Open Banking Payments for Merchants: When Account-to-Account Beats Card Rails

Various businesses have more than one option to accept clients’ payments. Beyond traditional payments via cards, they can also use open banking payments. Some of you may have heard of them as account-to-account payments.

This payment method lets users pay from their bank account directly without card networks, often called card rails. Each option has pros, so the choice depends on the situation. Some merchant payments work better through Bank Pay because it can lower costs. In other cases, cards still offer better processing and they are more available.

On this page, you can compare these two methods, look at use cases, checkout refunds and other details.

What Open Banking Payments Change in the Merchant Payment Mix

With open banking payments, customers can pay directly from their bank account without using a card scheme or Direct Debit. The transfer happens through a secure payment initiation process. A licensed company, such as PISP, sets a connection between the merchant and the client’s financial institution. It does not hold funds of users. Thus, it starts the transaction after the customer gives permission.

This routine works through adopting open banking APIs. Be aware that API is a digital connection that lets various systems get access to financial data and exchange it securely. Everything happens through secure APIs. Users select Pay by Bank at checkout and confirm the transfer with their banks. Then it sends payments directly from their bank accounts.

For merchants, the biggest change is not only how clients pay yet also how the transaction travels. The payment flow can involve fewer intermediaries than a typical card transaction, which may reduce processing costs.

The experience of clients changes as well. Buyers leave the checkout to confirm the payment with their traditional banking app or online banking services. As a result, merchants get one more payment tool with different costs, users behavior, and more benefits compared to card transfers.

Where Account-to-Account Payments Beat Card Rails

Account-to-account payments will not be the best option for every purchase. Despite that, they can still offer a number of pros in situations where  payment costs, speed, and cash flow are important. The list below highlights all the benefits:

• Lower fees. Many enthusiasts select such transfers because they bring lower fees than card payments. This makes a difference for businesses and consumers with small profit margins or a high number of daily transactions.
• High-ticket payments. Expensive purchases of products and services typically have bigger processing costs. Using direct bank transactions allows keeping more of the sale value when dealing with high-ticket payments.
• Faster settlement. Depending on online banking solutions, people can get faster payments. Thus, funds become available within shorter time frames.
• Invoices, top-ups, and bill payments. Clients who already expect to make a bank transfer often find this payment service provider straightforward. That is especially useful when paying invoices and bills, or adding funds to an account.
• Marketplaces and bank transfer users. Some people already prefer paying directly bank-to-bank. Using this option gives them faster checkout processes. Plus, enthusiasts should expect reduced payment friction.

Strong points from that list become more important when card processing costs affect profits or when payment timing is important. Businesses that focus on recurring payment operations can also reduce problems caused by expired or replaced cards. 

Instead of replacing their cards, people continue to initiate payments via their existing bank accounts. That can help lower payment failures in some situations.

Checkout Fit: When Bank Pay Improves the Flow and When It Adds Friction

Bank Pay can improve checkout conversion when people trust open banking implementation entity and prefer not to input card details on various sites. In this situation, they confirm the transaction through a mobile banking app  with convenient application programming interfaces. A strong customer authentication is a typical procedure for many people. The payment process itself means confirming their identity before the payment goes further.

For some third-party clients, this makes a payment procedure easier. They do not need to find their wallet, enter long card digits, or remember security codes. Therefore, fewer checkout efforts are required, especially on Android/iOS devices.

At the same time, Bank Pay is not always the number one option for the customer experience. People making quick payment decisions often prefer saved cards because they can pay with 2–3 clicks. 

In addition, some shoppers value rewards programs, cashback, and loyalty points. Thus, they get more benefits for using that payment tool.  Plus, it is more comfortable for international users to pay with global card brands they already know.

Instead of replacing cards, merchants should compare payment tools across various customer groups. Some enthusiasts may respond better to Bank Pay. Others continue to utilize traditional cards.

To understand which option delivers the best results, browse through several criteria. Those may include order value, device, and allowed sums.

Beyond that, see benefits of open banking payments today. You will spot a fuller breakdown of what open banking enables in practice. It is also important to know of what open banking offers.

Refunds, Disputes and Operational Control Matter as Much as Payment Cost

Even though payment costs are important, they are not the only part of the decision. Enthusiasts should take into account refunds, issues, and the daily work. Those are involved in managing payments after a sale. A payment tool that saves funds at checkout may create extra work if these steps are not well planned. 

One advantage of account-to-account payments is here – lower exposure to card chargebacks. The latter happens when a cardholder asks their bank to reverse this or that transaction. However, this point does not remove the need for a clear refund and various disputes.

People should decide how refunds will be processed, how clients can report payment issues, and so on. At the same time, good customer support becomes especially important when buyers use a banking technology for the first time.

Transaction reconciliation means matching incoming payments with customer orders and accounting records. This is how businesses check that every transfer has arrived and provides fraud protection. 

Merchants should ensure these transaction records integrate well with their current accounting and reporting systems.

Cards vs Open Banking Payments: Where Cards Still Win

There are many situations where transfers via cards work better. Many people know this payment tool and it is available in dozens of countries. Besides, for many enthusiasts, cards continue to perform a key role in a balanced payment strategy. See some key points below.

• Credit options. A credit card lets users buy something now and pay for that later. This can bring larger purchases and give people more flexibility.
• Rewards and loyalty. Many people utilize cards to collect loyalty points, cashback, or travel rewards. These benefits can influence the choice of users.
• International availability. Cards are available these days globally. Because of international acceptance, people from various continents can utilize them when it comes to shopping.
• Saved payment details and wallets. Many people save their card details or use digital wallets to have faster access to funds. When doing so regularly, enthusiasts can expect instant payments in some cases.
• Consumer protection. Many people select cards because they know what to do if something goes wrong. They are aware of the rules and requirements.
• Subscriptions. Cards work well for many subscriptions because transfers can happen automatically without asking the client to approve each one.

Cards are still a good choice for daily purchases, especially when users want the fastest way to pay.

A Practical Decision Checklist for Merchants

When people decide between card and account-to-account payments, they should consider the business needs. Merchants should look at several details. Costs and payment goals are some of them. Here are some more payment mix details below:

• Average order value. Find out if clients typically make small either large purchases. Payments of bigger sums may benefit more from lower-cost options.
• Customer segment and location. Think about who your customers are and where they are based. Some groups are more familiar with transactions in open banking ecosystem. Others still prefer cards.
• Fee sensitivity. If payment costs have a big impact on profit, account-to-account payments may help with cost control.
• Checkout results. Test how each option affects conversion. A cheaper payment tool is not useful if people do not complete their purchase.
• Refunds and support. Review how you will manage funds, questions about transfers, and customer support requests.
• Settlement needs. Decide how fast you need the funds to reach your financial account and how payments fit into your daily processes.

So, the best approach is not to remove cards from the routine completely. Account-to-account transactions and third-party providers should first work along with cards. Then, merchants can expand their use where testing shows clear benefits.