To be successful in a competitive market, businesses need access to good financial services, including payments. For a long time, this was difficult because of the lack of clarity, long admin processes, and high costs of traditional banking. But fortunately, with the advent of PSD2 and open banking, much of this has changed.
What is Open Banking in Europe?
Open banking is a banking standard that gives consumers greater control over their personal payment data. Open banking requires banks to share payment data with trusted and regulated third-party service providers through secure application programming interfaces (APIs). This open data access and exchange between different parties have enabled fintech players and banks to build accessible and relevant tools and services that are more user-friendly and delivers greater value to today’s digitally savvy consumers. The open banking ecosystem in Europe is growing fast, impacting the way consumers and businesses manage their finances, make payments, and buy goods and services.
The revised Payment Services Directive (PSD2) lies at the heart of open banking. The PSD2 was introduced in the EU in order to bring an integrated and efficient payment system to the region, while ensuring a fair and smooth transaction process within the European market. Without PSD2, open banking would not have been possible in Europe. What PSD2 has done is that it has removed the ownership of that consumer data away from banks, instead placing it in the hands of the consumer. Not only does this radically improve payment security and transparency, it also gives users greater choice in how they share their data with third parties to manage finances more efficiently. And with the EU preparing for PSD3, consumers will have the option to make faster and more secure transactions, much more conveniently.
How Open Banking Drives New Revenue Streams for Businesses
In its full sense, open banking allows a broader exchange of data between banks, customers, and trusted third-party providers through the use of APIs (application programming interfaces). The idea? To encourage more innovation and technological development in fintech. By allowing different players to connect in a secure ecosystem, open banking is bringing in innovation driven by collaboration. And in turn, helping businesses gain a stronger foothold in the market.
Outlined below is how open banking helps generate new revenue streams for a business.
- Open banking has led to greater collaboration between banks and fintechs. Because of this, financial services have become more mature and interconnected. This has opened up new and exciting possibilities for businesses with features like immediate and accurate insights, seamless real-time transactions, and more effective fraud prevention. Through the growth of banking-as-a-service (BaaS), more SMBs are now capable of addressing different challenges, optimizing diverse revenue streams, and building thriving enterprises.
- Open banking helps a business stay more resilient, productive, and profitable in the face of sudden change or market disruption. With access to up-to-date financial data, businesses have a stronger understanding and more control over their cash flow. And positive cash flow is vital for any enterprise’s growth and stability. Accurate data further helps you understand and plan your finances in a way that best fits your business model.
- New ways of payment have opened up with open banking. These new-age payment methods help businesses offer a simple and useful shopping experience to customers. This in turn improves their payment acceptance rates and reduces declines. With options like one-click payment, it becomes easy to offer a seamless check-out experience to customers. This means faster and more secure settlements. Also, offering alternative payment options lets a business stay relevant and keep pace with changing market trends.
- Account-to-account transfer of money helps in speeding up payments. No one likes to deal with late payments or engage in long invoicing processes. With open banking, businesses can initiate a payment with the ‘request to pay’ option and then share a secure link to initiate the process. With options like automated digital invoicing and variable recurring payments, it gets even easier to track payments and ensure they are not delayed or missed.
- Open Banking has speeded up the rate of financial literacy. Merchants can easily get access to a full range of useful financial insights and analytics. This gives them more leverage to understand how to use new-age banking services to improve their financial situation.
Partnering with their PSPs, businesses can offer personalized credit and payment options to customers. Banking-as-a-service has brought enormous opportunities through embedded finance tools and services to help SMBs minimize risks and improve their performance.
PSD2 and open banking have transformed payments for e-commerce by allowing merchants access to cutting-edge solutions and value-added services. From frictionless checkouts to instant payments, business owners now have a one-stop solution for all their payment needs. A global PSP like Novalnet can help you to adopt innovative payment technology that is right for your business. We help you stay ahead of the competition and explore new revenue channels. A single partnership gets you everything you need – from processing payments to sending payouts, preventing fraud, and managing subscriptions. Reach out to us to know more.
Jose Augustine is the Chief Business Development Officer at Novalnet with extensive experience in European payment industry and a knowledge powerhouse.