3 Ways Open Banking Accelerates the Growth of e-Commerce Industry
February 17, 2022
The pandemic has accelerated the growth of the e-commerce (electronic commerce) industry from 2020 to 2022. According to a survey conducted by Bank DBS Indonesia, the number of e-commerce customers in Indonesia increased to 66% after the Covid-19 pandemic hit the country. A report by Redseer also stated that Indonesia’s e-commerce Gross Marketing Value (GMV) rose to US$10 billion in the second quarter of 2020.
Nowadays, most people rely on online shopping from online store to fulfill their needs, from B2B groceries to B2C hobbies transacrion. After all, buy and sell through e-commerce has made shopping a more enjoyable and easy experience from anywhere, anytime and can be done by anyone. However, the e-commerce industry needs to level with growing demands from the market to ensure a better shopping experience. Open banking is a solution that can help the e-commerce industry move forward to the next level.
Getting to Know Open Banking
Open banking is an open field that allows customers and businesses to make transactions seamlessly, without a string of unnecessary processes. Merchants and online retailer are accustomed to what we call merchant fees, an additional cost they must pay whenever their customers purchase using a debit or credit card. Now imagine how much money and time are spent on this, considering most people nowadays prefer online shopping and cashless transactions.
The system works similarly to mobile banking. Customers can make payments directly without paying additional costs or inputting any data. All transaction authentications are done directly by customers and their banks without a middleman. In doing so, the merchants are free from any chargebacks.
You have likely used open banking before during your online shopping spree. After all, more businesses have realized the importance of having an open banking system for their growth and longevity. In many countries worldwide, including Indonesia, several banks and financial service providers have supported APIs to enable open banking. But how can open banking transform the already advanced e-commerce industry?
Open Banking Offers More Payment Options to Customers
Is it realistic to have 30+ bank accounts for your business in order to offer an easy experience for your customers? Not so much. Enter open banking, where merchants can accept payments from almost every channel. The open APIs securely connect e-commerce platforms to the customers’ bank accounts to initiate payments that have already been agreed upon by customers prior. Moreover, open banking APIs allow e-commerce platforms to enable alternative payments such as buy now, pay later (BNPL) and e-wallet.
With this flexibility, the e-commerce platform can attract more potential customers, reduce costs, and pull in more online retail as partners. What’s even more enticing is the possibility for an e-commerce platform to develop payment innovation that suits their business needs. It’s a win-win situation for the e-commerce or online marketplaces company, merchants, and customers.
Open Banking Reduces Cart Abandonment
According to Yapily, around 87% of customers admitted to abandoning their items in the shopping cart if they felt the payment process was too complicated or took too long. That’s a massive loss for the merchants and the e-commerce industry. You may take action by giving out coupons, discounts, and promotions. But why bother when a feasible option is available for you to take advantage of?
Open banking offers practicality and efficiency for both business and customers. Customers want something easy and fast, especially when they’re shopping online. They prefer not to spend 2 minutes logging in and entering the account number and the payment amount. Open banking cuts the process and directs customers to make payment based on their preferred method.
Open Banking Prevents Fraud in e-Commerce Industry
According to Statista, it is estimated that the e-commerce industry lost US$20 billion in 2021 due to online payment fraud. As this is a severe concern, open banking can be a long-term solution. Card fraud, one of the most common scams according to Forter, can be eliminated by implementing open banking APIs.
Card fraud happens when someone illegally gains access to one or more credit card numbers. Typically, they obtain these numbers by purchasing card data on the dark web or stealing them directly. Card fraudsters usually make small test purchases to see whether the credit card can be used to make transactions. Once they figure out that the card works, they will make much more expensive purchases.
But you don’t need a card to complete an open banking transaction, which means you won’t encounter any fraudulent transactions by fraudsters using other people’s card details. In turn, this solution also gives customers peace of mind, knowing that their data is safe. And since open banking is an internet-based solution, it is regulated under Bank Indonesia (BI)’s Regulations about Payment Service Providers. BI regulates everything from data, technical standards, to transaction security to provide protection for consumers.
Open banking accelerates the growth of e-Commerce industry by allowing customers and businesses to make transactions seamlessly. The APIs used in open banking provides flexibility for e-Commerce platforms to enable various payment options, offering a better shopping experience to customers. Open banking directs them to make payment based on their preferred method without having to enter the card account number and payment amount. Since there’s no card involved, open banking can help e-commerce platforms prevent card fraud.
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