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Open banking payments can accelerate the adoption of crypto assets

More and more people are willing to jump on the cryptocurrency train, but many people do not complete the purchase process due to their complexity. In this context, open banking is a step forward in its adoption.

Crypto assets are no longer just for adventure seekers and thrill seekers. Despite this, the industry still has to overcome some challenges to consolidate like a real trend, because ‘getting on board’ is not as easy as it could be. To buy cryptocurrencies, which is known as on ramping, most platforms only accept card payments or manual bank transfers.

Card payment is more complicated and prone to fraud, not to mention costly for a platform. Also, these payments may take Up to five days to settle. In the meantime, the platform might find that the price of the currency has risen, leaving it without recourse.

On the other hand, manual bank transfers are more secure and funds clear faster, but the payment experience is poor and difficult to scale.

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Open banking enters the scene

The problem is that the crypto market has been forced to adopt the prevailing payment methods, such as cards, to allow customers to buy or sell, but these are methods that were designed to transact in person.

The UK has so far led the adoption of open bankinga payment infrastructure created for the digital world, and much of Europe, including Spain, is close behind.

Open banking payments, which are not conditioned by the previous model, are faster and more convenient for users, give them greater protection against fraud and are less expensive for businesses. As crypto investors become more familiar with the benefits of open banking, they will seek out platforms that offer it. Those that don’t could be left behind.

This trend is not exclusive to crypto-asset exchanges, pointing to a deeper and more sustainable shift in consumer preferences. Open banking is rapidly being adopted in other markets, primarily in e-commerce and investment. Among TrueLayer customers, we’re seeing around two-thirds of end users choose open banking, even when they can also choose between Apple Pay and Google Pay.

everybody wins

Two reasons for this impressive uptake are trust and process simplification. With open banking, when someone comes to make a payment, you are redirected in the payment gateway to the website of your bank – an environment you’ll trust more than a third party – and you’re automatically returned to the previous screen.

The authentication process is what greatly facilitates the process. In Europe, most payments are subject to strong client authentication protocols (SCA) to improve security, which can add significant friction to the experience, often requiring consumers to confirm their identity in multiple ways. But with open banking, the customer confirms his identity through his bank’s app with his fingerprint or through facial recognition. This aligns with the user experience gold standard set by Apple Pay and Google Pay and is also SCA compliant.

Allowing customers to pay the way they want is not the only advantage for crypto exchange platforms. With open bank payments (and unlike cards) settlement is immediate. This means two things. First, an investor’s money can be immediately put to work. And secondly, it means that platforms no longer need to provide a pre-funding service (i.e. buying cryptocurrencies in anticipation of receiving money from their clients), thus significantly reducing their risk of losing liquidity.

The other advantage for crypto assets is the efficiency. When it comes to processing manual bank transfers, platforms need verification by a person on the back-end, as well as enough customer service staff to handle erroneous transfers, which occur when customers enter data incorrectly. . With open banking payments, the information is pre-populated, thus avoiding these types of potential errors.

Costs are also reduced. Benoit Marzouk, CEO of Bitcoin Point, estimates that an open banking payment is 70-80% cheaper to process than cards: “Using open banking instead of cards allows us to maintain a very competitive rate.”

No more ‘shared secrets’

Taking a look at how an open banking payment works illustrates its superior security credentials. This system uses one-time access tokens and an API industry standard (known as FAPI – Financial-grade API) to connect the payer with their bank, authorize them and their transaction amount, and transfer the funds. it is intrinsically safer than cards, since no information is shared. Unlike card payments, the customer does not have to send his bank details and personal information over the Internet. With open banking there are no longer ‘shared secrets’.

The security it’s also enhanced because the customer connects directly to their bank, which means authentication is built in from the start.

This also helps to comply with regulation. Depending on the jurisdiction in which they operate, platforms will have to comply with a number of laws, including AML (Anti-Money Laundering) and KYC (Know Your Customer). Although open banking does not eradicate all possibility of fraud, it makes it easier for exchange entities to prove the origin of the funds that reach the platform.

In turn, this should incentivize more banks to allow open banking payments to trusted crypto platforms. Those banks that be more restrictive with transfers from crypto asset companies they may end up losing market share.

increasing speed

Ultimately, banks will be driven by customer demand. Card payments and bank transfers may still be the most popular way to transfer funds to crypto asset markets for now, but this will change.

As the benefits of open banking payments continue to trickle down, we will see increased acceptance among operators and crypto asset platforms. And all parties will look for more ways for open banking to support them, such as withdrawing money from the platform into a bank account.

In fact, in established open banking markets, there now seems to be a real push for adoption.

Matt Parish, Product Manager at TrueLayer.

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