Open banking: transforming payments in the automotive industry
How open banking can support the automotive industry
The automotive sector has embraced significant technological innovations in recent years. Digital showrooms, augmented reality, and self-driving technology have reshaped how we interact with cars, while the growth of electric vehicles (EVs) continues to redefine sustainability in transportation. Despite these changes, one area has been left behind: payment processes.
Traditional car-buying methods often involve lengthy and cumbersome checks and, sometimes, even payment options, which might come with high processing fees and potential delays.
These outdated systems contrast sharply with the seamless and efficient technologies now embedded in modern cars. That’s where open banking comes in; it can simplify checks and even payments, while adopting the digital-first approach of today’s automotive market.
By leveraging open banking, dealerships can access updated and relevant data, enhancing the customer experience and improving operational efficiency.
How open banking aligns with automotive industry needs
Open banking is revolutionizing the way businesses manage checks and payments by enabling secure, real-time sharing of financial data between banks and authorized third parties. By bypassing traditional payment networks, open banking simplifies transactions, offering cost-effective and instant solutions that are tailored to the needs of both businesses and consumers.
For the automotive industry, this innovation is essential alongside the increasing digitalization of car sales through online platforms, and even virtual showrooms.
Open banking offers a solution that improves risk management and reduces the inefficiencies and costs of traditional systems.
5 ways open banking is revolutionizing how we buy cars
Open banking has introduced changes to the way we interact with the automotive industry. Here are five of them.
1. Reduced fraud
Like many other industries, the automotive sector is vulnerable to fraud, which can reduce profit margins and damage trust. Open banking addresses these challenges using advanced security measures, including real-time authentication and encryption protocols.
2. More data privacy and control
Open banking prioritizes data privacy, offering customers greater transparency and control over their financial information.
Additionally, customers can decide which parties have access to their financial data. This level of control not only enhances trust but also aligns with the growing consumer demand for privacy-centric solutions.
3. Payment orchestration and reduced costs
Open banking empowers car dealerships to manage payments strategically through smart orchestration tools. By automating the selection of the most cost-effective payment methods based on transaction type, location, and value, dealerships can significantly reduce charges.
Unlike traditional card payments, which incur steep processing fees, thanks to Payment Initiation Service Providers (PISPs), open banking payments can bypass card networks, leading to cost reductions.
4. Faster payments for a "drive away today" service
Traditional payment methods might delay the car-buying process due to lengthy bank transfers or check clearances. Open banking tackles this challenge by enabling swift, direct payments between accounts. Customers can complete transactions through a simple pay-by-bank link or an embedded payment button on a dealership’s website.
This immediacy transforms the buying experience. Similarly, dealerships benefit from instant fund settlement, which enhances cash flow and streamlines operations.
5. Improved customer experience
Purchasing a car is an important financial decision. As such, the experience must be as seamless and stress-free as possible. Open banking facilitates this by removing the friction commonly associated with traditional methods.
By integrating flexible and user-friendly solutions, dealerships can stand out in a crowded market. Finally, offering a smooth checkout process not only enhances customer satisfaction but also encourages repeat business and positive word-of-mouth referrals.