Open Banking
Open Banking
November 3, 2023
5 min

5 Use Cases for Open Banking

Timothy Shin

Open Banking Expert

Open Banking is changing the financial landscape and allowing merchants to leverage its innovative capabilities to improve consumer services. From streamlining payments to offering personalized financial products, here are 5 specific use cases that Open Banking can offer for merchants across various industries.

Provide Instant Payouts 

Instant payouts provide consumers with winnings and refunds instantly. For example, in the travel industry, airlines can leverage Open Banking connectivity and Real-Time Payment rails to disperse vouchers or reimbursements for flight cancellations instantly. Merchants in eCommerce can also utilize instant payouts to provide rebates and refunds for consumers to remedy any problems quickly. Instant payouts also make crypto withdrawals super easy, as consumers can withdraw funds easily from their wallets and have the money accessible in real time.

 

Furthermore, instant payouts are also great for merchants and businesses with freelancers and gig workers. Now, payday is made easy as funds are disbursed instantly for employees not on direct payroll without waiting several days, as most gig workers do, for their checks to clear properly. 

Verify Account Information 

Account verification is a regulatory requirement, and it’s critical that merchants do their due diligence and adhere to the best practices to verify consumer account information. The current account verification methods are slow, outdated, and time-consuming, which can lead to churn during onboarding. 

 

Instead of relying on credit checks, bank statements, and microdeposits, merchants can now source bank-grade data directly from Open Banking APIs to verify account information through a streamlined process that takes seconds instead of days. Best of all, Open Banking APIs eliminate the need for manual entry. Everything gets processed in real-time with the consumer’s full consent. 

Enhance KYC Processes 

KYC refers to “Know Your Customer” and is a set of identity verification processes that financial institutions and fintech companies must follow to evaluate the risk between a business and the consumer. KYC is an essential part of the AML or “Anti-Money Laundering” framework that businesses are legally obligated to adhere to. Failure to properly implement KYC processes can mean reputational damage and legal penalties. 

 

Open Banking connectivity can enhance these existing KYC processes by utilizing bank-grade data to verify consumer information like social security number or date of birth. Because Open Banking allows direct access to consumer data from banks, financial institutions and businesses can automate and streamline their KYC procedures, accurately assess consumers, and separate them from malicious actors.    

Prevent Payments Fraud 

Merchants can prevent payments fraud by leveraging the power of Open Banking and accepting ACH payments in lieu of cards. Nacha reported that ACH payments have the lowest fraud rate by value, according to a survey conducted by the Federal Reserve. Furthermore, there are several regulatory frameworks, such as the Risk Management Framework, that illustrate the intense care and scrutiny ACH payments undergo and how the nature of ACH regulations and payment confidentiality inherently assists in preventing fraudulent activity compared to cards.

 

Multi-factor authentication (MFA) is inherent to Open Banking connectivity as passwords, security codes, and biometrics are inherent in the process of initiating payment and during account or identity verification. Additionally, Open Banking requires no card details (ARNs), account numbers, etc., ever to be shared with the merchant, eliminating the problem of malicious actors obtaining financial data by intercepting payments during processing. 

 

Open Banking providers such as Trustly also work directly with merchants to help resolve instances of fraud. Despite card providers and processors making millions from merchants every year through swipe fees, they offer little to no real support or countermeasures to the growing issue of fraud affecting the payments space.  

Modernize Subscription Payments 

The one issue most subscription merchants face is involuntary churn. While voluntary churn can be addressed through better marketing and targeted re-acquisition of consumers who willingly drop off from the service, involuntary churn is harder to tackle simply because of the inherent issue with card-not-present (CNP) transactions. 

 

It’s important to remember that cards generally aren’t meant for recursive subscription payments. Cards expire, get lost, and have to be updated frequently for consistent payments to go through. Instead of relying solely on cards, Open Banking allows subscription merchants to provide consumers with a Pay By Bank alternative. This reduces involuntary churn since bank accounts are evergreen, stable, have higher approval rates, and circumvent many issues with CNP transactions entirely. 

Learn More About Open Banking Today 

These are only a few of the many use cases Open Banking has across industries. If you want to learn more about how Open Banking can improve your approval rates, reduce chargebacks, and eliminate costly card processing fees altogether, don’t hesitate to learn more or contact one of our experts for a free demo today.

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