E-commerce was already booming before COVID-19, but the pandemic spurred an unprecedented acceleration of growth. Much has been made of the fact that over the last twelve months, e-commerce saw the equivalent of five years of sales. The shift towards online shopping has forced retailers to fight for customer loyalty by offering better and more diverse incentives for consumers.
Part of what customers expect from a seamless shopping experience is the easy facilitation of refunds and returns. Another effect of the pandemic was the mass cancellation of plans and events in the entertainment and travel industries. These cancellations revealed pinch points in business refund operations that led to negative customer experiences.
Poor payout and refund practices cost customer loyalty, but open banking may offer a solution. To learn more about how open banking improves customer experience and enables merchants to offer faster refunds, PaymentsJournal sat down with Murtaza Bootwala, Head of Product at TrueLayer, and Tim Sloane, VP of Payments Innovation at Mercator Advisory Group.
Customer experience transcends the initial purchase
According to research with YouGov in 2020/2021, 1 in 3 merchants receive complaints about slow or lost refunds. “Shoppers have high expectations when it comes to refunds,” Bootwala said. “But those expectations are not always being met.” That same research showed 2 out of 3 shoppers said refund issuance time was an important factor in deciding whether to shop on a website, and 85% of surveyed merchants said offering instant refunds would make shoppers more likely to shop with them again.
Refunds and payouts are a commonly bottlenecked element of business operations. Loop Returns, a return portal that automates the returns and refunds of products, calculates that two hours of labor goes into processing every return. An unexpected influx of return requests can lead to significant operational load, which in turn can lead to slowed or even lost refunds. In the case of flights, concerts, or other ticketed events, there is a gap between time-of-purchase and the event itself, and sometimes payment cards have expired by the time refunds need to be issued.
For merchants, payouts to customers can involve managing multiple accounts, dealing with payment details, and manually tracking each payment. The entire process is costly, time-consuming, and error-prone, which leads to operational inefficiencies that snowball into poor customer experience and increased numbers of complaints. The worst-case scenario: a payment is never issued or is transferred to the wrong account. “This is a clear opportunity for businesses to improve customer experience and drive loyalty,” summarized Bootwala.
The problem with payouts
Industries such as AI gaming and digital wealth management have their own issues with sending payments to their customers, as payments take the form of payouts rather than refunds. AI gamers and gamblers pay money to play and then cash out their winnings, and digital wealth management users have investments and dividends that they may want to withdraw. However, these systems for sending outgoing payments are siloed and slow, often due to over-complicated compliance and regulations.
“Customers might be able to pay-in or top-up their account instantaneously, but then they are left waiting for days to cash out their earnings and winnings via card transfer,” Bootwala noted. “It does not leave good loyalty or a good taste with your end customers.”
It may sound counterintuitive for merchants to expedite the process by which their customers can take money away from them, but 2020 research from YouGov found that 55% of gaming players would switch to a different site if instant payouts were offered, and a significant number would deposit even more money if given assurances that they could access their winnings at will.
“You have a battle going on between, say, the digital wallet players Apple and Google trying to implement incentives in their wallets that displace the merchant,” said Sloane. “The merchant needs to realize that getting instant rewards out – getting instant cash into the hands of their consumers in that incentives battle – is an important step for them.”
Open banking can bring speed and security
Open banking is technology which enables direct connection to customer bank accounts through secure APIs, used either to fetch data about the customer or to make payments on the customer’s behalf. “This is executed with extremely safe bank-level grade security, and with the complete transparency and consent of the customer,” Bootwala clarified.
The technology of open banking has found footing in the U.K. and Europe due to PSD2 standards, regulations which were passed to increase payments innovation. Right now, though, those open- banking payment mechanisms are only available for pay-ins, not pay-outs. TrueLayer is changing all that. “What we at TrueLayer have done,” explained Bootwala, “is we have built on top of these open-banking rails that allow customers to send payments to merchants. We have added functionality to these rails to allow merchants to collect payments as well as pay out faster using the same bank payment rails.”
By using direct bank account information to verify account details, the payout process is simplified. “We have eliminated failed or lost payments, reduced the strain on the customers – and customer support – and also simplified the compliance checks for the businesses,” Bootwala continued. “In return, it has also made the customer experience a lot better.”
Additionally, open banking puts the customer front and center, and therefore makes the customer-to-merchant payments process safer. When the customer pays the merchant money through open banking, it is through a push payment, wherein the customer initiates the transaction (as opposed to a pull payment, where the merchant initiates it). “The issuing bank is involved in the identity of the individual,” said Sloane, and all with customer’s consent. “The bank is giving the merchant the information they need to be able to make the payment happen, and the consumer is directly involved.” This process can help the customer trust that the payment is secure, and that fraud will be reduced.
Where open banking can make an impact
There are many industries that have either already applied open banking to their payments processes or would find great benefits from doing so. “Some of the early industries that have been leaning in to adopt these open-banking payment methods include digital banks, wealthtech, travel, gaming, and very quickly it has also gained traction in e-commerce,” said Bootwala. Open banking has also become popular in any market where card fraud rate is high – as a means of counteracting fraudulent transactions.
According to Bootwala, open banking payments has been growing 550% annually in the U.K., and TrueLayer hopes that by 2030, open banking will be the default way to pay and be paid online. “For merchants, it means a high-converting, low-fraud, and cost-effective payment solution for consumers,” Bootwala concluded. “It’s instant and provides a great user experience.”
