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Open banking is not just for fintechs

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Last editedMay 20232 min read

Embarking on a payments innovation like open banking can be daunting for non-financial services people. In this guest blog, Cuckoo's Alexander Fenton explains how the benefits offered by open banking make it well worth investigating.

Subscription businesses – and especially if they’re start-ups – need instant cashflow and minimal missed customer payments or cancelled direct debit mandates. Our experience at Cuckoo has shown that open banking offers all this and more, making it ideal for business of all types – not just fintechs.

It can, however, be somewhat opaque to non-financial services experts (like me!). But the benefits it offers make it well worth investigating - and I’m glad we persevered.

Doing more with less

Cuckoo is a challenger broadband provider, taking on the big boys of the industry with a more customer focussed approach. By offering better lead times on connections and higher quality service, we look at it as championing the broadband consumer in the UK.

Like every start-up, we’re always looking to do more with less, which is how we came to work with open banking for payments. Our earliest service offering was a one-month rolling contract for a £60 set-up fee. Because we have to send a physical product out to customers (a router) there was a risk that if payment didn’t clear or a mandate was cancelled we would be left shouldering that cost, and that of shipping.

We needed something faster than direct debits. Something that was, ideally, immediate. That's when we started looking at instant bank payments powered by open banking, which meant we could ship out everything the customer needs for their broadband connection, while covering our costs and improving cashflow.

Benefits beyond payments

In the same flow, our customers can make the initial open banking instant payment we need to get them set up and create a direct debit mandate for their ongoing subscription. This smoother experience makes us more nimble than the competition, which tends to rely on a combination of credit/debit card and direct debit. 

We’ve also experienced unexpected benefits in the shape of fraud prevention. That’s because having access to customers’ transaction data through the open banking APIs lets us see whether there’s any behaviours indicative of fraud, like setting up and then cancelling direct debit mandates. After we’d set up Instant Bank Pay our rate of cancelled mandates fell dramatically. This not only saves us time and money on credit control and chasing debts, it also makes our cashflow more secure. 

Finally, because open banking transactions are initiated via customers’ banking apps, this helps lend us additional legitimacy in customers’ eyes and builds vital trust. We’re not a national brand – yet! – so this is all part of building up the Cuckoo experience.

It’s a journey

You can probably tell by now that we’re fully converted on the benefits of open banking. But getting here was far from an overnight epiphany.

It’s been a journey on which, as we’ve dug deeper, we’ve graduated from the basics and found other applications we hadn’t originally considered (like fraud detection, as previously mentioned).

And it took a lot of self-led research. That in itself can be daunting, because you’re often left to your own devices to put the information together. It’s easy to be overwhelmed by acronyms – get ready for an avalanche of APIs, TPPs, PISs – but the benefits make it worthwhile. 

I would definitely recommend the open banking website as the single most useful resource, but the best advice I could give is to find someone with experience of the financial sector and lean into their advice. The people at our payments services provider, GoCardless, helped us a lot in that regard, though it could be an individual – there are a lot of open banking evangelists about.

Open banking is only just getting going

Open banking payments and the associated data offer tremendous value for a low price. For subscription businesses in particular there are huge benefits, around creating a seamless customer experience, reducing your risk of fraud and cancelled mandates and, ultimately, improving cashflow.

Embarking on a payments innovation, like open banking, can be daunting for non-financial services people, but that makes the journey all the more rewarding, solving problems and learning new ways to deliver greater value for your business and your customers.

Find an expert partner or third-party partner to guide you through the opportunities and challenges, if you can. And strap in for a world of innovation, such as Variable Recurring Payments (VRPs - another acronym for you), because open banking has only really gotten started. And it’s only going to get better from here on out.

Over 85,000 businesses use GoCardless to get paid on time. Learn more about how you can improve payment processing at your business today.

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