Open Banking – How Will It Affect Recurring Payments?

The Rise of Open Banking

The growth of Open Banking has been a slow burner until now, but recently it has become one of the most talked-about innovations within the payments ecosystem. The opportunities presented by this relatively new payment method have been vast, with numerous Fintech companies introducing new and exciting products to the market. Open Banking gives customers more control over their finances and how they manage their accounts, highlighting the benefits of managing subscription payments.

The Surge in Subscription Payments

Subscription payments have become increasingly prevalent with the enormous upsurge in services provided by the likes of Netflix, Amazon Prime, and Spotify. A recent report by the Guardian newspaper in the UK stated that spending on subscription payments grew by 38% year-on-year to £2.9 billion.

Managing Subscriptions with Open Banking

Through the use of Open Banking functionality within their own bank’s mobile application, customers can control their recurring or subscription payments with total ease. With the massive growth in these types of payments, there is a real need for customers to manage their subscriptions, giving them control like never before.

Cancelling a Recurring/Subscription Payment

Traditionally, a customer would need to contact the merchant providing the service, which, depending on the merchant, can be a time-consuming process. Some subscription-based merchants make it easy for customers to cancel subscriptions, but many do not. If this path proves problematic, the customer will then need to contact their bank to cancel the subscription.

There is strong evidence from issuing banks that customers often contact their bank directly without attempting to cancel the recurring payment or subscription with the merchant first. This leads to a significant cost for banks in handling these types of enquiries, with thousands of calls to their call centers each month purely for subscription-type payments.

Recurring Payments and Disputes

Recurring or subscription payments can also result in disputes post-transaction.

• A customer sees a transaction they don’t recognise on their statement, which is likely a forgotten recurring payment. What are they going to do? Call the bank.
• A customer notices a transaction they thought they had previously cancelled. What are they going to do? Call the bank.
• A customer knowingly hasn’t cancelled a transaction with either the merchant or the bank but still wants their money back. Who are they going to call? The bank. This scenario is extremely common, a practice known as friendly fraud or, more accurately, first-party misuse.

All these scenarios could be prevented by the use of Open Banking and subscription management technology. If a customer can easily recognise or be reminded of a recurring payment or subscription within their banking application and manage that payment with no friction, it will prevent them from having to call their bank. This facility will also make a customer less likely to attempt friendly fraud if they can easily cancel a recurring payment before it appears on their statement.

Reducing Recurring Payment Disputes

The additional consequence of this technology would be a reduction in the cancelled recurring payment disputes. Of all the disputes related to card-not-present transactions, 59% relate to recurring payments. Although it utilises the Open Banking pathway, these types of payments are generally processed through the card schemes and therefore disputed through the card schemes using chargeback. If customers can manage their recurring and subscription payments by self-serving on their bank applications, the entire customer journey from first point of contact with their bank through raising a dispute, and the process thereafter, will become unnecessary. This is better for the customer and a considerable cost-saving for the bank.

The Future of Subscription Management

The technology to provide this functionality is available, and there are already partnerships being created between banks and fintech companies that provide this solution for customers. The death knell may well have been sounded for this type of customer dispute. The volumes currently seen will likely be very different in the coming years when the use of Open Banking becomes more globally widespread.