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The Deep dive: Open Banking Vs BNPL

By Puja Sharma

June 20, 2024

  • B2B Merchants
  • BNPL
  • BNPL UK
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Open Banking, ArabThe deep dive’ is our bi-weekly exploration of a relevant topic, hot trend, or new product. For Prime subscribers only.

How does it work?

Half of UK consumers are already using Open Banking without realising it. Once made aware of the term, many consumers realised they are using -or intended to use – Open Banking for their purchases, with this likely to be more popular than Buy Now Pay Later in five years’ time.  Merchants and banks can help drive consumer awareness and Open Banking adoption rates through increased education about its benefits.

A research released by emerchantpay, a global payment service provider and acquirer, has found that there is strong market potential for merchants who prioritise the adoption of Open Banking payments early in their payment strategies. The survey of UK consumers found that one in two people are unknowingly using Open Banking during checkout, with more than half (51%) of the UK population being unfamiliar with the term Open Banking. 

Who is under the radar?

Once consumers were informed about what Open Banking is, 45% of respondents that had not heard of the term claimed they had in fact used Open Banking for purchases. This suggests that the term is not widely recognised, but Open Banking payments are actively being used by consumers. Of those who had heard of it, usage increased significantly to 58%, indicating that, once understood, consumers are eager to use Open Banking solutions.

The outlook for Open Banking is also positive, with nearly a fifth (19%) of respondents saying that they will use Open Banking more frequently in 5 years’ time. This compares to 14% saying the same for Buy Now Pay Later (BNPL) and 7% for crypto. Merchants in many sectors can leverage the opportunities of Open Banking, with 44% of respondents saying they would use it for online retail, 36% for utility bills, 34% for hotels, 30% for airline tickets, and 25% for online subscriptions.

Younger consumers demonstrated more awareness of Open Banking, with 25–34-year-olds most likely to have heard of it (45%). There is also an anticipated 32% surge in the use of Open Banking payments among 25–34-year-olds over the next five years. However, more work needs to be done to educate consumers.

Merchants can use Open Banking to enhance their checkout experiences and meet changing consumer expectations. Many aspects that consumers identified as important when making a purchase online align with Open Banking solutions, namely security (60%), privacy (41%) and speed (38%).

Why does it matter now?

Banks also have a part to play in increasing awareness and trust in Open Banking. Two thirds (66%) of survey respondents stated that they had never received communications from their bank regarding Open Banking, while only 17% recalling that they had been notified about it (17% were either not sure or did not have a banking account).

Jon Horddal, Chief Product Officer at emerchantpay explains, “The opportunities Open Banking offers to merchants are boundless, with it providing many features that consumers are currently seeking and demanding at the checkout. However, it’s evident that there’s a lack of awareness of Open Banking as a term.  

“To create a win-win situation for consumers and merchants, there needs to be more education as to what it means and what its benefits are – from both the merchants themselves, but also from banks. Many of the key features consumers want are available via Open Banking, but merchants need to be better equipped to demonstrate these benefits to consumers.  

To reap the rewards that Open banking has to offer, merchants need to start including Open Banking payments at the checkout, alongside an explanation, to see the sort of consumer adoption we’ve experienced in the past with new payment methods, such as BNPL and eWallets.

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