E-Commerce: Open-Banking vs. Request-to-pay

With PSD2 and the resulting Open Banking, the EU hoped for a rapidly growing spread of low-cost SEPA account-to-account payments (A2A payments) in e-commerce. While open banking is already firmly established in the Baltic States and Scandinavia, German retailers are still struggling with it. Why is that? An analysis and an answer.

Comparison of Open Banking and SEPA Request to Pay

Even though Open Banking and SEPA Request-to-Pay (SEPA R2P) pursued the same goal, very different paths were chosen.

Open Banking:
The foundation of Open Banking was laid by the new EU Directive PSD2 in 2015, which was gradually transposed into national law. In simple terms, banks were obliged to provide technical interfaces (APIs) to their systems, among other things. It was hoped that this would very quickly lead to more competition, which was the starting signal for the fintech race.
What sounded very promising in theory turned out to be a forced marriage in practice. The banks saw open banking as a threat, and so many banks, especially less digital banks, decided to make their interfaces as good as necessary and as bad as possible.
The resulting consequences were very different user experiences, which ultimately forced open banking providers to perform customer identification on their side. Although this led to a uniform user experience, the average conversion rate fell to 74%, as customers did not want to enter their bank access data on third-party sites.
Another disadvantage is that open banking is an absolute “conversion killer”, especially in the increasingly important mobile commerce sector. Customers expect to pay with the banking app on their smartphone, but this cannot be accessed via open banking. The mobile conversion rate can fall below 60% as a result.
SEPA Request to Pay:
In contrast to Open Banking, SEPA R2P was based on the principle of voluntariness – all parties were brought on board. SEPA R2P is a technical standard developed by the European Payment Council (EPC), but unlike Open Banking, there is no legal obligation for banks to integrate this time. Banks should see SEPA R2P as an opportunity and not a risk. Therefore, they can choose their own pace and are in the driving seat.
With SEPA R2P, the invoice can be sent with the payment request and shared directly with the customer liable to pay – as part of the SEPA request-to-pay scheme. This significantly increases invoicing efficiency and guarantees a 100% allocation rate by pre-linking the order and outstanding payment.
SEPA Request to Pay relies on proven standards, XML for efficient data exchange and SEPA Credit Transfer for the cash flow.

Request-to-pay: Win-win-win for customers, e-commerce merchants, and banks

SEPA Request to Pay offers equal advantages for all important parties.

• Banks are getting closer to their customers again. This increases customer loyalty and, at the same time, creates opportunities to offer additional services such as Buy Now Pay Later, factoring, or secured payments. The banking app thus becomes a wallet and, therefore, once again, the central financial element of the house bank.
• SEPA R2P gives customers a better overview and control over their spending behavior, as all payments converge in their banking app. This significantly reduces the risk of losing track of accounts and the associated finances. The number of apps required for online payments with different providers has also been significantly reduced. In addition, customers experience the security of their bank, which they generally prefer in financial matters. Their experience is combined with a high standard of security and trust – a key aspect compared to non-EU services.
  In the future, customers will experience a seamless, perfect UX that they are used to from established payment wallets.
• Merchants benefit from falling fees as fewer value-added participants are involved in A2A payments. The better UX, especially in mobile commerce, ensures greater use and a higher conversion rate. The resulting higher cart share ensures even more cost savings with the same turnover. Due to its simplicity, SEPA R2P represents a serious challenge for open banking solutions and other payment methods such as direct debit and credit cards. SEPA R2P significantly reduces the effort required to integrate a new payment method and expand its use. On the e-commerce merchant side, integration can take place via APIs or the Gini plugin for native apps (SDK), for example. This keeps the entire integration process simple and cost-effective.

SEPA R2P: high level of interest expected on the customer side

The SEPA Request-to-Pay (SEPA R2P) function, which allows customers to pay for their online purchases using their bank’s banking app, is of great interest to consumers: 54.3 percent would use it to pay if it were available in their online or mobile banking. This results from a YouGov survey* commissioned by Gini, one of the leading companies for innovative payment solutions.
One in five participants (20.9 percent) would be prepared to replace their preferred payment method or provider.
Younger respondents are even more interested in a payment option offered directly via the banking app than older respondents: One in three 18 to 34-year-olds (33.4 percent) would use it to completely replace their preferred payment method, and one in eight over 55-year-olds (12.5 percent). The survey confirms this: SEPA Request-to-Pay is an attractive alternative to third-party payment solutions.

Positive impact on online retail

Payment is too expensive overall. On average, online retailers pay 2% of their turnover to payment service providers, who have raised their prices in recent months despite inflation. And while credit providers earn generous EBIT margins of over 60%, merchants usually have to make do with less than 10%.
SEPA Request-to-Pay will significantly reduce the complexity of the payment flow, increase competition and thus lead to drastically lower fees. As banks know their customers’ creditworthiness best, payment default (risk management) costs will continue to fall.

The survey shows that there is considerable demand on the customer side. The high trust in banks, coupled with the UX of a wallet, will establish SEPA R2P as a new payment method with more than 10% cart shares.

*The data used is based on an online survey conducted by YouGov Deutschland GmbH on behalf of Gini, in which 2,129 people took part between October 17 and 22, 2023. The results were weighted and are representative of the German population aged 18 and over.