Open Banking payments for crowdfunding platforms
Moving investors towards bank-based payments has several key benefits for crowdfunding investors. This article highlights the difference between ‘Open Banking’ payments and legacy payment methods.
Open Banking has already proven its value for organisations with similar needs to crowdfunding. Fundraising and wealth management companies are already using Open Banking services to reduce payment expenditure and improve customer experiences.
It’s important to note that the advent of Open Banking is bigger than payments — but we think payments is the primary area of interest for crowdfunding companies.
If you’d like to learn more about Open Banking, we wrote this five-minute article to explain the initiative as succinctly possible.
What do Open Banking payments do differently from other payment methods?
Open Banking service providers enjoy an unrivalled level of access to bank accounts. Their systems are already integrated with those of the business and the customer’s bank, allowing them to instantly move money between accounts. Critically, this makes an Open Banking service provider the only intermediary in the transaction, guaranteeing rapid settlement, lower payment fees and fewer security vulnerabilities.
Contrast this with card payments, where each transaction has to pass through multiple intermediaries, adding to the time taken to settle and the ultimate cost to the ‘merchant’, in this case a crowdfunding platform. Alternative Payment Methods have sought to improve on the problems of card payments, and have seen significant user adoption over the last 5 years.
Open Banking payments became a possibility in Europe in 2019, offering customers a payment method unrivalled in its simplicity. Open Banking is the result of an EU directive (PSD2), laying the foundation for an inter-bank payment network covering the entirety of the EU and the UK.
What are the benefits for a crowdfunding platform?
The core benefits of an Open Banking-based payment method over other payment formats include cost-effectiveness, instant settlement and the potential for a much better investor experience.
Open Banking transactions do not pass through an expensive chain of processing intermediaries; there’s a single fee, covering the costs of one processor. This disintermediation ensures instant payment settlement as well as an uncomplicated payment flow. Ultimately you’re removing friction for investors while lowering your operating costs — and receiving funds within seconds.
And despite an emphasis on convenience and speed, Open Banking payments are also intrinsically more secure than other payment methods. Security is handled by the end-customers’ bank, with payments approved biometrically in the bank’s app.
Not only does this mode of authentication remove the security vulnerabilities of cards, it removes the inconveniences of having to deal with card numbers, CVV codes, passwords and PINs. With Open Banking, nothing has to be retrieved from memory or from a wallet. Open Banking payments with a well-designed customer journey are unrivalled in their simplicity.
