Open banking transfers, a modern payment method, are transforming the collection process for French businesses. Fast, secure, and inexpensive, this type of transfer is from one account to another, directly from the customer’s bank, simplifying transactions and offering businesses numerous benefits.

This article addresses open banking transfers, how they work, and the many advantages these online transactions offer.

What’s in this article?

• What is an open banking transfer?
  
• Regulations applicable to open banking transfers
  
• How open banking transfers work
  
• Advantages of open banking transfers
  
• When to use open banking transfers
  
• How Stripe Financial Connections can help
  

What is an open banking transfer?

An open banking transfer, or payment initiation by transfer, is a method of payment from one account to another. It allows a customer to settle a transaction with a supplier using a bank transfer order that’s prepopulated with the required payment information using the protocols of an application programming interface (API).

More generally, open banking is a financial services model that allows third-party actors (e.g., fintech companies, software developers) to use APIs to access customer data found in traditional banking systems. These APIs are the rules and tools that allow various software components (e.g., operating systems, libraries) to communicate and share information with each other quickly and securely.

What is the difference between a traditional transfer and an open banking transfer?

An open banking transfer is initiated automatically, without any action required from the customer, using a secure bank interface. A standard SEPA transfer requires the customer to take manual action, such as filling in the recipient’s details and the transaction amount.

Regulations applicable to open banking transfers

In France, open banking transfers are subject to strict regulatory oversight, primarily stemming from the PSD2 directive (Directive 2015/2366). The governing regulatory framework includes technical regulations and oversight by the Prudential Supervision and Resolution Authority (Autorité de contrôle prudentiel et de résolution, ACPR) and the Bank of France (Banque de France).

How open banking transfers work

In an open banking transfer, the payment is initiated automatically by a supplier from their customer’s bank account via a secure API interface provided by an approved service provider. This means that it’s the supplier who issues the payment order to the customer.

To make payment using an open banking transfer, the customer must take two simple steps:

• Select the payment method: On the invoice, checkout page, or payment link (sent by email, SMS, or QR code), the customer chooses to pay by bank transfer.
  
• Validate the transaction: The customer is then redirected to a secure interface where they select their bank and log in to their personal account. The information required for payment—transaction amount, recipient’s IBAN, and invoice reference—is prepopulated, so the customer simply needs to verify it and validate payment.
  

Once the customer has finalized the transaction, the supplier receives confirmation that payment has been initiated and the funds are promptly transferred to the supplier’s bank account.

Advantages of open banking transfers

Open banking transfers offer several advantages for both French businesses and customers. Higher purchasing limits and faster payments help businesses improve conversion rates. Customers benefit from efficient and secure checkout experiences.

For French businesses, open banking transfers offer the following advantages:

• Reduced costs: Card payments include various fees and commissions that are either fixed or based on a percentage of amounts or volumes. In contrast, open banking transfers typically have lower, fixed fees, allowing businesses to significantly reduce their collection costs.
  
• Improved management of high-value shopping carts: Open banking transfers often have higher limits than card payments, and are renewed daily rather than monthly, making it possible to complete large purchases and avoid fees proportional to those amounts.
  
• Faster payments: Open banking transfers trigger payment immediately, leading to an instant influx of funds and strategic cash flow optimization.
  
• Diversified payment methods: This type of transfer allows businesses to diversify their collection channels with an alternative to payment by cash, card, or digital wallet.
  
• Fewer errors: Open banking transfers minimize the risk of payment errors, as essential information (recipient’s IBAN, invoice reference, and transaction amount) is prefilled, reducing the risk of discrepancies or the need for dunning.
  
• Reduced risk of dispute: Once a transfer has been validated by the payer, it is final. This limits the risk of bad-faith claims and helps prevent chargebacks, maintaining a business’s financial flow.
  

This type of bank transfer also offers several advantages to customers:

• Efficiency: For customers, the payment process is faster and frictionless since they don’t need to enter their bank details manually.
  
• Privacy: The payer doesn’t need to share bank or card details with the recipient, increasing privacy.
  
• Security: Although the recipient initiates payment, the payer must validate the transaction on their banking platform using strong authentication, which guarantees greater security.
  

When to use open banking transfers

Open banking transfers are a payment solution that is well-suited to physical or online businesses involved in the following:

• B2B transactions: Open banking transfers result in immediate, frictionless settlement and reduce the risk of nonpayment.
  
• High-value shopping carts: This type of transfer can reduce the fees typically applied to high-value card transactions.
  
• Need to optimize cash flow: Open banking transfer payments are fast and accelerate collections. This is a good fit for businesses experiencing rapid growth and limited liquidity, or those looking to reduce working capital needs.
  
• Need to reduce manual processes: Open banking transfers automate payment processes and ensure immediate settlement. This helps reduce errors and simplify invoicing and collection operations.
  

How Stripe Financial Connections can help

Stripe Financial Connections is a set of application programming interfaces (APIs) that allows you to securely connect to your customers’ bank accounts and retrieve their financial data, enabling you to build innovative financial products and services.

Financial Connections can help you:

• Simplify onboarding: Offer a seamless, instant bank account verification process that does not require manual identity and account verification.

• Access rich financial data: Retrieve comprehensive information about your customers’ bank accounts, including balances, transactions, and account details.

• Automate recurring payments: Enable your customers to securely link their bank accounts for recurring payments, improving payment success rates.

• Enhance risk management: Analyze customers’ financial data to make more informed decisions about credit, lending, and other financial products.

• Comply with regulations: Financial Connections helps you meet Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements.

• Innovate with confidence: Build new financial products and services on top of the secure, reliable Financial Connections infrastructure.

Learn more about Financial Connections, or get started today.