October 3, 2023


Be life confident

What’s the current status of Open Banking in the UK?

4 min read

Open Banking provides an opportunity for merchants to offer a better customer experience at a lower cost. To achieve that, there are a few essentials you need to know about Open Banking vendors.


What’s the status of Open Banking in the UK?

Key takeaways

  • Working with an Open Banking provider that collect funds enables greater capabilities
  • To minimise reconciliation costs, merchants need batch settlement and detailed reporting
  • Choosing a provider that offers instant refunds will improve your customer experience
  • Only a provider with an in-the-flow-of funds collection model can support cross-border transactions

As consumer interest in Open Banking takes off in the UK, merchants are looking for an Open Banking provider that can live up to the hype.

Compared to the card networks, Open Banking offers merchants the opportunity to drive up conversion while lowering total costs. However, it’s important that merchants can spot the differences between different OB providers.

Understanding the differences will help ensure merchants don’t take on more costs with OB than they get rid of with cards. Here are a few things to consider when choosing your provider.

Work with an Open Banking provider that directly collects funds 

In the UK, all banks must allow licensed third-party FinTechs to securely access bank account information via application programming interfaces (APIs) and modified customer interfaces (MCIs).

The third-party providers which are licensed to offer Open Banking API-based payments are called Payment Initiation Service Providers (PISPs). Within this category, most providers can only initiate a push payment from a customer’s bank account to a merchant’s account. This limited PISP functionality provides merchants with only the minimal benefits of OB.

Merchants should instead consider a full-service provider that collects funds directly. A provider that’s always in the flow of funds can offer settlement reconciliation, batch settlement (similar to other payment methods), issue fast payouts, and handle cross-border transactions.

Choose an Open Banking provider that offers PSP integration and batch reconciliation

Merchants are used to getting a single aggregate settlement for card payments and a report detailing the transactions for almost all payment methods. However, with the typical OB API-integrators, each individual transaction needs to be manually reconciled by the merchant.

When your Open Banking Payment option is integrated via your Payment Service Provider (PSP), your settlement and reconciliation can be managed the same way as your existing payment methods.

Open Banking does not have to live outside your existing payment ecosystem. Make sure your vendor is willing and able to integrate with your PSP.

Choose a provider that can initiate rapid refunds

Typically, a refund sent via the card network can take 5-7 days to reach the customer. There are a number of obvious benefits for merchants that come with speeding that process up.

First of all, faster refunds can improve customer satisfaction and loyalty. According to our recent research, 59% of British consumers said that if they received faster refunds, they would consider purchasing more often from the same online store.

Apart from simply making customers happy, faster refunds can also reduce demands on your customer support. In that same survey, on average, online retailers said 19% of their support calls in the UK are related to customers looking for their refunds.

As mentioned above, most Open Banking providers can only initiate a payment. Finding a provider that can issue payments from the merchant to the customer is currently extremely rare.

To support payouts, the provider needs to offer an initiate and collect service, allowing merchants to benefit from local collection in the UK (and in Europe). If your provider is “embedded” in the payments flow, they can receive and settle funds locally and instantly – without being subject to delays caused by batch processing.

Working with an provider that can deliver refunds and make them faster than cards will give you a clear competitive advantage.

Choose a provider that offers an intra-bank collection model

Despite Brexit, trading in the EU is still essential for many British merchants. Offering the preferred local payment method is an important ingredient in winning and maintaining customers in the EU.

In many of the major European markets, Open Banking Payments are already well-established and continuing to grow in popularity. So, allowing customers to make OB Payments method can clearly support conversion and loyalty.

However, the average PISP cannot support cross-border payments for British merchants. That means, in order to offer an Open Banking option in the EU, a merchant would need to establish a bank account in each market and integrate each local payment option themselves.

In contrast, choosing a vendor that can offer access to a multinational intra-bank network greatly simplifies cross-border payments. With this set-up, the provider takes care of the local bank accounts and is always in the flow of funds, accepting all payments on behalf of the merchant.

Individual transactions are then converted to a settlement report and batch settlement to any single bank account the merchant nominates. This way, merchants receive funds and reconcile in the same way they do with cards.

If your provider offers an account-to-account payout solution, as mentioned above, in conjunction with a multinational intra-bank network, cross-border refunds and disbursements can be quickly paid out using the same model in reverse.

The solution to your Open Banking Payment challenges

From instant payments settlement and payout capabilities to cross-border payments, Trustly supports merchants in the UK to realize the full potential of Open Banking.  To get a quick overview of the differences between cards, Trustly and other Open Banking vendors, please download our UK Open Banking provider comparison guide.

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