How open banking works and why your website needs it
Online payments are becoming more and more technologically advanced and both clients and businesses benefit from this. Today, no one is surprised to pay online with a credit card, but new open banking technology changes payment experience fundamentally for many people right now. Payment system API allows to process online account-to-account transfers automatically, even if the payer's and recipient's accounts are opened in different banks. Does this sound like the future? Well, in that case, it is already here.
If you still have not connected open banking to your website and wonder whether you even need it — it’s time to learn more about the principles of its operation and, the pros and cons of using this payment method. In today's article, let's find out what open banking technology is and how businesses can use it.
What is open banking?
The entire technology of open banking appeared relatively recently but has already made serious noise in the payment space. What is so unique about this payment method and how does it affect online payments overall? First of all, it offers a somewhat new experience for the payer, more convenient than the usual bank account transfer. If to dig deeper, technology was created by a group of banks that combined their databases into one big common database. And then they created an open-source code whose API is available for use by financial institutions. In this way, a higher level of cooperation between banks and financial institutions and faster data exchange than standard account-to-account transfers is actually achieved. This makes online payments more comfortable for the user.
In addition, payment procedure is more secure due to data encryption and the need for authorization of customer directly on the page of his bank. The convenience lies in the fact that to make a payment you don’t need to have an additional account in a wallet or payment system, as well as to enter bank card data — it is enough just to have an account in a bank participating in the technology. Convenience for merchants and payers also connected to the fact that payments through open banking system are instant, thanks to APIs, with funds being debited and credited within seconds. To make a payment, user will need to select required method on the merchant's website, after which they will be redirected to the bank selection page. From the drop-down list, user have to select the bank where they hold an account, and the system will automatically offer to authorize using bank data (login, mail, phone number, or special PIN, depending on the specific bank). In this case, there’s no need to enter the amount of payment, details of the recipient, or other data such as, for example, the purpose of payment — the system has already done it on its own. All the payer needs to do in this case is to confirm the payment for specified amount. Confirmation is done by SMS, in the bank's application, or by entering a special code. Thus, the whole process of making payment takes minutes, or even seconds. Payment systems in gambling should be fast and modern — these are the qualities of open banking and that is why it is so popular among online casinos and gaming projects.
Fast payments system in Russia, PIX in Brazil, and automatic transfers in the UK: what in common?
When dealing with the question of what open banking is and how it works in practice, it is best to consider a few popular examples of this technology. Online gambling industry participants working in the international market are very familiar with the Fast payments system in Russia. This system allows you to transfer funds between bank accounts 24/7 in real-time. In everyday life, it can be used for various types of payments, including settlements between businesses, payment for goods and services on websites, also money transfers between individuals. This technology is core of many P2P payment solutions in today's casino payment market.
To make a payment within the system, the one just need to know recipient's cell phone number or email, which makes the procedure even more accessible to a wide range of users. To elaborate, it was the open banking technology that was used to develop this payment method. All local banks have been united into a single infrastructure, which due to this connection, can move funds between accounts without additional actions, which were necessary before. Payments work also by QR code, which allows you to pay for services even faster, literally in a couple of clicks.
Another prime example of the adaptation of open banking is PIX payment method in Brazil. Brazilians make transactions for billions of dollars a year through this system and the reason for this is simplicity. PIX has created a real revolution in Brazilian payment market and has completely transformed the financial sector. If some time ago Brazilians used cash and were far from the financial system of developed online banking, now this region is one of the first to adopt new payment technologies and reaching highest number of transactions per year.
At the same time, it’s important to note that PIX is used not only for casino deposits but also in routine transactions: paying for electricity, buying tickets, cleaning services, groceries, and even rental services. The algorithm of the payment method is also centered on the widespread use of QR codes, although entering a payment token manually is also possible. Nevertheless, QR code itself has proven to be a more convenient option and is used much more frequently. By making a payment using a mobile device, Brazilians can go straight to their bank's app and pay for PIX through instant confirmation.
Open banking has its origins in the United Kingdom. It was the country that pioneered and went the furthest in adapting open banking; it also has the largest number of banks participating in the system. Open Banking is the result of a collaborative effort between the government, financial regulator (FCA), and banking industry in the UK, as well as implementation of the European Union's PSD2 directive. In 2018, the first version of the Open Banking API was released and it is safe to say that reality of bank transfers has been divided into a "before" and "after". As we know, bank transfers have always been an important part of the financial system of European Union and Eurozone as a whole, but their speed and convenience were at a very low level. Sending payment via SEPA requires full information about the recipient, purpose of payment, and waiting time between few hours to even few days. In addition, it is a completely manual process that requires careful input of information. If the payer makes mistake in the account number, beneficiary's name, or other data — payment will not be executed and it will have to be initiated again. Open banking, on the other hand, eliminates the need to enter any data manually and thus eliminates the risks of errors and repeated payments.
Risks when using open banking
Despite all the positive factors that open banking brings to merchants, we would like to consider some of the risks associated with this payment solution in gambling. For online casinos, implementing an open banking solution across multiple markets requires meeting compliance and regulatory requirements, which are often quite strict. Access to the technology offers merchants an unprecedented opportunity to benefit from automated bank transfers. However, before onboarding, regulated financial institutions must establish the nature of business and its owners. Merchants may face fines, penalties, and reputational damage if they fail to comply during their cooperation.
In the case of offshore projects, payment solutions may be provided in a different format than traditional online businesses can expect. As a result, their working flow may be different or the system itself may be less stable. All gambling projects should be prepared for this risk and stock up on payment systems for quality infrastructure backup, including traditional bank transfers. Modern open banking providers are also introducing KYC procedures for users into their solutions, which can make life easier for merchants by reducing the risk of refund requests due to fraud and chargebacks. Although such payments are not card payments and are not subject to Visa and Mastercard rules, the banking system has its own set of rules with a refund procedure for any payment. Merchants should therefore be careful about this payment method because of payment fraud risks and tend to control their flow of funds.
Open banking today provides the highest level of user-friendliness and improves their experience on the website to the top notch. Connecting such a payment system for an online casino and gaming project can be an opportunity to increase the number of players and deposit inflow, which you should not ignore. To connect payment system with an open banking solution, text to your Monoup manager and we will present all available options to suit your business.
