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Four ways Open Banking can benefit the travel industry
Open Banking, you’ve probably heard of it by now. Put simply, Open Banking is a framework that enables banks and financial institutions to share consumer financial data securely in order to create more personalised services.
The UK Open Banking movement was initiated by PSD2 in 2016, a European directive that obliges banks to make their customers’ financial data shareable through Application Programming Interfaces (APIs). With these APIs, licensed third parties can gather consumer information such as spending habits, salary and account details, and then use that information to help consumers with budgeting, investing and other money management activities.
Open Banking is a particularly revolutionary milestone for payments. Licensed third parties can enable payments directly from the consumers bank account — also known as direct bank transfers, or account-to-account (A2A) payments. With Open Banking merchants are paid quickly, securely and at a lower cost, while consumers use their own banking app which they know and trust.
Why are Open Banking payments important for the travel industry?
The travel industry is highly competitive. Travel service providers need to offer their customers the best experiences, from online bookings through to customer service, to stand out from the competition. Unfortunately, for a lot of travel service providers payments are a pain point with high-cost card fees, slow settlement, delayed refunds and clunky payment experiences. Here are four ways Open Banking can benefit the travel industry and it’s customers.
1. Reduce transaction costs
In the current climate cutting costs has never been more important, as the travel industry recuperates from the impact of coronavirus. Relying on traditional payment methods is making it increasingly difficult to save with costs of between 1% - 3.5% fees on card transactions.
Open Banking powered account-to-account payments allow travel service providers to avoid high-cost card fees, as the payment goes straight from the consumer’s bank account to the merchant’s account within seconds. Depending on card fees, Open Banking payments can save travel service providers up to 80% on processing fees.
Then, there’s the cost of chargebacks. On average, chargebacks cost travel service providers 1.6% of total revenue according to research conducted by just.aii. Open Banking payments require biometric authentication, such as faceID or fingerprint, or bank-level verification within a consumer’s banking app, making it significantly harder for fraudulent payments to occur. This gives travel service providers higher confidence that the customer is who they say they are when a payment is made.
2. Boost cash flow with instant settlement
It’s no secret that slow settlement is a pain point amongst travel service providers. Traditional payment methods like cards and BACS payments can take up to three days to settle, impacting cash flow. More often than not, travel service providers also face higher settlement times as larger rolling reserves are held by card processors.
Open Banking payments land in travel service providers accounts within seconds. This enables businesses to understand their real-time cash position and better manage reconciliation.
3. Boost conversion with cardless payment experiences
Time is money in today's fast-paced world. Customers are demanding instant experiences and if anything slows them down, they drop out to go to a competitor. With Open Banking, the payment journey is streamlined by removing unnecessary friction, like manual card data entry. Instead, customers make payments with bank-level security using their mobile banking app or online banking in just a few taps, removing the need for cards or manual data entry.
Open Banking can also improve customer sentiment. 70% of consumers surveyed by Open Banking payments provider Vyne said instant refunds would be important to them if they could build their ideal payment method. This poses a problem for a lot of travel service providers that use traditional methods which don’t have the capacity to offer rapid refunds. Card payment refunds can take up to five days to land in customers accounts, and for digital wallets, often longer.
Open Banking account-to-account payments can be refunded in a matter of seconds. Customers can receive their refund while still on the phone to agents, improving customer sentiment and the potential of returning customers.
4. Engage customers with secure omnichannel payment experiences, online and over the phone
There’s an ever-growing need for businesses to engage with customers on the right channel at the right time. Customers want to make payments quickly, conveniently and securely. Travel service providers often take card payments over the phone to provide a convenient option for customers, but with this comes an increased risk of fraud.
Open Banking enables travel service providers to continue serving their customers with a convenient, real-time payment option that's quick and secure too. With Open Banking, merchants can send payment links by email, SMS or QR code while engaging with phone bookings and online through ecommerce websites.
Open Banking has grown by 104% in one year
So, why should travel service providers evaluate Open Banking now? In July of this year, Open Banking payments hit an all time high with more than 11.4 million payments processed in one month. The number of active payment users also reached 4.2 million, showcasing an impressive 68.2% surge from July 2022. Open Banking is growing at a rapid pace, driven by early adopters in retail, e-commerce, gaming and financial services. Now is the perfect time for travel service providers to start benefiting from improved operations, cost savings and better customer experiences.
For further information on how Vyne’s full-stack account-to-account payment solution can help your business to reach more customers and create a seamless payment lifecycle contact Mitch Broadstock mitch.broadstock@payvyne.com.