Open Banking is reshaping payments at an impressive pace. In fact, it was recently reported that Open Banking payments are growing at a rate of 500% year-on-year in the UK with 26 million transactions made across 2021 and five million in May 2022 alone.
Vyne and Pendragon PLC recently launched the very first use of in-dealership Open Banking payments, enabling the sector to benefit from reduced costs, instant experiences and increased security.
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Reduced costs
Card payments have been a thorn in the side of the automotive industry for decades. Ever-increasing fees are hindering the industry’s growth during the current economic slowdown and beyond. Automotive dealers are understandably busy focusing their efforts on cutting costs to maintain cash flow – Open Banking can help do just that.
Open Banking powered account-to-account payments allow dealers to bypass the card networks entirely meaning transaction costs are dramatically reduced. Instead, the payment goes instantly from the consumer’s bank account to the merchant’s, enabling huge cost savings of anywhere between 60 to 80% on transaction fees.
Instant experiences
Manual bank transfers are prone to errors and offer clunky customer experiences. Account-to-account payments settle in real-time and can be completed on a consumer’s smartphone in as little as three taps with no card details in sight. This streamlines the user experience, making them more likely to make a purchase which, in turn, increases conversion rates for dealers. For example, last year I was in the process of purchasing a new car. The dealer didn’t accept cards because of the associated high cost so I had to log into my online banking and make two separate transfers to send the dealer money. Believe me, when I say the wait for confirmation that the funds arrived was agonising, a mistyped reference or account number is all it takes. This equated to a slow, bad customer experience. What the dealer and I needed was a fast, instant transaction.
These instant experiences also enhance existing automotive processes such as payouts for vehicle purchases. When a dealership buys a car from a customer, they can ensure the funds arrive in the customer’s account instantly, no longer waiting days for the funds to arrive; this alleviates customer support queries and any manual errors. Another example is ‘deposit and leave’. In dealerships, payment links can be sent to customers to make deposit payments that land in dealerships’ accounts in seconds, so they can leave with the car the same day. Open Banking also has the potential to enhance online payment experiences. By adding an Open Banking payment option to a website, customers can make a deposit, and pay for services and parts in a matter of seconds.
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By GlobalDataIncreased security
Due to the high transaction values associated with automotive payments, the sector is, unfortunately, susceptible to fraud. Since the Covid-19 pandemic triggered an increase in digital shopping, including for vehicles, fraudsters have been using fake documents to acquire, place deposits and steal vehicles.
Open Banking eliminates the need for traditional card rails by enabling merchants to push payments directly from a customer’s bank account. This makes payments more secure, by ensuring the purchaser is who they say they are. Open Banking payments require the consumer’s approval in their banking app with biometric authentication, eliminating fraudulent payments.
The future of automotive payments
The introduction of in-dealership Open Banking, soon to be followed by online, is a huge turning point for the sector.
With automotive solution services such as the Pinewood Dealer Management System, Automotive Transformation Group and Purchase Direct already following suit, it’s clear that Open Banking powered account-to-account payments are set to be a dominant form of payment in car retailing within the decade.
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