Cards vs Open Banking for SMEs

Leveraging the right payment method can provide SMEs with an opportunity to meet the needs of customers in a digital-first world

2 years ago • 4 min read

Small and medium-sized enterprises (SMEs) have had to endure a rough few years and are being pushed even further with rising inflation, the energy crisis and for some, supply chain issues. The Association of Chartered Certified Accountants (ACCA) and the Corporate Finance Network’s (CFN) SME Recovery Tracker recently found that 25% of SMEs in London alone are predicted to go under during the next year due to these hard economic conditions.  

But what if payments could be used as a tool SMEs could leverage to help with better cash flow, lower transaction fees, to provide much-needed instant settlement, and to deliver higher brand and customer sentiment?  

Leveraging the right payment method can provide SMEs with an opportunity to meet the needs of customers in a digital-first world but more importantly use revolutionary tech advancements in payments as a tool to boost various parts of the business. 

Payments revolution built for SMEs

This revolution in the payments sector comes courtesy of Open Banking, which was set up by the Competition and Markets Authority in 2018 and mandates the top banks in the UK to provide it to their customers. This transformation sees outdated technology and processes replaced with alternative payment methods aimed at seamless journeys that can contribute to the profitability of the businesses.

Account-to-account payments (A2A) methods are powered by Open Banking, which sees customers pay directly from their bank account straight to the merchant. For the business, this means the customer is who they say they are. 

A2A payments cut out traditional intermediates such as cards, which results in lower transaction costs, faster settlement, heightened security, and a superior user experience for customers.

Open Banking in numbers:

  • Went live in 2018 off the back of PSD2 coming into effect.

  • 60% of the UK population will use Open Banking services by September 2023.

  • Global payments made using Open Banking will exceed £940 billion in 2026.

  • Europe will account for over 75% of Open Banking payments users globally in 2026.

  • As of June 2022, there are 6 million regular users of Open Banking in the UK 

Cards vs account-to-account payments

Cards - Transaction costs  

Debit and credit card transaction costs can range between 0.3% to 4% and can affect your bottom line. Deposits on high-value items can also be capped, meaning they can be moved to manual bank transfers, which can be riddled with human error. 

Account-to-Account - Transaction costs  

Businesses can save on transaction fees by using Vyne’s Pay with bank. Research by Yolt found that SME online retailers could save over £19,000 a month in transaction fees by using A2A payment. 

Our recent Open Banking launch with Wix gives SMEs the benefits of lower fees and instant settlement. Wix merchants receive a 30-day free trial after which they are charged a £25 monthly fee with a reduced cost for each transaction. 

Cards - Instant settlement

With credit and debit card transactions, businesses are forced to wait days or even weeks for funds to settle.  This in turn puts pressure on cash flow and supplier management. Business lender Capify’s latest survey found that in Q1 2022, 37% of SMEs in London and South East England cited cash flow as a major concern. 

Account-to-Account - Instant settlement

With A2A payments, funds settle instantly, giving businesses the ability to have an accurate, real-time grip on cash flow and a reduction in chargebacks. 

Cards - Security  

Fraud is a major concern to businesses. Card-not-present fraud (CNP) is a type of fraud which takes place during online transactions when the person or the card is not physically present.  UK Finance’s Fraud the Facts 2021  reported that CNP fraud added up to 85% of all card fraud in 2021.

Account-to-Account - Security  

A2A payments use strong customer authentication, which means customers use authentication on their own mobile device and their banks' own security management to complete each purchase.  This means the purchaser is who they say they are. No card details or information are ever shared. 

Cards - Customer experience  

Card payments are fraught with friction. From locating your card to entering the 16 digit code, card payment journeys are outdated and can result in abandoned carts. Almost 1 in 5 of higher income buyers abandon a basket at least once a week.

Account-to-Account - Customer experience  

Vyne’s Pay with bank payment flows are seamless allowing customers to pay in as little as three taps. Merchants are able to increase their customer conversion and provide customers the option to pay online (mobile or desktop), via QR codes, and instalment payment links. 

Now more than ever, SMEs have the power to choose payment methods that can either boost or hinder their businesses. Alternative payment methods such as A2A payments powered by Open Banking, put the power back into the hands of SMEs with a plethora of wide ranging benefits from customer sentiment to cost saving and lower transaction fees.