Open banking gives Amex a way to grow beyond credit cards in Europe

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American Express is expanding into the fast-growing European market for open banking-based payment initiation services with its Pay with Bank transfer platform.

The New York-based card network is leveraging the opportunity afforded by PSD2 and consumer demand to add bank account-based e-payments to its credit card offerings and to boost relationships with consumers and merchants in Europe.

Unlike Mastercard and Visa, which were set up by banks, Amex has rarely offered debit cards, and has a minority share of the European credit card market. According to Aite Group senior analyst Ron van Wezel, Amex accounts for only 4% in value and 1.5% in volume of total European credit card transactions.

However, Amex is seeing an opportunity to enlarge its market share in Europe due to current U.K. and European payments regulations, the popularity of online payments from bank accounts in Europe, and the availability of open banking APIs.

Payment initiation services providers are licensed under the U.K.’s Open Banking and the EU’s PSD2 regulations to use open banking APIs for accessing customers’ bank accounts, subject to consent, for the purpose of making e-payments. Amex is using open banking APIs from U.K.-based fintech Yapily to integrate its Pay with Bank transfer service with European banks’ online and mobile banking platforms.

Online bank account-based payments are attractive to consumers who prefer not to use credit cards. In 2019, online banking-based e-transfers to merchants accounted for 16.3% of EMEA e-commerce payments, according to WorldPay’s Global Payments Report. Debit cards were used for 18.2% of e-commerce payments in EMEA in 2019, compared to 19.7% for credit cards, WorldPay estimates.The U.K. has seen significant growth in open banking payments during the lockdown, according to U.K.-based open banking API vendor TrueLayer. The company recorded an 832% increase in consumers using its payment initiation platform to pay for online purchases during March-July 2020 compared to the previous three months. TrueLayer accounts for over half the U.K. payment initiation market, according to Shefali Roy, its chief operating officer and chief commercial officer.

Amex wants to offer consumers a choice of payment methods and hopes Pay with Bank transfer will appeal particularly to consumers currently paying with debit cards or bank accounts, according to Dan Edelman, Amex’s vice president and general manager for U.K. global merchant services.

“Yapily’s APIs will be integrated into Pay with Bank transfer beginning in September, enabling merchants to use Pay with Bank transfer to accept payment from banks across Europe,” Edelman said.

Yapily’s CEO Stefano Vaccino said that Amex and Yapily plan to roll out Pay with Bank transfer to nine European countries within the next two months, with a further nine countries being added in early 2021. Currently, Yapily has API integrations with around 500 European banks.

Amex brings its established relationships with European merchants and the strength of its brand to the partnership.

“The significance of our partnership with Amex is that this is the first time an open banking payment service is being rolled out to a large number of merchants of global scale, reaching millions of users,” Vaccino said. “Because of its merchant relationships, Amex has the ability to deploy Pay with Bank transfer very quickly compared to smaller payment initiation service providers lacking these relationships.”

Amex Pay with Bank transfer, launched with a number of U.K. merchants in late 2019, is available to all consumers, whether or not they are Amex customers, Edelman said. In the U.K., the service connects with all major checking account providers including Santander, NatWest, HSBC, Lloyds Banking Group and Barclays, plus digital banks such as Monzo.

“Pay with Bank transfer is being offered to all sizes of merchants, and it could also be used for face-to-face payments,” Edelman said. U.K. merchants supporting Pay with Bank transfer include JustGiving, Hays Travel, Lancaster University, Arsenal Football Club, Royal Lancaster London Hotel and Boodles.

“JustGiving were the first giving platform to implement Pay with Bank transfer, and we’ve been impressed by the seamless integration and the uptake from our donors,” said Oliver Shaw-Latimer, global fintech executive at JustGiving UK.

Consumers click on the Pay with Bank transfer button on the merchant’s payment page and select the bank they wish to pay from. They are automatically redirected to their bank’s website or mobile app to authenticate themselves and approve the payment. If the bank allows the use of biometric authentication such as Face ID, the customer doesn’t need to enter bank log-in information.

“Amex’s partnership with Yapily should help Amex connect to European and U.K. banks, and improve the customer experience by incorporating biometric authentication and reducing the need for redirecting to bank websites,” said Zil Bareisis, senior analyst at Celent.

Vaccino said the service won’t erode Amex’s current credit card products, because people who need credit, will continue to require credit. “But people who want to use debit cards and, in the past, would have paid with Visa and Mastercard debit cards, now have an alternative, cheaper solution,” he said.

Offering Pay with Bank Transfer could help Amex grow its brand awareness among consumers and potentially win more cardmembers, Vaccino said. “Because Visa and Mastercard have debit card products, they won’t want their own open banking platforms to erode their debit market share, so they may not push open banking as much as Amex,” he said.

Amex doesn’t offer the fraud and chargeback guarantees enjoyed by its credit cardholders to users of Pay with Bank transfer. However, PSD2 requires banks to provide protection and compensation for fraud in open payments. Also, online retailers realize the huge importance of positive customer reviews and ratings and the need to provide good customer service in order to avoid chargebacks.

Yapily estimates that, by switching to open banking payments from card payments, U.K. e-commerce merchants could save £74.04 million a year in processing fees. It says U.K. e-commerce businesses process an average of 10 million transactions a month, with an average value of £67 each. With a typical card network fee rate of 1% per year, e-merchants are paying £80.4 million annually to acquirers, but, if they processed their payments through Open Banking, they would pay just £6.36 million a year.

Merchants using Pay with Bank transfer have lower fraud risk because they don’t see or store customers’ payment credentials, Edelman said. They are also able to comply with the requirement for two-factor authentication mandated by PSD2’s Secure Customer Authentication regulations, which were introduced in September 2019.

Amex’s partnership with Yapily follows partnerships announced last year by Visa and Mastercard with open banking technology providers. Visa invested in TrueLayer, while Mastercard partnered with U.K.-based open banking API vendor Token.io and U.K.-based regtech Konsentus.

Mastercard has been rolling out its Pay by Bank service to U.K. merchants, leveraging Britain’s Faster Payments scheme. However, the Mastercard service doesn’t currently use open banking APIs, and has seen slow progress in adoption by banks and merchants.

Amex Pay with Bank transfer will compete with European open banking-based payments initiation services from companies such as Trustly, Modulr and Klarna Sofort.

The Amex service faces a challenge from long-established bank account e-payment services, which use proprietary (not open banking) APIs, such as Dutch bank-centric scheme iDeal and MyBank, a pan-European scheme operated by EBA Clearing. iDeal accounts for 60% of all e-commerce payments in the Netherlands, according to Aite Group’s van Wezel, while MyBank processed €15 billion in transactions in 2019.

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