Last week marked the third anniversary of PSD2, the regulation that launched open banking in the U.K. and Europe. And those three years have given rise to a slew of new companies capitalizing on that initiative all over the world, as well as established companies making their mark. According to Ossama Soliman, chief product officer at open banking provider TrueLayer, the very fact that there are so many payment options pushes new entrants to differentiate themselves from the pack.
“It is definitely getting very cluttered. I’ve spent the last 15 years of my career in payments, and it’s something that has been an increasing problem throughout,” Soliman said in an interview with PYMNTS. “But actually, it raises the bar for what it takes to add a new payment method into the checkout.”
Which is exactly what TrueLayer has done with the introduction of PayDirect. Building on top of the open banking infrastructure, PayDirect is a new payment method that enables companies to take online payments in a highly secure way, and also pay out to customers through the same rails.
According to the company, one of the reasons for PayDirect’s development is the clunky state of the customer journey associated with card-based payments and the resulting low conversion.
Add to that the introduction of strong customer authentication (SCA), which was mandated in 2019 and implemented in September of 2020, and yet another layer of friction is added for card-based payments.
According to Soliman, PayDirect is the answer to those issues. It combines the open banking platform with instant payment rails and can accelerate know your customer (KYC) and anti-money laundering (AML) processes. The company is betting that all kinds of companies — from FinTechs to eCommerce providers to wealth management platforms and iGaming operators — will adopt PayDirect to facilitate account verification, instant account funding, online payments and instant withdrawals.
The challenge is in getting merchants and customers to try it.
“There is an initial resistance to adding one more payment method to checkout, because the default assumption is that they are all the same,” Soliman said. “But once businesses see how our payments API is differentiated, they try it. When that happens and they see the value in it, we see a huge shift – and in many cases, [businesses are actually] pushing their customers to this payment method.”
Click, Biometric, Done
PayDirect launched today (Jan. 26) in the U.K., and will roll out across Europe in the next couple of months, but Soliman said the ease of use within the nascent instant payments space makes it ready to go mainstream.
“One in four customers chooses open banking payments soon after it is put into checkout,” he said, pointing to the speed and seamless efficiency of a “click-biometric-done” experience that is increasingly comfortable and familiar for consumers.
Fast and seamless instant payments are an attraction. But what really drives adoption, Soliman said, is when merchants realize that their checkout conversion ratio rises by 25 percent.
“PayDirect is higher-converting, primarily because it just has a much better UX (user experience) than online card payments or bank transfers,” he explained. “The reason is that you don’t need to remember any payment details, card numbers or bank numbers. Instead, you just tap on your phone, get biometrically verified on your bank app, and you’re done.”
Although manual bank transfers are great once they are precisely set up with the correct information, Soliman said the data entry portion of the process is their biggest drawback.
Manual input of information is very error-prone. The length of the process is also a drawback, as customers often have to interrupt their data entry. PayDirect converts 20 percent higher than cards on average across checkout and has payment success rates of 95 to 98 percent, compared to 85 to 90 percent for cards. According to Soliman, the benefits for merchants adds up quickly, whether they’re in the gaming, eCommerce or wealth management industries.
“So, you take all of that together, and the impact is actually quite meaningful. It means millions or sometimes hundreds of millions in incremental revenue for our customers,” Soliman noted. “It really has a huge impact on their bottom line.”
As instant payments continue to chip away at the dominance of credit cards, Soliman is comfortable with where his side of the business is headed.
“It just makes sense that something like open banking payments becomes the new standard for online payments, because cards were not created for online,” he said. “I mean, how does a piece of plastic have anything to do with online? That is not an experience that was designed for the online world. [Open banking] enables you to have a much more seamless experience on your phone versus the cards.”