Can Open Banking Save Retail?

In a market historically dominated by the traditional banking giants, the idea that Open Banking could save retail may seem like a far-fetched concept. After all, banks have always concentrated on facilitating transactions, whilst retailers have focused on selling products. However, as explained in this piece by Peter Hewlett, partner, A.T. Kearney, Open Banking means that all UK-regulated banks must now let their customers share their financial data, such as their spending habits and regular payments, with authorised service providers or apps – as long as the consumer gives their permission. For retailers who are struggling to survive in traditional models, this new approach to data-sharing is already inspiring change and leading to new opportunities.

To understand the potential for Open Banking to help save retail, however, we need to look at the trends that are driving the possibility. Much of the opportunity is based on the expectation that customers will have a more positive customer experience throughout the buying process.

A changing landscape

A frictionless payment experience is a huge part of any retail transaction, especially in-store, where the systems and processes around payment can often be quite limited. Although there are a number of new payment options online – from PayPal to Klarna and iDeal – payment methods like these still haven’t caught on for face-to-face transactions.

This is likely to change, however, as new payment schemes begin to capture consumers’ imaginations, create a more seamless user experience, and offer viable low-cost alternatives to credit and debit cards. Open Banking supports new opportunities like these and makes it much easier for new entrants to launch new products and services that will transform the ways certain banking propositions work.

Of course, this all relies on getting the customer’s permission, but if retailers can get the requisite buy-in from consumers, they can move from simply selling goods to controlling the entire payments process. Doing so offers the high level of convenience that online shopping has long enjoyed; and many customers say that they would be happy to share their financial data with third parties if they received benefits in return.

Open Banking offers retailers the opportunity to benefit from this shift, as it gives them the ability to integrate their propositions with their customers’ financial data. As a result, retailers no longer need to run the risk of having a customer’s card details on file, nor do they have to incur the added cost of low-friction payment mechanisms that reduce the number of steps that users must take to complete a purchase. Instead, they can vertically integrate financial services into their offerings without holding the balances themselves.

Relationship building

Open Banking isn’t just about improving the experience for customers though. Retailers can also use this data to support loyalty schemes and targeted marketing to increase sales, boost margins, and improve performance.  

For example, Open Banking could allow retailers to offer credit at the point of sale when a customer is purchasing a big-ticket item. The improved authentication options of Open Banking could allow a customer to provide a retailer with access to their transaction history, so that the retailer can make a better judgement call based on the risks involved. This way, the retailer can decide on the level of authentication required to validate the transaction, again improving the experience and the relationship.

Open Banking is likely to bring its own challenges and won’t be for every retailer, but many will still look to embrace it. Indeed, the largest retailers may want to take full ownership of payments and the checkout process, which will not only give them greater opportunities to build relationships with their shoppers, but also to create a greater lifetime value and additional sales opportunities.  

Open Banking can offer retailers improved payment options for their customers, but its real value will be in the data it harnesses. This data gives retailers the opportunity to create new experiences that weave in an understanding of their customers’ finances, allowing them to get closer to the customer than ever before. And that could ultimately be retail’s saviour.