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Secure pay by bank payments for UK small business

Sakkun Tickoo Sakkun Tickoo - 13th Jun, 2024

Pay by bank is a revolutionary digital payment method that’s set to transform the online shopping experience for both customers and merchants.

Are you a business owner worried about the rising cases of credit card fraud in the United Kingdom? Research data published by Finder on credit card fraud suggests that more than £556 million was lost through credit and debit card transactions in 2022. In addition to the dangers of money laundering, potential cyber-crime risks also pose a threat to customers' and businesses' general identities.

Pay by Bank is a cutting-edge digital payment method that works with the Open Banking system and allows customers to transfer money directly from their bank accounts to the retailer's account. Along with mitigating the associated risks of card-based payment methods, Pay by Bank is leveraging the benefits of Open Banking to reduce transaction costs for online businesses.

Most of the major banks in the UK, like Bank of Scotland, Barclay’s Bank, HSBC Business, Allied Irish Bank, etc., supported by gateways and technology partners like Wonderful, are popularising the adoption of this cardless payment method.

Pay by Bank payments come with several benefits

Cost reduction

You are exposed to multiple intermediaries in conventional payment methods, such as card-based or digital wallets. This results in increased transaction costs, which can affect your long-term profitability. However, with Pay by Bank, you can enjoy a more simplified method and cheaper fees. As an example, the fees associated with credit card transactions can be as high as 3% of the total amount, but with Pay by Bank, you can avoid these costs entirely because it is a direct payment method. Wonderful offers 2,000 monthly transactions for just £19.99 on its Plus plan. The percentage-based fee adds up to a significant amount for high-value transactions through traditional methods. The Pay by Bank model typically eliminates such charges, potentially increasing your earnings from Average Order Value (AOV).

Increased security

Banks implement their own authentication mechanisms for every transaction made through the Pay by Bank mode, thus making it a more secure option. Credit card fraud and chargebacks are eliminated as a result of this direct authentication. Global banking giants like Bank of America believe that Pay by Bank payments safeguard against fraudulent transactions through the use of the account holder's credentials to authenticate the fund transfer.

Augmenting operational efficiency

Merchants gain from improved operations since Pay by Bank simplifies the reconciliation process and eliminates the need to store client payment information. Online businesses can reconcile payments more efficiently, which leads to reduced administrative burdens and the possibility of fewer errors. Furthermore, Pay by Bank uses less data storage space, which results in less infrastructural overhead and a safer cyber environment.

Enhanced customer experience

With reduced chances of fraudulent transactions and a faster checkout experience, customers are more comfortable opting for a cardless payment method like Pay by Bank. Since the cumbersome process of typing in card details and going through multiple layers of verification is eliminated, customers are less likely to abandon their carts—the result is higher conversions.

Challenges of Pay by Bank Payments

We have explored the wide range of benefits that come with the Pay by Bank payment method. However, it’s not without some drawbacks. Let’s look at some of them:

➢     Complex compliances: Regulatory and compliance norms vary from country to country. You must ensure that your Pay by Bank partner is authorised and adhering to regional statutory mandates and legal requirements.

➢     Risk mitigation: Although Pay by Bank minimises some of the risks associated with fraud, it's still necessary to implement effective fraud detection and risk management systems to safeguard against unauthorised transactions and other potential security threats.

➢     New user experiences: Customers familiar with traditional card-based methods may be uncomfortable with the interface initially. Increased awareness and continuous improvement in user interface design are required to provide a better overall experience. However, ithis is typically a “first time only” concern. Industry data indicates that because of the speed, security and simplicity of Pay by Bank, 85-90% of customers will make a subsequent Pay by Bank transaction when given the opportunity to do so.

➢     Integration with existing systems: The technical integration of Pay by Bank solutions with existing systems can be challenging. In order to effectively facilitate direct bank payments, businesses may need to invest in new infrastructure or modify existing systems. Thankfully, Wonderful takes care of this aspect to ensure hassle-free integration with your legacy system.

➢     Interoperability concerns: With multiple banks and payment methods merging on an e-commerce platform, it could be challenging to ensure seamless interoperability. The standards-based approach of Open Banking, the technology which supports Pay by Bank transactions, addresses this issue.

Pay by Bank- the Wonderful way

Harnessing the feature-rich facilities of Open Banking, Wonderful’s Pay by Bank payment solutions provide several benefits for businesses in the UK. Catering to enterprises of all sizes, their scalable services are redefining online transactions and related customer experiences. Here’s what we offer:

Key features:

a)    Instant payments: Business owners value Wonderful’s real-time settlement because it helps them manage their cash flow.

b)    QR code integration: One of the simplest ways to initiate an online payment is through the QR code. You can do this with ease using the Wonderful platform.

c)    Safe payment links: Are you sceptical about clicking on a payment link that appears on your text message, email, or WhatsApp? Wonderful ensures that the payment links they send through their Pay by Bank integrated platform are secure and quick to process and carry the words “Wonderful Payments, an FCA Authorised Payment Institution”.

Pricing Structure:

Wonderful offers an amazing 'Plus' plan that provides 2,000 monthly transactions for £19.99. Transactions outside the bundle are charged at 1p per transaction. Businesses that process large-value transactions would greatly benefit from this flat-rate fee model since it does away with the percentage-based fees that are commonly connected with other payment providers.​

For smaller businesses who may not be looking to integrate with other solutions, Wonderful’s ‘Starter’ plan offers 1,000 monthly transactions at £9.99. You will reap the rewards of an increasing Average Order Value as Wonderful doesn’t charge a percentage of your sales transaction. Use our One app or your merchant dashboard to generate payment links and QR codes to share with your customers.

Wonderful believes in giving back. It is, after all how the business got started. Its ‘Charity’ plan is completely free for UK registered charities. From unlimited transactions to a host of features, such as our One app, which charities could use for face-to-face fundraising, web administration, donation transaction history, Gift Aid report generation and more, it’s an excellent solution for charities.

Compatibility with popular platforms:

Wonderful’s Pay by Bank solution can seamlessly integrate with popular e-commerce platforms like WooComerce and Xero. This interface enables businesses to effectively integrate Pay by Bank into their current e-commerce and accounting systems, easing operations and improving efficiency.​

Technical assistance:

Unclear about any technical aspects of Wonderful? Its tech support team is available for all the assistance that you need. Wonderful provides comprehensive guidance throughout the implementation process and beyond. You can always reach out for any integration issues with their Pay by Bank solution.

How do you merge Pay by Bank into your online portal?

You can easily integrate Wonderful’s Pay by Bank solutions through the following steps:

  1. Verify your account: Businesses need to sign up and verify their accounts with Wonderful.
  2. Integrate with one of Wonderful’s third-party platforms (such as WooCommerce or Xero) or use Wonderful’s API into your existing website or application, with detailed documentation provided to assist your development team.
  3. Start receiving payments: That’s it!

Open Banking propels Pay by Bank adoption rates

The UK has been at the forefront of the adoption of Pay by Bank solutions in Europe. Regulatory initiatives like Payment Services Directive 2 (PSD2) are driving this trend as they mandate open banking practices. The UK's Competition and Markets Authority (CMA) has stepped up by enforcing rules that encourage direct bank payment expansion. Their efforts are creating an inviting space for this type of financial service. Let’s look at some of the statistical insights:

  1. Growing consumer adoption: The Open Banking impact report reveals that 1 in 7 people in the country has adopted the Pay by Bank method for online payments. This is driven by the safety and convenience of Open Banking platforms like Wonderful.
  2. Small businesses are leading the way: Due to its enhanced operational efficiency and cost savings, small businesses are quickly turning to this payment method. About 17% of small enterprises in the UK have joined this payment revolution.
  3. Significant growth in transaction volume: The volume of open banking payments has increased significantly, with 14.5 million transactions recorded in January 2024 alone, representing an 69% increase from the the previous year. There is no sign of a slow-down in the growth. In 2023 there were 130 million open banking payments versus 68 million in 2022, a year-on-year growth of 90%.
  4. The younger generation is the early adopter: Like most technological revolutions, younger consumers are moving towards Pay by Bank. A research published on Tink suggests that about 12% of the population in the age bracket of 18-34 has shown a strong preference for faster and safer modes, like Wonderful’s Pay by Bank platform.

What does the future hold for Pay by Bank?

Technological advancements, regulatory support, and increasing adoption rates showcase a promising future for Pay by Bank. More expansion and use of Pay by Bank solutions are likely in the future as a result of the trend towards digitisation and Open Banking. Some important predictions and elements that will influence Pay by Bank's future are as follows:

★     Technological breakthrough: The two groundbreaking technical evolutions that are set to further augment the Open Banking systems are Artificial Intelligence (AI) and blockchain. Pay by Bank solution providers, in conjunction with banks and financial institutions, are leveraging these technologies to enhance fraud detection, operational efficiency, and customer experience. 

★     Regulatory support: Continued cooperation from regulatory agencies such as the European Commission and the UK's Financial Conduct Authority (FCA) will be critical. Regulations that stimulate competition and innovation in the financial sector are likely to result in increased adoption and enhanced services.

★     Adoption by non-retail sectors:  The retail sector has been the primary adopter of Pay by Bank. However, with increasing use cases, industries such as insurance, utilities, and government services are expected to promote Pay by Bank as a preferred mode of online transactions. The main advantage for large corporations in these sectors is Open Banking’s inherent ability to manage high-volume transactions.

★     Global expansion: While the UK and other European countries have been at the forefront of the Open Banking revolution, at least 60 other jurisdictions are following the UK’s lead to capitalise on the benefits of Open Banking and Pay by Bank technology.

Conclusion

With digitalisation transforming industries like banking and retail on a global scale, online payment systems are set for a major change. The growing acceptance of the Open Banking system has fuelled the growth of Pay by Bank transactions. Among the available options, Pay by Bank is one of the most dependable, time-saving, and cost-effective solutions. In contrast to more conventional forms of payment, this one allows for the direct linking of bank accounts, facilitating secure transactions. Its rising popularity in the UK and its encouraging outlook for the rest of the world highlight its potential to revolutionise payment processing.

FAQs

How secure is Pay by Bank compared to other payment methods?

By initiating direct fund transfers from the buyer’s bank account to the seller’s, Pay by Bank eliminates the risks associated with sharing card details. This significantly reduces the probability of fraudulent transactions and data breaches. Pay by Bank service providers like Wonderful deploy stringent security measures to ensure the safety of businesses and their customers.

 

What types of businesses can benefit from Pay by Bank payments?

Whether its high volume, low value transactions, or the reverse – eliminating the percentage fees and reducing the pence-per-transaction fee so dramatically means the Pay by Bank offers huge cost-saving benefits to most transcation profiles. Wonderful's solution is the optimal choice for organisations seeking to enhance cash flow and optimise costs, as it provides instant settlements and significantly reduced transaction fees.

 

Are there any restrictions on using Pay by Bank?

Open Banking has been around in the UK for several years, but in other territories may not exist or be fairly nascent. If your business receives payments from overseas customers, Pay by Bank should be used alongside more traditional payment rails to ensure the greatest customer choice for payments.

 

What are the typical transaction fees associated with Pay by Bank?

Different payment gateways have different payment models. Wonderful’s ‘Plus’ plan, which provides 2,000 monthly transactions at £19.99 per month, is very competitively priced.

 

Photo by Paul Hanaoka on Unsplash

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