Adyen and KLM use open banking to skirt payment cards

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Through a partnership with Adyen, Dutch airline KLM is one of the first large merchants to adopt an online payments approach that bypasses payment cards, powered by PSD2's open banking framework.

Consumers may buy airline tickets from KLM directly through their bank’s app or an online banking interface through a new service KLM is launching initially in the U.K., with plans to roll it out elsewhere in Europe later, Adyen said in a Wednesday press release.

The service leverages PSD2’s directive requiring banks to create APIs enabling third parties like Adyen to initiate payments on behalf of customers, using strong authentication.
U.K. consumers buying airfare through KLM may opt to pay directly through their bank account at checkout. Adyen’s technology directs them to their bank’s online website to confirm the payment, using the customer’s preferred authentication method. The process cuts the steps between customers and merchants, reducing risk and processing costs, Adyen said in the release.

“Bank transfers between consumers and merchants are already extremely popular in mainland Europe because they offer greater fraud protection without adding friction to the payment process,” Myles Dawson, Adyen’s U.K. managing director, said in the release.

Initial use cases discussed for open banking included P2P payments and corporate disbursements, but certain merchants envision providing an option for consumers to use this channel for online and even in-store shopping, according to Zilvinas Bareisis, a senior analyst with Celent.

Participating merchants may benefit from lower transaction costs and quick availability of funds, and consumers may see lower risk of declined transactions from the bank API-based approach, Bareisis said. But overall risks of fraud may be an overhang for both consumers and merchants using open-banking approaches for shopping, he cautioned.

“I don’t expect cards to lose a lot of market share" from open banking-powered shopping methods, "although it’s possible that card transactions will see slower growth than they otherwise would have because of these payments,” Bareisis said.

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