What is Open Banking? Unraveling the Future of Financial Services

Technically, Open Banking is the secure bi-directional exchange of data to/from third-parties such as customers and partners via API and helps businesses and consumers move, manage and make more of your money.

Open Banking payments, also known as Account2Account Payments (A2A), is one of the latest advances in payment technology, and enables businesses to process transactions in a modern, secure way. Many consider it to be the next generation of the traditional bank transfer.

Historically, a bank transfer meant that the business had to send their invoice, complete with payment details and required the payee to populate the correct account details, including the sort code, account number, amount to pay and invoice reference, before then passing through security measures to confirm that they were genuinely setting up a new recipient. This required time, patience, and of course the need to provide fully accurate account details.

In this modern, digital age, customers have grown accustomed to the get-it-now culture, with same day delivery offered by large online retailers, or instant streaming of media, and Open Banking is the natural progression for the bank transfer process.

Open Banking enables businesses to make a payment request directly to their customer, with their bank details, reference/invoice number and transaction value pre-populated, which means the payee can make payments in a few simple clicks, without the need for data entry. The customer simply needs to access their online banking or mobile banking app to approve the payment. The funds are then transferred immediately to the receiving bank using the Open Banking rails.

The Fundamentals of Open Banking: How It's Transforming Finance

Open Banking is a banking process that relies on the use of Application Programme Interfaces (APIs) to enable third-party developers to build applications that can work with financial institutions to securely share data with registered service providers.

Using Open Banking, customers initiate a payment to a merchant or corporate using their mobile banking App or online banking web portal, in the same way that they would pay with bank transfer. Funds are then transferred to the merchant immediately using the real-time banking rails.

How do I know Open Banking is safe

Open banking has been designed with security at its heart – here’s how:

  • Bank-level security – open banking uses rigorously tested software and security systems. You’ll never be asked to give access to your bank login details or password to anyone other than your own bank or building society.
  • It’s regulated – only apps and websites regulated by the FCA or European equivalent can enrol in the open banking Directory.
  • You’re in charge – you choose when, and for how long, you give access to your data.
  • Extra protection – your bank or building society will pay your money back if fraudulent payments are made. You’re also protected by data protection laws and the Financial Ombudsman Servic

What are the benefits of Open Banking?

There are many benefits for businesses that incorporate Open Banking into their payment acceptance options.

Open Banking is fast.

  • By sending a payment request, it enables a rapid checkout process where the customer does not need to enter their card or account details.
  • Funds are settled into the business bank account immediately.
  • Likewise businesses can use Open Banking to make payments to the customers, partners and suppliers by using Credit Transfer functionality.

Open Banking is Secure.

  • Customers do not share their details with you and remain fully in control of the transaction.
  • Open Banking complies with Strong Customer Authentication (SCA) which reduces successful fraud attempt.
  • Because card data is not a part of the process, it falls outside of PCI-DSS compliance jurisdiction.

Open Banking helps to reduce business costs.

  • As it does not rely on card data, it is exempt from chargebacks.
  • No expensive hardware is required to integrate the Open banking API.
  • As the transaction is outside of PCI-DSS remit, there are no compliance or non-compliance fees.

Open Banking can help business start-ups.

  • As a new business, it might be difficult to gain a Merchant Account for accepting card payments if you are perceived as high-risk sector. Set up with Open Banking can be rapid with limited KYC (Know Your Customer) requirements and a valid business bank account.

Open Banking is ultimately a great alternative to accepting card payments for businesses of any size, and if you do accept card payments, it is a great additional service to be able to offer. Gala Technology works alongside industry leaders to enable them to incorporate Open Banking into their payment systems. Using our Open Banking solution, merchants have access to all the features expected of a modern payment method. Refunds, recurring payments, instalment plans, and full reconciliations, are already part of our solution.

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