Apr 9, 2024

Rvvup and Open Banking; the new kid on the block

The world of financial services can be stressful and complicated with buzzwords and confusing acronyms, with many options for customers and companies to choose from regarding online payments. 

You may have seen the terms Open Banking, Direct Account Payments or A2A Payments (Account-2-Account) and Pay by Bank mentioned in articles, with journalists talking about the new trend in the industry and thought nothing of it. Still, Open Banking is about to change the e-commerce and banking industries.

“The shift to A2A is happening fast. Instant payments will account for one in three of all consumer transactions globally by 2029 or sooner” - Dave Birch, Forbes Magazine 

At Wind & Kite, we understand that it can be difficult to keep track of trends and important updates in the banking industry and that it can seem like a complicated process to understand, we’re here to try and help unravel the jargon.  

To explain Open Banking, we need to go back to the beginning…. Online banking is older than most might believe (or want to think about). In 1985, the Bank of Scotland invented electronic home banking services for its clients. A short nine years later, Stanford Credit Union launched a website for banking services. Since the 2000’s online banking in e-commerce has become the norm, with companies and customers looking for more secure and faster ways to pay for items online. 

Most of us will purchase goods, and not ever think about how the money from our card balance will get to the merchant at the end, but it's a slow and complicated process, with a simplified version of how card payments are processed below: 

  1. A customer wishes to purchase an item online and adds it to their basket before being directed to the checkout.
    They input their banking information from their debit or credit card to complete the purchase. 
  2. That payment is then sent securely through a payment gateway to a processing company like Fiserv.
  3. The processor then sends that information to the card scheme such as Visa or Mastercard. 
  4. These card schemes will check with the payor’s issuing bank, that the customer's card belongs to that person, that they have enough money in their account or credit available to make the purchase, and that the card hasn’t been blocked or reported lost or stolen.  
    This is called the ‘authorisation’ stage of the payment. 
  5. The next stage is the physical sale.
    Suppose the payment is accepted by both the card scheme and the issuer. In that case, the requested money is taken from the customer's bank account, before being held by the merchant's payment processing company such as Stripe, Adyen or PayPal.
  6. The payment gateway subsequently confirms the sale to the customer and the merchant.
  7. At the end of each trading day, the payment processing company will then send this held money to the merchant’s bank account, which can take anywhere from 2-3 working days. 
  8. Finally, the fee collection process. Depending on the settlement type, fees may be deducted on a net basis, where the fees are subtracted from the total transaction amount before settlement, or on a gross basis, where the merchant receives the full transaction amount and fees are billed separately at the end of each month. These fees typically range from 1.3% to 3.5% of each transaction amount and are usually billed at the end of each month.
“$1.5tn in revenue is lost every year due to poor payment experience. Online Businesses pay processing fees of between 1.5 %- 3.5% every year. - Rvvup 

The idea behind Open Banking was to increase competition and innovation in payments, and one benefit for merchants is it enables them quite simply to cut out the middleman. As stated above, in traditional e-commerce card payments, the customer makes the payment to the merchant, where the money is held for processing, before being transferred to the merchant for less fees, which typically equates to around 1.3% to 3.5% of each transaction amount. 

"The refund process is terrible at the moment. It's like the second-class post: it can take four or five days for money to get back to the customer. Instant A2A payments can really change that." - Wired Magazine 

With Open Banking however, the checkout process remains familiar to the customer, but when it comes to payment, instead of entering card details, the user experience steers them to open their personal banking app on their desktop or mobile device. Within this app, they can authorise the direct transfer of funds to the merchant's bank account, streamlining the payment process. This method is akin to making a bank transfer to an existing beneficiary, but with even fewer steps because the payor can simply authenticate using Face ID and authorise the transaction, making it a faster and more secure way to complete a purchase.

This means that the customer’s money goes from their bank account to the business’s bank account with a huge reduction in merchant fees - typically lower than 1%. Not only does this save money but also time, as the money is cleared into the business account on the same day, instead of the previous system of waiting for 2-3 business days, beneficial for cash flow.

It appears that Open Banking will become more popular, and will soon become the new normal. Research suggests that it will account for 20% of European e-commerce payments and surpass card payments, with over 60% of mobile banking users willing to adopt A2A payments if they were given the chance.

In 2022 reports, Checkout concluded that 56% and Stripe concluded that 86% of consumers abandoned their cart if their preferred payment method is unavailable” - Rvvup  

Rvvup started its life in lockdown when its founder realised that buying habits had been forced to change radically, and there was a shift in commerce forcing companies to change their habits and the way they took money from customers. And so Rvvup was born, bringing with it a team of alumni from Braintree, PayPal, Ripple, CapitalOne, Depop, Fiserv… and more! 

Rvvup are bringing together payment technology across debit and credit cards, digital wallets, BNPL, open banking and digital currencies, enabling businesses to embed all of the new and the conventional in one solution. They predict that in 5 years, Open Banking will become the norm, overtaking many existing methods. Rvvup uniquely supports merchants as the payments landscape evolves by enabling both incumbent methods like Cards and new, disruptive methods like Open Banking, BNPL and Digital Currencies all within one integration. This not only streamlines your technical setup but because all transactional data resides in one dashboard it streamlines your financial operations as well. 

So watch this space … the new kid on the block is here to stay and probably make quite a scene.

Read more about Rvvup and how they worked with us and our client, on a Hyvä project here: