Future of Banking and FinTech

by Leon Muis, Chief Business Officer, Yolt Technology Services

Industry View from

Which industries can really benefit from payment initiation services?

Over the past two years, PSD2 and open banking have been rolling out across Europe, bringing with them exciting changes for consumers and businesses alike. The latest developments in PSD2 have opened up even more exciting opportunities with payment initiation services (PIS). These changes in the payments landscape are perhaps most relevant for merchants, who have the potential to benefit greatly where both finance and resource are concerned. But which industries have the most to gain?

PIS: bank transfers on steroids

To be able to answer that, we need to take a close look at what PIS is. At its core, it’s a bank transfer system, albeit a more secure and more user-friendly one. Once a customer decides to complete a purchase, the merchant’s website or app initiates a payment with PIS and shows the customer the sign-in page for their own bank. Once the customer signs in – without having to share sensitive personal information – he or she can complete the payment. Simple, safe, and lightning-fast.

PIS marks a shift in the cost of doing business

The reigning king of online payment methods is, of course, the credit card. But offering PIS can be a great cost-saving alternative for many businesses. Let’s take a look at when that would make sense:

• High-value transactions
Credit cards and many other payment methods charge a percentage of the purchase amount, while PIS charges a fixed fee per transaction. For industries with high-value transactions such as airlines, luxury items and technology and household appliances, PIS is a great cost-saver. The higher the average transaction value, the better. But for anything above £15, PIS is already worth it.

 

• High volume of returns
The internet has completely transformed the way people shop, and merchants in the fashion industry know the pains that come with online clothes shopping. The rise of fast fashion and free returns, coupled with the fact that most customers don’t know how an item will fit, means it’s become commonplace to order two or more sizes of the same item. It’s then up to the merchants to absorb all the costs associated with those returns. Offering PIS can help cut down those costs. Merchants who can convince customers to switch to PIS payments can expect substantial savings for their business, even after accounting for PIS-specific rewards, discounts or incentives.

 

• Relaxed delivery times
When same-day or next-day turnaround is critical, PIS may not be the preferred payment method. Although PIS uses Faster Payments, which means the payment can arrive in a matter of seconds, merchants will still wait until the payment is reconciled before shipping the goods, which usually only happens once a day. Credit cards, in contrast, offer an airtight guarantee, so merchants can start shipping immediately. Luckily, in industries where long delivery times are standard, another day won’t matter. And even where next-day delivery has become commonplace, customers might still be nudged with a little discount.

 

What is the balance of payment methods for your customers? And what role could PIS play in your business model? Now that open banking – and its EU equivalent, PSD2 – have come into full force, the opportunities for merchants are only growing.

Image provided by Yolt

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