Instant payments and open banking: allies or foes?

After the European Parliament approved mandatory instant payments, I've had a few conversations where the following question came up:

"Why would any merchant need an open banking provider when payments are instant?"

The short answer is: instant payments are open banking's best friend. And yes, merchants still need open banking providers.

Let's unpack the topic a bit more. The term "instant payments" really means instant settlement. Bank transfers - whether initiated from online banking or through a third party via open banking - physically arrive at the recipient's bank account within 10 seconds, 24 hours a day, every day of the year. The cost of such a bank transfer may not exceed the cost of an ordinary bank transfer. Many banks already provide this service, and over the next few years, the remaining ones will be pushed to do so. First in EUR, later in all other EEA currencies.

Even when banks on both ends of the transaction support instant payments, not every transaction can be settled instantly. Only about 17% of volumes are processed instantly. Why? Mainly because banks are extra cautious. With instant settlement, the transaction is immediately final. There is no time to investigate it if it gets marked as risky, and no way to reverse it if it turns out to be fraudulent. Therefore, banks have introduced transaction limits, daily limits, cross-border limits, and stricter risk evaluation.

In this situation, it is very hard to predict whether the payment I wish to initiate can really be settled instantly or not. For example, Tatra banka (part of Raiffeisen Bank International) in Slovakia has a limit of 3,000 EUR. On the other hand, banks in the Netherlands can go up to 100,000 EUR.

Merchants obviously cannot rely on all payments being instant anytime soon. But let's imagine we live in a world where it happened. How would consumers like to pay? Likely on their smartphones and using biometry. If they started the purchase on the merchant's mobile web or app, they expect that (1) the eshop sends the data to their bank, (2) the authorization app is automatically opened, (3) payment authorization with FaceID, and finally (4) automated return to the eshop where confirmation is displayed. No typing, no QR code scanning.

This experience with sending data to the bank without typing and scanning is only possible with a payments provider such as Everifin. Oh, and we also take care of important details like downgrading to standard payment when instant payment cannot be used, repeating a payment from a different bank account when the balance on the first one is low, communication with the bank when it rejected a payment, refunds back to the consumer, etc.

Refunds deserve a blog post of their own. Instant refunds are really a game-changer in many industries. Retail shops, insurance claims, crypto-exchange fiat withdrawals - nobody wants to wait 24 hours to get their money. And merchants considering automation should do it with a partner who has the expertise and can offer integrations with multiple banks.

If you want to know more, contact us at [email protected] or drop me a personal note on LinkedIn or at [email protected].