Is Open Banking the solution to the rise in payment fraud?

According to a report called “The Future of Payments 2022”, published by UK-based Finextra Research, some 24 million people in more than 60 countries have adopted open banking.

“Regardless of whether open banking has been driven by regulation, market players, maturity status or approach taken, open banking is a global phenomenon,” said Liliana Fratini Passi, CEO of cross-border digital payment services company CBI.

He said in the report that open banking has fostered digitalization, benefiting new collaborative ecosystems, where “every player can contribute to sustainable circular economic growth and value creation, through improved services, functionalities security and interoperability”.

Passi noted that in a rapidly changing market, with increased competition and blurring industry boundaries, open banking is a “win-win” scenario and an “inevitable first step towards open finance.”

Current Trends in Banking and Payments

According to Passi, the global payments landscape has changed dramatically in recent years, with consumers turning to digital solutions.

Due to increased consumer awareness, trust and demands for digital payments, the banking and payments industry has also transformed to meet the needs.

However, some startup issues remain. Siamac Rezaiezadeh, director of product marketing at online payment processing company GoCardless, said: “Despite all efforts, current methods of combating fraud are not delivering the expected results.”

He added that these days, “companies have had to choose between payment solutions that cost more, provide low ROI, or add friction to a customer’s payment experience.”

Rezaiezadeh hailed the Direct Debit payment mechanism as a “great payment method for recurring revenue cases.”

He said “the switch from card to bank payment has helped companies reduce churn and improve cash flow.” However, direct debit is not without risks, Rezaiezadeh added.

What role can open banking play in the fight against payment fraud?

According to Rezaiezadeh, open banking APIs (application protocol interface) provide a gateway to untapped data, which is “powerful when combined with interbank payments”.

“Verified identity information, current and historical bank account balances, and transactional behavior can now be integrated into risk models to provide much more accurate risk profiling,” he added.

The next logical question is whether companies should use open banking technology to verify bank details. According to Rezaiezadeh, “Put simply – yes. Rarely do businesses lack the ambition to grow, and without the right payment strategy in place early on, downsides become problems. »

He added that verifying bank accounts would alleviate “current fraud pressures. But there is more than one type of fraud that businesses need to manage and minimize.

The Future of Open Banking in Payment Fraud Prevention

Regarding the future of open banking, Rezaiezadeh said the next step is to explore how open banking can be combined with “payment data not only to verify accounts, but also to predict at advance if a payer is likely to be fraudulent, to monitor suspicious activity and to challenge unfair chargeback activity as well.

“This type of innovation doesn’t happen overnight, but with fraud currently costing the global economy over $5 trillion each year, it will be worth the wait,” Rezaiezadeh added.

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