Open Banking’s Consumer Benefits Hinge on Widespread Adoption

Ross McFerrin, vice president of enterprise growth at Trustly, told PYMNTS in an interview that some fundamental questions are being asked about open banking.

What exactly is it? How does it work? What’s in it for the merchants?

“And the question we get asked the most is ‘What’s in it for the consumers?’” McFerrin said.

Open banking has been more firmly rooted internationally but is gaining some ground in the United States. In terms of the technologies and processes involved, open banking uses open application programming interfaces (APIs) that enable third-party developers to build applications and services around the financial institution (FI). Consumers can dictate what data can be shared with third parties and apps — and what details cannot be shared.

The market is taking shape in the U.S. in part as FinTechs and FIs seek to innovate the products and services they offer, and merchants must examine the ways those innovations can improve the trust and lifetime value of their customer relationships.

At a high level, McFerrin said, the benefits of open banking — especially in terms of permissioned data and direct account-to-account (A2A) payments — sound impressive. Transaction costs go down, benefiting all parties involved.

Merchants and consumers are far more aware of the macro environment, and alternative payment methods are gaining ground where individuals are examining the costs of carrying credit card debt, he said. A2A transactions are getting renewed scrutiny as they don’t expire, can be more transparent, and don’t require the approval of an issuer or acquirer.

“The consumer has a better overall experience, and the merchant sees a tangible business impact,” he said.

Adoption Needs to Scale

But if there’s no adoption, then the savings don’t matter, he said.

McFerrin cautioned that there’s no “one-size-fits-all approach” when it comes to open banking — and what works for one merchant might not work for another. The keys to success might be tied to marketing the convenience of open banking to end consumers — or to broadening the range of payment options offered and marking some options as “preferred.” This means the user experience can be streamlined so that the individual’s bank account can be kept as an on-file payment, used via a single click at checkout.

“Now you’re bringing speed and convenience to the user,” said McFerrin.

He noted that several enterprises, in partnership with Trustly, have found ways to incentivize customers to stop using credit cards and instead opt to use their bank accounts. Some of those incentives include the use of monthly discounts or statement credits.

“What’s great about open banking payments is we can provide consumers with value in other forms,” so that “we can extend optionality when the ACH transaction actually processes,” he said.

In the months and years ahead, he told PYMNTS, the commerce ecosystem will continue to become more well-educated about open banking — and what matters to consumers. The continued emergence and evolution of the FedNow® Service will spur more dialogue about real-time payments and how transactions can be routed more speedily and safely — especially as new regulations evolve, and at least some changes are shaped by lawmakers and agencies on Capitol Hill.

“The focus is going to be around the convergence of the two instant payment rails, open banking and fully optimizing that combination,” he predicted, “allowing for innovation in the U.S.”