• Karl MacGregor, co-Founder and CEO at Vyne


• 13.07.2021 04:45 pm
Banking

It needn’t be said that it’s been a difficult year for business owners. It was recently reported that four in five small businesses felt that they received inadequate government support during the crisis, with the total anticipated COVID-19 related costs exceeding £126.6 billion.

It’s clear that as a society, we have to rally around businesses across the country in their time of need. Whether it’s consciously supporting our favourite brands, electing to shop locally or offering positive testimonials, we all must play our part. 

It’s for these reasons I was surprised to read that PayPal is to follow Visa and Mastercard’s stance in the UK and raise interchange fees for ‘some’ of its business users in the US. While these payments giants have strived to justify this move, the news only serves to reiterate the power many have over the merchants that use their services. 

The numbers speak for themselves; when the European Commission’s Interchange Fee Regulation was introduced in 2015, it was reported that merchants saved approximately €1.2 billion, with estimated overall annual consumer cost savings of between €864 million and €1.9 billion. Now, a large majority of these savings will line the pockets of payments giants, instead of merchants. Put simply, this will sting.

After months of unreliable cash flow, merchants will feel that they are held hostage to these mounting fees, which can often prohibit business growth in this highly digitised age. The news reinforces that the current crop of payments solutions are broken, and stacked against the merchants that use them. Costly, inefficient and slow, a more modern, transparent and seamless approach is needed.

Open Banking to the rescue?

Account-to-account payments, underpinned by open banking technology, provide a simple route for merchants to receive account-to-account payments from consumers online.

By using open banking to move money between bank accounts in real time, merchants can bypass the card networks and their associated fees, thereby reducing costs. 

It’s not just reduced fees, however. By providing a simpler, mobile-first consumer experience, account to account payments have the ability to increase customer conversion and loyalty, crucial to curtail any losses onset by the pandemic. Fraud can also be eliminated. With every payment authorised by the consumer, no card details can be lost or stolen, again providing an improved consumer experience.

Payments giants taking note

The past few years have seen a veritable gold rush to the open banking industry, with inexperienced opportunists initially saturating the marketplace. Now though, the likes of Mastercard and Visa are beginning to take open APIs seriously, with the latter recently acquiring Tink for $1.8bn - the largest European open banking acquisition to date.

While market consolidation of the open banking industry has always been inevitable, defensive plays such as this by the card schemes raise the question: will it ultimately make things better for merchants? With customer-centricity and choice being the aim of open banking, fintechs, regulators and governments must ensure that the industry continues to work towards this goal. 

I’m a true believer that open banking offers the best route to creating fast and fair payments for merchants. With so many businesses upended by the pandemic, there’s never been a more important time to challenge the status quo of high interchange fees and hit reset with new, innovative and customer-centric payment solutions. It’s these businesses which will ultimately be rewarded with stronger ties to their customers.