UK car dealers take advantage of open banking to cut costs

Payment processing fees are an unavoidable problem for many businesses large and small, but for automotive merchants the impact on their bottom line can be particularly severe.

“These companies generate hundreds of millions of pounds of revenue a year, but they make very small margins, so if you accept this payment by card, even if you have very good rates, with your acquirer, you could pay more than 5% – and 5% of £100m is actually a lot,” Cocoon Product Manager Sam Meekins told PYMNTS in a recent interview.

The London-based company operates a software platform that facilitates payments for merchants in the automotive market, gaining broad visibility into the significant payment processing fees faced by car dealerships.

Read more: Cocoon partners with EML’s Nuapay to drive digital payments for car dealerships

To alleviate this major issue for its merchant customers, the company recently announced a partnership with open banking payments company EML Nuapay that will allow merchants to make fast and secure payments on automotive purchases directly from their online bank accounts. using open banking, bypassing an expensive card system. costs.

Read the interview of the CEO of EML Nuapay: UK merchants cut costs by adopting open banking payments

“Our proposal with [EML] Nuapay, as the underlying infrastructure provider, is to provide our business customers with a cheaper, faster and more secure way to accept payments. [on Cocoon’s platform] which is delivered through an open banking system,” Meekins said.

Meekins pointed out that the average order value for a dealer is around £1,000 (about $1,340) and that often these payments are made remotely, including over the phone, they are more risky and subject to at higher acquisition costs of around 0.5% to 1%.

Cocoon can help reduce that cost significantly, Meekins said. “That on a payout basis is £5-£10 and we can usually do it for 75% less than that,” he noted.

Gradual transition to Open Banking

Open banking has transformed the financial services market, allowing consumers to share their banking information and allowing companies like EML Nuapay to use this data to create services better suited to consumers’ financial needs.

But according to Meekins, not all of their automotive customers have fully embraced the technology as some of their customers may not have mobile banking apps or may simply prefer to spread payments over multiple installments using a credit card. , instead of having the money immediately deducted from their current account. account when paying.

On top of that, he said that just a few years ago some car dealerships stopped accepting cash and checks as a form of payment, a transition that didn’t sit well with some of their customers and made the adoption of an open banking system a risky endeavor. for them.

“What they have [dealerships] says we have 25% of [our] customers who we think will be very difficult to move to open banking, so we don’t want to use your solution,” Meekins explained.

So, in order to serve all their customers on one platform, including those who cannot use open banking or who are not yet ready to abandon their legacy technology, Cocoon also offers a card-based solution alongside the open banking technology.

As Meekins said, even though the pandemic has accelerated the shift to digital payments, it would take time for all merchants to get on board.

“It will certainly be a gradual change, but the pandemic has massively accelerated the use of digital technology. Two years ago QR codes weren’t popular, and now we’re talking to merchants [who use them] so I think it was sped up, but [digital payments is still] a challenge.”

Fight against fraud

The partnership with EML Nuapay also helps combat fraudulent activity by giving merchants the tools to easily detect suspicious transactions they may have previously missed.

Referring to one of their car customers who, prior to using Cocoon, was defrauded, Meekins said a dealership salesman approved a transaction for a car reservation, only to find out later. that the card details provided by the customer over the phone were linked to a stolen card.

“The security of this process is very poor because anyone could have picked up this card on the street,” explained Meekins, who said that the trader unknowingly delivered the car during the pandemic once he believed to have secured the deposit.

After the owner of the stolen card finally disputed the transaction, the company ended up liable for £30,000 ($40,230), a huge loss that was completely avoidable, he said.

Now, with open banking, Cocoon can rely on its strong customer authentication and use of biometrics on users’ phones to authenticate its payments with bank-grade security. “It greatly reduces the possibility of fraud and is a perfect example of how it is [open banking] help,” he said.

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NEW PYMNTS DATA: ACCOUNT OPENING AND LOAN SERVICE IN THE DIGITAL ENVIRONMENT

On: Forty-two percent of US consumers are more likely to open accounts with financial institutions that facilitate automatic sharing of their bank details upon sign-up. The PYMNTS study Account opening and loan management in the digital environmentsurveyed 2,300 consumers to explore how FIs can leverage open banking to engage customers and create a better account opening experience.

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