Open banking means no more card fee, right?

When Open Banking first hit the scene, there was a lot of buzz about how exciting this could be in travel - gone would be the days of your card processing fees - absolute game changer in an industry with average payment values of over £1000. At Felloh, we strongly believed this too, our very first version of our product allowed travel merchants to create payment links and customers to pay via Open Banking, what a winner!

Of course, as our COO Chris Jones often says, “No plan survives contact with the enemy”  - he’s an ex-bomb disposal guy so his analogies are always top notch.

When launching the product with our first customer, they were keen that the solution have the option to pay by card too, just in case people didn’t understand this new technology and wanted the familiarity of safe-old-credit-cards when paying for their holiday. Needless to say, the data spoke for itself pretty quickly and a couple of our assumptions were proven wrong, very wrong:

  1. Our merchants have such close relationships with their customers that they would be able to sell in the benefit of choosing Open Banking.

    WRONG! Turns out, it takes a special kind of nerd to care about this stuff and many of our merchants didn’t fully understand Open Banking and so when it came to closing a sale, they were much more confident promoting the card payment, either over the phone or via payment link.

  2. Open Banking payments will be as reliable as card payments.

    WRONG! And this one really stings. Because Open Banking could be as reliable as card payments if all the high street banks had agreed to implement it in consistent ways. But this is potentially the issue when companies are forced into something through regulation rather than opting in for their own business reasons. Where we found challenges with this included:

    1. Daily limits varying across banks and even bank accounts - so that £5000 payment link you sent out should work with most banks (not quite the reassuring message we wanted to be sending.)
    2. User flows vary from bank to bank, so even when the merchant was confidently recommending the payment method, when it came to troubleshooting, there was very little support to be offered.

The fact of the matter is, end consumers of travel businesses like paying by credit card because there is a perceived protection of their money. Sure, those inside the travel sector understand that actually any package travel arrangement would be protected regardless but the average consumer on the street really doesn’t (as self-reported from this average consumer on the street who religiously built my own packages to save a fiver before I got under the hood of the travel sector.) 

This is not merely anecdotal, of the thousands of travel payments Felloh processes each week, less than 2% of end consumers are choosing to pay by Open Banking. We even added in the feature for merchants to disable card payments and only offer Open Banking but this was rarely used by our merchants. So the challenge was not only the end-consumer appetite but merchant appetite too.

The more we spoke to merchants, the more clearly we saw that card payments were easy for the end-consumer but quite a headache for finance teams. So while the consumer behaviour is staunchly in the card schemes hands, why not use Open Banking to optimise that experience? Open Banking isn’t just Payment Initiation Services (PIS), it also includes Account Information Services (AIS). What this means is that you can connect your bank account to unlock its data using third party services. 

Why is this useful for travel business’s customer payments? A couple of reasons:

  1. Identifying the payments in your batch settlements
    Card processing companies (merchant acquirers) typically deposit your transactions in batches; daily, weekly or however regularly you have agreed with them. These batches could have fees or chargebacks or refunds deducted, so even if you’re expecting 10 x £1000 payments to land in your account, you may not find a nice neat £10000 deposit. Connecting your bank account through a platform that can access both your transaction data, the merchant acquirer batch data and your bank data will automatically reconcile the transactions.

  2. Identifying bank transfers from your customers
    For many of the merchants we work with, the Open Banking payment didn’t feel much easier than “good old fashioned bank transfer” - the data quality and tagging on the inbound transaction was not deemed valuable enough to try and change their customer’s behaviour. What we have been able to do for these customers is allow them to tag their inbound customer bank transfers to bookings, so even if deposit was paid on card and balance via bank transfer, there’s a fully reconciled booking.

  3. Restricted access for your teams
    No business can grant bank account access to all their employees and finance teams would probably prefer not to have to answer if Customer X’s payment came through. Using AIS allows teams to view the bank account transactions and permissions can be set at different level depending on their role. This means your sales or admin team could be tagging their customer deposits in the bank without a card reader in sight.

That’s not even scratching the surface of the Open Banking opportunities within travel; once we start thinking about segregation of customer funds and supplier payments, there’s so much opportunity for efficiencies, cost savings and automation. So while the B2C payments may seem like a shiny quick cost saving, look beyond the consumer experience and unlock the full potential of Open Banking for your business. 

Written by
Caroline Rennie
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