Shopper expectations on refunds often clash with the reality of payment methods like cards. Refunds on online card payments and for digital wallets, often longer. Meanwhile, refunds using traditional bank transfers can take up to 3 days.
Can you do refunds with open banking?
The short answer is yes you can in the UK, but it’s not instant. Let’s explain in more detail.
Open banking rails were primarily designed as one-way rails for making payments to a merchant or a person. In the UK, however, open banking does now facilitate something called ‘reverse payments’.
What are open banking ‘reverse payments’?
Under the in the UK, some of the largest banks have been asked to support what’s known as ‘Proposition P9 – Reverse Payments’. This allows a third party provider like TrueLayer to pull the user’s payment details from the bank’s open banking API. This sounds great! But it comes with a number of issues.
- The user has to give their explicit consent, which introduces friction in the user journey.
- The account details are provided by the bank, rather than directly from the faster payments message, which requires an additional API call.
- Reverse payments are only supported by the CMA9, the 9 largest banks in the UK. This misses out around 20% of the market.
- It’s impossible to offer instant refunds using open banking reverse payments, as every requested reverse payment would have to be authorised by an individual within your business.
In order to offer instant refunds, you’d need to integrate a payouts solution alongside your open banking payments. That means you’d be building two integrations, instead of one.
Refunds with PayDirect
We decided to build because what is offered by native open banking APIs isn’t good enough. A refund should be just that – you send the money back to the account it came from, instantly and with no fuss.
PayDirect makes open banking payments and refunds really simple: you can make an instant refund or payout from your TrueLayer wallet to any user’s bank account using the Faster Payments rails in the UK.
We receive the user’s account details from the inbound payment for every single payment made via PayDirect, and we give you the ability to make a closed-loop payout to that account, guaranteeing that your payment goes straight back to the account it came from.