income streams, and financial stability, enabling smarter decision-making.
- Automated affordability checks – Instead of relying on outdated credit scoring models, businesses can assess a customer’s ability to pay based on real-time bank data. (with their permission)
- Seamless reconciliation – AIS integration allows businesses to match incoming payments with invoices automatically, reducing administrative overhead.
Key Benefits of Open Banking for Businesses
- Significant Cost Savings on Transactions
-
- Traditional payment gateways often charge high fees per transaction, including interchange fees and processing fees. Open banking eliminates the need for these costly intermediaries, offering businesses a more cost-effective alternative.
- With direct A2A (account-to-account) payments, businesses can save up to 90% on transaction costs compared to card payments.
- Enhanced Security and Reduced Fraud
-
- Open banking payments require strong customer authentication (SCA), reducing fraudulent transactions and chargebacks.
- Because payments are authorised directly through a customer’s bank, there’s no need to store sensitive card details, minimising data breach risks.
- Faster Settlement and Improved Cash Flow
-
- Traditional card payments can take 2–3 days to settle. Open banking enables instant settlements, ensuring businesses receive funds faster.
- Improved cash flow means businesses can reinvest revenue more efficiently, reducing the need for short-term financing.
- A More Frictionless Customer Experience
-
- Open banking eliminates the need for card details, passwords, or lengthy checkout processes.
- Customers can complete payments with just biometric authentication (fingerprint or face ID), making the checkout process smoother and reducing cart abandonment.
- Seamless Multi-Channel Payments
-
- Open banking payments work across various platforms, including e-commerce websites, mobile apps, and in-store POS systems.
- Whether businesses operate B2B, B2C, or subscription-based models, open banking provides a unified payment experience across all channels.
Real-World Applications: How Businesses are Winning with Open Banking
E-commerce & Retail
- Reduce card processing fees and improve checkout conversion rates with instant bank payments.
- Eliminate chargebacks and fraudulent transactions using bank-verified authentication.
Subscription-Based Services
- Automate recurring payments via direct bank debits, and Variable Recurring Payments, reducing failed payments and administrative hassle.
- Improve payment predictability with real-time access to customers’ financial data.
Financial Services & Lending
- Use AIS to assess customer affordability instantly, making loan approvals faster and more accurate.
- Reduce risk by accessing verified income data before approving credit agreements.
Marketplaces & Gig Economy Platforms
- Facilitate direct peer-to-peer (P2P) payments without relying on expensive intermediaries.
- Enable real-time payouts for gig workers and freelancers without delay.
How to Choose the Right Open Banking Payment Gateway
When selecting an open banking-powered payment gateway, consider the following:
✔ Regulatory Compliance – Ensure the provider is authorised by the Financial Conduct Authority (FCA) or relevant regulatory body.
✔ Seamless API Integration – The gateway should integrate easily with existing business systems (e.g., accounting software, CRMs, e-commerce platforms).
✔ Multi-Bank Connectivity – Choose a provider with wide coverage across banks for maximum accessibility.
✔ Advanced Security Features – Look for strong authentication protocols, encryption, and fraud detection tools.
✔ Transparent Pricing – Compare pricing structures to ensure cost-effectiveness with no hidden fees.
✔ Customer Support & Reliability – A robust support system is essential for handling technical issues and queries.
Open banking is revolutionising the payment gateway landscape by offering businesses a faster, more secure, and cost-effective alternative to traditional card payments. By leveraging Payment Initiation Services (PIS) and Account Information Services (AIS), businesses can unlock significant benefits, from real-time payments and reduced fees to enhanced customer experiences and smarter financial insights.
