Differences in the payment flow between traditional card payments and open banking

Open banking is growing in popularity as it provides a streamlined and secure alternative to card payments which allows users to pay from their bank account for consumer goods and services.

The development of open banking and new banking technologies has changed the way millions of customers and businesses use their banks. It is also hugely beneficial for banks and fintech businesses. For consumers, open banking allows for increased security and transparency over their payments and payment history, but the concept of sharing banking information with third parties can be daunting for most users.

While many open banking providers suggest that this payment method is primed to replace card payments, given that there were 2 billion debit card transactions in May 2022, up 12.9% on the same month in 2021, it is highly unlikely we will see a significant reduction in card payments in the next few years.

The Payment Flow

It is not just the front-end customer experience that differs between an open banking and card transaction, the moving parts involved in the payment flow are also different. When someone makes a purchase online with their credit or debit card, a number of different players are involved in completing that transaction before the goods or services can be released. There are also several parties involved in an open banking transaction, but who are the different players in this transaction? We have compared the stages of the payment flow between these two payment methods.

Traditional Card Payment Flow

1. Consumer enters card details and makes payment to the merchant
2. Merchant requests an authorisation from merchant acquirer
3. Merchant acquirer submits the authorisation request to the card scheme
4. Consumer authenticates with card issuer (3DS)
5. Card scheme submits the authorisation request to the issuer and issuer approves the transaction, sending an approval to the card scheme 
6. Card scheme sends confirmation to merchant acquirer
7. Merchant acquirer sends confirmation to merchant
8. Goods or services are released to the consumer

Open Banking Payment Flow

1. Consumer selects bank and initiates a payment
2. Merchant requests a payment with Open Banking provider
3. Open Banking provider initiates a payment with consumer bank
4. Consumer authenticates payment with their bank
5. Bank confirms payment has been successfully initiated 
6. Open Banking provider confirms payment has successfully been initiated
7. Funds are settled directly from the consumer bank to merchant
8. Goods or services are released to the consumer

Open banking payments provide a valuable addition to the available payment options merchants can currently offer to their customers. By adding an open banking option at checkout, customers have more choice about paying with their preferred method, usually helping improve checkout conversion rates.

Acquired.com‘s team of payments experts know the problems you face and how to solve them. That’s why we have created our Pay by Bank solution so your customers can authorise payments efficiently via open banking.

Find out more and speak to our team.