• Jon Horddal, Deputy CEO at emerchantpay


• 03.12.2024 03:00 pm
#OpenBanking #RetailInnovation

Returns are a significant expense for retail businesses, costing UK merchants an estimated £60 billion annually. As eCommerce adoption has increased over recent years, return rates have risen accordingly, especially during the seasonal shopping period. 

This trend becomes even more evident on sale days like Black Friday and Cyber Monday, when many shoppers intentionally over-purchase to secure the best deals, fully expecting to return some items later. In 2023, retail returns during this period saw a staggering 145% increase compared to 2022. Experts predict that this year will be equally challenging for merchants, with as many as one in three shoppers likely to return their Black Friday and Cyber Monday purchases. 

The issue doesn’t stop there; merchants usually experience another influx of returns post-Christmas, as unwanted gifts are sent back. So, how can retailers minimise the impact? Open Banking can innovative payment technology, can be added to retailer’s payment offerings to mitigate the negative impact of rising return rates and stay one step ahead of competitors.

The problem with traditional returns processes 

A poor return experience can drive away 84% of online shoppers, causing them to stop purchasing from a retailer altogether. This highlights the critical need for a seamless return process. Today’s consumers also demand a quick and efficient service, with more than two in five consumers stating that the ease of returning products is a top priority. 

Traditional refund systems often fail to meet modern consumer expectations. These outdated processes rely on funds moving through multiple financial intermediaries, causing significant delays before refunds reach customers’ bank accounts. Such delays can lead to inconvenience and frustration, making it clear that change is overdue. 

The benefits of Open Banking 

Open Banking, also known as account-to-account payments, enables funds to leave the account of the account holder almost instantly. This also allows refunds to be processed in real time. By offering returns via Open Banking, retailers can significantly improve customer satisfaction thanks to speed, convenience and security the solution provides.

Open Banking eliminates the need for consumers to enter card details or complete lengthy forms - refunds are sent directly to their bank account. It’s secure infrastructure also gives customers peace of mind ensuring their sensitive financial information is fully protected.  

Meeting generational demands

Offering Open Banking as a payment method can help merchants stand out in today’s competitive market, particularly when appealing to younger customers, who prefer modern payment payments. Younger generations are also more likely to become ‘serial returners’. Research shows that while the average shopper returns 16% of Black Friday fashion purchases, Millennials and Gen Z will return up to 24% - and that’s just clothing. By providing a payment method that enables seamless refunds, merchants can better meet with the demands of these younger demographics. 

This year, major brands like ASOS have introduced return fees for customers with consistently high return rates. However, such decisions have sparked backlash from effected shoppers. Before adopting changes that might risk customer loyalty, merchants would benefit from exploring solutions like Open Banking, which can address return challenges without alienating customers.

As retailers prepare for the post-holiday returns rush, adopting Open Banking can help tackle the rising returns challenge head-on. The technology has the potential to transform what was once a dreaded part of the festive period into a smooth, efficient process. 

For merchants unsure where to begin, partnering with a payment service provider (PSP) can simplify the integration of Open Banking into their existing systems, eliminating the need for complex technical development or direct bank connections. Embracing this technology can lead to happier customers and healthier profits, setting merchants up for a successful start to 2025.