Sep 05, 2024 •
Many international banks are already working with open banking payments. In order to keep up with the competition, it is therefore essential for fintechs, banks, insurance companies and online stores to also take the step into the future.
For insurance companies and banks, as well as in e-commerce, uncomplicated payment processing is essential to increase customer satisfaction and customer loyalty. Common methods for making the user experience as intuitive and pleasant as possible are open banking and account-to-account payments (A2A). What lies behind these two options, how do they differ, and what their advantages are for customers?
What is Open Banking?
In 2018, the EU Payment Service Directive 2 (PSD2 for short) created the legal framework for banks to open up to third-party providers. Since PSD2 came into force, the latter has been authorized to access the account information stored at the banks and initiate transactions via the banking API. In open banking, a distinction is made between Payment Initiation Service Providers (PISP) and Account Information Service Providers (AISP):
PISP: These open banking providers access the account information stored at their bank on behalf of customers. They are authorized to initiate money transactions, such as purchasing from an online store or transferring an invoice.
AISP: These providers also receive access to the account information stored at the financial institution on behalf of the customer. In contrast to PISP, however, they do not initiate payments but aggregate and analyze the information. For example, this information can be further processed as part of a credit check for a loan application.
Both third-party provider variants receive access to the necessary data from the account-holding financial institution via API in open banking after account holders agree. Users then benefit from an improved banking experience. For example, they can use Open Banking to track several bank accounts in one app. It also enables store operators to make payments directly to a customer’s account — without a lengthy payment processing procedure.
Challenges and risks of open banking
Open banking brings numerous advantages but can also entail risks. For example, customers must ensure that their data will be protected confidentially. It is also important that they retain full control over their financial data. This is why there are regulations in place to protect customer data. Although these have not been rolled out globally, the EU and the USA are setting open banking regulations.
EU: PSD2, in conjunction with the European General Data Protection Regulation (GDPR), stipulates strict security measures to protect customer data to prevent data leaks and damage from hacker attacks. This means that with Open Banking, only the information necessary to provide the agreed service may be aggregated by third-party providers. Users must also expressly agree to this.
USA: There is no specific regulatory framework for open banking in the USA. However, banking-related activities are subject to financial regulations and data protection laws from federal authorities such as the Office of the Comptroller of the Currency (OCC), the Consumer Financial Protection Bureau (CFPB), and the US Federal Reserve. The non-profit organization Financial Data Exchange (FDX) also has an influence. It focuses on developing a common and compatible data standard for banking APIs.
One thing is clear: robust authentication and encryption are essential for open banking to protect customer and account data — especially for cross-border transactions. It is also important to introduce user-friendly consent mechanisms. These ensure that third-party providers can only access customers’ data with their express permission — all strictly compliant with the applicable data protection and privacy regulations.
Was ist Account-to-Account-Payment?
Account-to-account payment (A2A payment) is a direct transfer from account to account. Data is, therefore, not passed on to third parties, as the transaction takes place directly. Common examples of traditional A2A payments are direct debits or standing orders. However, these transaction types are usually relatively slow. In e-commerce, merchants often have to wait several days for payment to be received. They are also prone to errors, as customers may enter data incorrectly. Conventional A2A payments can, therefore, result in chargebacks, which cause unnecessary costs.
Open banking opens new doors for account-to-account payments. This is because transfers are no longer limited to the bank’s own technology. The A2A payment can be embedded in applications or the store’s ecosystem so that customers can conveniently process their payments in real-time. These so-called instant payments are triggered and processed within seconds – at any time of day and even on public holidays or weekends. In addition, there is no need to manually enter bank details, preventing errors and the associated reversals. This saves time and costs and improves the user experience for customers.
A2A payment solutions: A revolution in e-commerce
The option of transferring from account to account creates a trusting payment experience for customers. This is because it works via an entity that they already trust: their bank. This helps stores and customers alike, as the payment process works automatically. Gini Pay Connect revolutionizes traditional A2A payment systems and offers various ways to establish the connection between the customer’s bank account and the store.
App to app: In app-based online stores, customers can pay without entering their bank details at checkout. Thanks to the Gini solution, customers are automatically redirected to their preferred banking app. There, they only have to accept and authorize the payment request using the pre-set authentication procedure.
Web to the app: Thanks to Gini, users can pay conveniently via their banking app, even if they are on the desktop version of an online store. They must scan the QR code displayed at checkout and confirm the details in the form.
IBAN: If customers decide to enter their IBAN at check-out, they are taken directly to their bank. They then receive a push notification on their mobile device with which they want to make the payment. Customers then only need to confirm the payment.
Open banking and A2A payment solutions: What are the differences
Many international banks are already working with open banking payments. To keep up with the competition, it is, therefore, essential for fintechs, banks, insurance companies, and online stores to take the next step. This is because the financial solution improves the user experience, which can also strengthen customer loyalty. Furthermore, Open Banking enables real-time transfers from A2A – for smooth processes and greater customer satisfaction.
Modern A2A solutions such as Gini Pay Connect further enhance the user experience. In contrast to conventional open banking solutions, they automatically recognize the customer’s bank. This means that customers are forwarded directly to their bank without manually selecting it. In addition, the payment details are filled in automatically, making errors and expensive chargebacks obsolete. Third-party providers are also superfluous, as payment is made directly via the house bank. This saves merchants unnecessary fees and improves the customer experience simultaneously.
What does the future of open banking and A2A look like
Open banking and A2A put customer needs first: uncomplicated and secure payments in real-time. The combination of an open financial sector and accelerated account-to-account payments will dominate the payment infrastructure in the future. A2A payments based on open banking already dominate some European markets and will continue to do so. It is, therefore, worth being a pioneer now and offering customers the best possible user experience with convenient payment methods. Gini Pay Connect takes e-commerce to the next level — for uncomplicated A2A payments and more fun online shopping.
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