+35%: this is the evolution of the number of bank transfers between 2010 and 2018 in France, reaching 4,037.4 million transfers. However, this method of payment is still in the minority when it comes to paying for online purchases: it is only used in 4% of cases. One of the explanations for this low use is the complexity of the purchasing process when customers choose bank transfers, which is far from the fluid experience desired by consumers today.
The Open Banking bank transfer is revolutionising this market, for e-commerce, but not only. What is the Open Banking bank transfer payment? How does it work and what are its use cases? You will find all the answers in our article.
1/ The basics of bank transfers
1.1. Bank transfer, SEPA and SWIFT
Before we look at the initiation of payment by Open Banking transfer, let’s look at how traditional bank transfers work.
How do bank transfers work?
A bank transfer is a transfer of funds from one bank account to another. A payer, the holder of the account to be debited, will send an order for the amount of the payment to be debited from his bank account and sent to the account of the beneficiary of the transfer, whether an individual or a company. A bank transfer is a fully electronic transfer of funds.
Pour que le système bancaire puisse identifier le bénéficiaire du virement, le donneur d’ordre doit indiquer 2 éléments :
– The recipient’s IBAN. IBAN stands for International Banking Account Number, which is the unique code that identifies a bank account internationally.
– The BIC, for Bank Identifier Code, which identifies the bank of the recipient of the transfer.
What are the characteristics of the bank transfer?
Bank transfers are usually free of charge when done online, at least for individuals. There are exceptions, especially for transfers abroad.
A bank transfer has several characteristics:
What are the most commonly used transfer systems?
Since January 2008, the European Union has adopted a Europe-wide harmonisation of bank transfers. Bank transfers are treated in the same way whether they are domestic or to another European country. This single payment framework is called SEPA, for Single European Payments Area.
What about bank transfers outside Europe? You will probably have seen the term “outside the SEPA zone” on your bank details. The most widely used transfer system for international transfers is called SWIFT (Society for Worldwide Interbank Financial Telecommunication). This network allows you to send money anywhere in the world.
– It is internal, i.e. between two accounts within the same bank, or external, between two accounts in different banks.
– It is domestic, i.e. to an account on the national, European or international market.
– It is one-off, carried out only once, or recurrent, for the payment of rent for example.
1.2. Instant payment, an innovation in the world of bank transfers
SEPA bank transfers work well but take 24 to 48 hours to be credited to the beneficiaries’ accounts. This is why the European Central Bank (ECB) introduced instant payment a few years ago, still called instant payment or instant transfer.
What is it? Available in France since 2018, it is a SEPA transfer, in euros. Its particularity: the amount is transferred without delay to the beneficiary’s account, in less than 10 seconds to be precise. This real-time money transfer service can be used 24 hours a day, 365 days a year (in banks that offer the option).
This instant payment can be used between individuals, but also between companies, or to pay a merchant. It is no longer necessary to fill in the recipient’s IBAN: a telephone number or a QR code scan can suffice to send the money.
This new payment method was introduced in 2016. Instant payment represents 7% of European bank transfers to date. According to the ECB, 23% of total payments in Europe by 2023 could be instant transfers.
2/ Open Banking reinvents the bank transfer
Apart from instant payment, the bank transfer has changed little since its creation. As mentioned in the introduction, it is a payment method that is still very much in the minority in France, representing only 4% of all payment flows. However, the European Commission is keen to push for its adoption, so that it becomes an alternative to the bank card. Open Banking brings a major innovation to the traditional bank transfer thanks to payment initiation and can contribute to its democratisation.
2.1. What is the Open Banking transfer payment?
The Open Banking Transfer is the initiation of payment by transfer, which is done within the SEPA network. This means that a SEPA transfer instruction is initiated by the payer. This is pre-filled with the IBAN of the beneficiary of the transfer. The transfer order is received by the payer’s bank via an Open Banking API and the funds are transferred to the recipient’s account.
The main difference with the classic bank transfer? The transfer instruction is seamlessly integrated into the platform used by the payer, without the need to log on to the bank’s website.
This payment method is governed by the same rules as traditional bank transfers, i.e. the same amount limits, similar execution time and the same protections and guarantees.
2.2. What are the advantages of paying by Open Banking transfer?
Payment by Open Banking transfer is therefore an innovation to the traditional bank transfer. It benefits from the advantages specific to transfers: high ceilings, no expiry date to be filled in, irrevocable and secure transaction, competitive rate, evolution towards instantaneity.
In addition, there are advantages specific to payment by Open Banking transfer:
– Improved user experience: the user experience is improved because there is no longer a need to leave the payment path to enter the transfer order. All the user’s actions are done within the same interface.
– Smooth and fast payment flow: the transfer is completed in just a few clicks. As the IBAN is pre-filled, there is no need to register it in the list of trusted beneficiaries before sending the payment order. The risk of error during input is also limited.
– Automated movement reconciliation: internal movement reconciliation for the creditor is automated through a dashboard or integration with the internal systems of the client companies.
2.3 What are the use cases of the Open Banking transfer payment?
How and by whom is this payment method used? The use cases are numerous.
Joan Burkovic, CEO of Bridge powered by Bankin’ explains:
This payment method improves the experience of both companies and individuals. Let’s take a few examples:
– Pay your supplier invoices in one click: the Open Banking transfer facilitates the payment of supplier invoices. If your debtor company has management software equipped with the Open Banking transfer solution, the payment is made directly in your interface. You can even make multiple transfers to pay all your supplier invoices at the same time. This is what Pennylane offers, thanks to the Bridge Open Banking API powered by Bankin’.
– Pay your team’s salaries with ease: in the same way, it becomes simple to pay your team’s salaries, directly from your HR software. In the same way as for supplier invoices, you select all the people who are to receive their salaries, the IBANs and amounts are pre-filled and you can send the transfer order in a few clicks. An innovation that Payfit leverages for its customers through the Bridge DSP2 API Powered by Bankin’.
– Improve the customer experience on your e-commerce site: offering a variety of payment methods is key for an e-commerce site. It allows each customer to select their preferred payment method to pay for their purchases. The Open Banking payment initiation may well become their favourite because of its simplicity: you add this secure and reliable payment method to your checkout process with ease. The user pays in a few clicks, without having to fill in the IBAN or log in to another site. They remain in your interface throughout the payment process.
We have mentioned three examples, but there are many more applications for payment by Open Banking transfer. This payment method is reliable, secure and simplifies the payment process.
If bank transfers have not evolved much until now, Open Banking transfer payments are a major innovation. A turning point not to be missed, whether you are a company wishing to improve the experience of your internal teams or a service provider wishing to offer this payment method to your customers. Enter the era of banking innovation!