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Open Banking vs. card payments: instant cost savings?

Determining the fully loaded costs of payment acceptance may be difficult, yet it’s essential for driving operational and financial efficiencies.
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Knowing income from sales is critical, as sales are the lifeblood of any business. But what about the costs of accepting those sales, namely the costs of payment acceptance?

Awareness of the true costs of getting paid is important to avoid over- or under-paying. It’s also essential for business planning and to maximize opportunities and manage risks.

How do Open Banking payments stack up against the costs of card acceptance?

Well, Open Banking payments cut out the middlemen for starters. Funds move direct from one account to another, which generally makes them cheaper than cards.

What’s more, there’s no concept of card interchange fees, card industry data security standards (PCI DSS) or chargebacks with Open Banking payments. This helps strip out costs, as we explain.

Card acceptance: the hidden costs

Accepting cards is an expensive business. Card interchange fees are frequently calculated as a percentage of the transaction value, which makes cards less attractive for high-value payments.

The principle of card interchange has been investigated numerous times by regulators in the UK, Europe and the US. One such investigation is currently ongoing by the UK Payment Systems Regulator.

As it stands, EU regulation introduced in 2015 capped interchange fees at 0.2% of the transaction value for debit cards and 0.3 % for credit cards. However, following Brexit both major card schemes have raised the interchange fees for online payments between the EU and UK to 1.15% for debit cards and 1.5% for credit cards.

Card acceptance also comes with the considerable burden of data security (PCI DSS). Naturally, this has a knock-on cost impact for businesses who accept cards.

With Open Banking payments, businesses side-step card interchange fees and eliminate PCI DSS costs. Customers approve payments within their own banking app, so sensitive account details are never shared or stored. And the opportunities for data security breaches are minimized.

Chargebacks: a $31 billion-a-year problem

A chargeback is the return of funds to a customer’s card account after they dispute a card payment. Chargebacks may happen if a cardholder claims a card payment it was fraudulent, the services were not provided, or the merchandise never received, among other reasons.

Also known as ‘payment disputes’, ‘disputed payments’ or ‘disputes’ for short, chargebacks are a $31 billion-a-year problem. And those accepting cards for payment bear nearly two-thirds of these costs, according to a Javelin Strategy & Research study back in 2017.

There’s also the problem of so-called ‘friendly fraud’, also known as first-party misuse or chargeback fraud. This is when a legitimate customer fraudulently claims they do not recognize or did not make a card purchase and initiates a chargeback.

62% of merchants reported an increase in friendly fraud year-on-year, a recent Merchant Risk Council report found. Chargeback fraud costs merchants around $35 for every $100 disputed, mostly because merchants are left out of pocket several times over.

They’ve often provided the goods or service for which they won’t receive payment if the chargeback is successful. There’s also the back-office admin costs of dealing with chargebacks. Plus, if they receive too many, they may have to pay more to accept cards or lose card acceptance altogether.

It’s no wonder that businesses often cite chargebacks as their #1 payment headache. Open Banking payments all but eliminate chargebacks and the associated costs. Unlike ‘pull’-based card payments, account-to-account (A2A) ‘push’-style payments have no in-built chargeback rights, which saves on the cost, time and admin of dealing with disputed payments.

False declines: a $20.3 billion-a-year problem

Losing a customer when they’re trying to pay is the most expensive mistake a business can make. Yet online sellers in France, Germany, the UK and US lose a massive $20.3 billion at the checkout each year due to false declines, according to, a card acquirer.

False declines happen when transactions are wrongly rejected by one of the many players in the payment chain. Open Banking payments are less exposed to false declines, partly because there are fewer players in the chain, fewer conflicting scoring systems at work and hence fewer data quality issues.

Secure user authentication for Open Banking payments helps determine that customers are genuinely who they say they are. This is typically done through banking apps, which customers are already familiar with. At this stage, banks will also know whether their customers are good for the money. All in all, this lowers false positives and the cost of declined payments, as well as boosts payment success rates.

Time is money when it comes to getting paid

Open Banking payments make it as quick for customers to pay as it is for businesses to get paid.

The Open Banking customer UX is slick and quicker than typing in card details or manually completing an old-style bank transfer. Meanwhile for businesses, funds transfer is often real-time, thus faster than cards, with all the benefits for cashflow and working capital efficiencies.

What’s more, card acceptance providers generally operate a system of delayed settlement or rolling reserves. This is really to cover their own risks. With Open Banking payments, the risks are lower or, in the case of chargeback risk, non-existent. So, Open Banking providers can deliver bank-funded payments but better, as well as funds settlement faster.

How Inpay can help

Inpay Open Banking offers a single API to access a global network of banks and their customers. This not only helps ensure a smoother, safer payment journey for end-customers. It also helps cut costs, increase revenue and improve business for you.

Contact us at [email protected] to find out how we could help you accelerate your business growth with Open Banking payments.

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