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Home » Fintech » 2022 is the year card payments expire: open banking is here

Francesco Simoneschi

Co-Founder and CEO, TrueLayer

Amazon’s decision to stop accepting Visa credit cards in the UK is more than a negotiation tactic, it is a sign that ecommerce has outgrown card payments.

Amazon announced in November that it would stop taking payments from Visa credit cards issued in the UK, because of sky-high fees.

Interchange fees charged by card networks were capped under 2015 EU rules, but despite this many UK businesses have seen card costs stay the same or increase.

Things are worse since Brexit: it is estimated that UK merchants have shouldered £36.5 million in new card fees in 2021 (British Retail Consortium).

Many retailers feel they have little alternative but to put up with rising fees, which directly impact their revenues. The move by Amazon is the first by a major ecommerce business, but it is more than that. It is a sign that ecommerce has outgrown card payments – and it’s ready for change.

Card payments were designed for a physical world

Card payments weren’t designed for digital commerce. They were invented in the 1950s by a businessman who forgot his wallet in a restaurant. And it shows.

Consider the last time you made a card payment online. Maybe you searched for your wallet. You probably had to type in your 16 digit card number, expiration date and CVV code – or accept risk by trusting a website to store them (there were £574 million of unauthorised card payments in the UK in 2020 according to UK Finance).

Perhaps you had to confirm your identity several times (because of new Strong Customer Authentication measures, implemented badly). If you were lucky, your payment didn’t fail (5-15% of card payments fail). How many of your online subscriptions have been paused because of cancelled or expired cards?

Mobile wallets like Apple Pay have papered over some of these cracks in payments experience, but they’re built on top of the same old, costly, complex card infrastructure.

Many retailers feel they have little alternative but to put up with rising fees, which directly impact their revenues.

Enter open banking payments

In 2015, policy makers in the UK and Europe brought in open banking, creating a new pan-European payment method that is cheaper, faster and more secure than cards.

Open banking payments rolled out in the UK and Europe in 2018. They enable consumers to pay straight from their bank account at checkout, instead of a card. They involve fewer intermediaries, which minimises cost and friction. Payments settle instantly and authorisation rates are high. They are also incredibly safe since card details are not shared.

For customers, they’re easy to use – you just need a mobile phone and a bank account.

Refunds, a huge issue for retailers, have often been considered the Achilles heel of open banking, because they were not included as an original feature. But open banking providers like TrueLayer have changed this, making refunds as instant as the initial payment.

Set to become more commonplace

Open banking payments have been quietly but rapidly growing in the UK. In October, 2.84 million successful payments were made, a five-fold increase from 2020. There are now four million open banking users – and it’s doubling every six months (Open Banking Implementation Entity).

You can top up your bank or investment account with open banking. You can buy and sell a car with open banking. You can even pay your tax – HMRC reported in September that £1 billion has been paid this way.

As consumers and businesses move on from the poor experience and high fees of cards, we’ll see open banking payments, or ‘instant bank transfers’ as they’re often called, appearing in more ecommerce checkouts.

It’s true that open banking is still evolving as a payment method – and we have some details to figure out. But it is the best opportunity the industry has to create a fair payments system for businesses, which delivers a better experience for customers.

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