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Educationww
Why you should care Why open banking is good for businesses
If you're a B2B or B2C subscription business, the benefits of
about open banking open banking—particularly open banking payments—are
significant and numerous. For one, you can rely less on
credit cards and all of their attendant processing fees and
churn. Credit cards expire every few years; people lose
or cancel them. All of this creates significant churn for
companies that collect recurring payments. Perhaps more
importantly, open banking will make it easier for global
subscription companies to do business in countries that
have low rates of credit card adoption—which, outside of
the United States, are many. For example, in Europe only
about 5 percent of companies use corporate cards, making
it expensive and inefficient for global B2B subscription-
based companies to do business with the majority of
European companies.
How open banking benefits consumers
By Andrew Gilboy There is an obvious and immediate benefit to consumers
GoCardless who don't use credit cards. According to Statista, 83
percent of Canadians and 65 percent of Americans
pen banking is the transformative next step in have credit cards, but only 41 percent of the French, 20
banking and payments, and businesses and percent of Brazilians and 3 percent of Indians do. Open
consumers alike need to understand what it is banking offers these consumers a bank-to-bank payment
O and how it works. However, before providing alternative they may prefer. Open banking is also more
an open banking primer, I'll discuss something familiar secure because customers and merchants are transacting
that open banking will affect: subscription services. directly, and consumers must authenticate themselves
through their online banking platform to authorize an
Like me, you probably use a lot of them—perhaps more open banking payment.
than you realize. The 21st century economy is built on
them. We pay to stream movies, TV shows and music. We Not only will open banking revolutionize payments—
pay to read online news publications and download audio it will also enable innovation in the banking sector in
books. We pay for apps and cloud storage services. We pay general. Just as a third-party company might look at your
for weekly meal kits and monthly outfits. The companies 23andMe results and fitness tracker to make personalized
that make this possible rely on recurring payments. recommendations for sleep, diet, exercise and healthcare
based on your genes and daily habits, open banking will
But recurring payments are challenging, and the current enable a new generation of apps that can make smart,
methods of receiving them have major drawbacks for individualized financial recommendations based on a
merchants. Credit and debit cards are expensive for holistic portrait of your banking and spending habits. It
payment acceptance and have high failure rates. They're can also help lenders make more fair, informed decisions.
also inadequate for international B2B payments, because
only a small percentage of companies use them globally. The bottom line
Wire transfers are expensive and slow. Open banking
will reduce many such obstacles for companies that rely Other countries have adopted open banking because of
on recurring payments. It will spur major innovation in legislative deadlines. Their governments know it will
banking, too. So, what exactly is it? spark innovation in financial services to provide better
outcomes for consumers and businesses and increase the
Open banking defined speed and simplicity of business transactions. Credit cards
used to be the only game in town, but that will change
Open banking is designed to open up banking data to give rapidly in the next few years. Their replacement will be
consumers and businesses access to better services that fueled primarily by global companies with recurring
can save them time and money. Open banking has many revenue models that will be eager to take credit cards—
uses, but they primarily fall into two camps: providing a with all of their attendant fees—out of the equation. It's
better overview of an individual or company's financial going to represent a challenge for credit card companies—
position and creating a new way to pay. one that will be welcomed by businesses and consumers
alike.
Whether you're a merchant or consumer, your data can
be shared via open banking only with your express Andrew Gilboy is general manager, North America at GoCardless.
permission. Contact him at agilboy@gocardless.com.
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