Open Banking & Direct Debits: The Best of Both Worlds For Insurers

The world of payments is undergoing major change

Fast-paced technological progress is disrupting the market rapidly. Consumer expectations are rising as regulators push for increased competition and innovation to meet evolving consumer demands.

This is leading to a golden age of choice for businesses, who now have access to the cost savings and customer-centric capabilities that a new wave of Open Banking-powered payment products can deliver.

Insurance is one of the sectors benefiting from digital transformation and the next generation of payments. According to a recent McKinsey report, the Insurtech industry already contributes £5 billion and 60,000 jobs to the UK economy. Brazil, a pioneering ecosystem, has launched Open Insurance, whilst Australia’s Consumer Data Right also supports Open Insurance, and is expected to launch later in 2024.

Insurers shouldn’t just sit back and wait for regulation and the dawn of Open Insurance to start benefiting from Open Banking.

The sector is already starting to unlock the speed, security, and user experience benefits that Open Banking offers. As well as giving customers a new way to make one-off payments, it can also be used to build better Direct Debit journeys and make it easier for people to sign up securely. The new technology of Open Banking therefore not only offers new capabilities but enhances trusted and traditional payment methods.

The Benefits of Open Banking For Insurance Providers

Insurers require efficient and risk-free payment environments.

Open Banking-powered account-to-account (A2A) payments deliver a faster speed whilst reducing the risk for the merchant when it comes to the individual payments made to establish a policy. They also enable customers to pay simply and seamlessly via a bank transfer.

When setting up a new insurance policy, an initial payment may first be required. All payers need to do is authenticate the payments via (desktop or mobile) online banking and funds are sent directly to the insurance merchant.

When it comes to more regular payments, Direct Debit remains the most efficient way to pay. It’s also the most familiar payment method, with 6 in 10 people using it for their bill payments. However, it’s worth noting that real-time A2A payments are also particularly well suited to recurring payment billing. They are much more secure and cheaper than other payment methods.

In the future, there is a chance that Open Banking via Variable Recurring Payments (VRP) will compete with, and start to displace, Direct Debit. But first more work needs to be done for the industry and banks to support VRP. For now, insurers don’t have to choose between Direct Debit and Open Banking. The newer method of payment can actually enhance the experience of using the incumbent.

For example, Open Banking makes it much easier to complete Direct Debit e-mandates. Rather than traditional methods which require customers to manually enter their bank account details, Open Banking e-mandates allow them to sign up seamlessly using only the biometrics on their phone (or username and password on desktop), without manually entering any bank account details.

E-mandates significantly reduce the risk to insurers whilst also boosting efficiency. This is because customer details are verified in real-time via their bank, removing the chance for error if there is a mistyped account number or sort code. There is also an option via Account Information Service (AIS) providers to verify the payer, where no payment is necessary. Bacs mandates, on the other hand, can take days to be confirmed – and if they are rejected, the merchant or business will need to chase the customer, which is time-consuming and results in a poor customer experience.

Moreover, e-mandates minimise the risk of fraud typically associated with card payments. Subsequent payments are also less likely to fail as e-mandates ensure that a payer’s details are correct and they’ve provided evidence that they own the account.

Nuapay’s Open Banking Solution For Insurers

Nuapay now offers payers the opportunity to sign up for Direct Debits using our Open Banking e-mandate solution: Authenticated Mandates.

Customers can seamlessly set up recurring payment schedules. Our e-mandate solution is a market-leading innovation that validates a payer’s Direct Debit account details using Open Banking and Strong Customer Authentication (SCA). This allows merchants to accurately verify the account details are correct, that they are owned by the payer, and that they have sufficient funds for the first transaction.

As the most advanced Direct Debit environment available, Nuapay substantially improves efficiency, reduces failed collections by more than 40%, and lowers administration and associated costs It effectively bolts onto an insurer’s existing Direct Debit collection solution so it requires little integration effort, making it an upgrade to Direct Debit without any extra hassle.

We also offer our insurance clients a fast and easy pay-out solution, which enables providers to send payouts to a customer’s bank account in a matter of seconds. This is great for customers, particularly if they are making a claim and need cash urgently following an unfortunate event.

Funds can be securely disbursed straight back to customers’ original payment accounts, reducing the risk of fraud and ensuring payments are sent securely to exactly where the money needs to be. Another option is via Nuapay’s verified payouts service. Nuapay’s clients can prompt end-consumers to verify their identity through Open Banking AIS. Once successful verification is complete, clients are then able to proceed with making the payout securely.

Nuapay integrates easily across all areas of insurance providers’ businesses, offering huge improvements in efficiency and usability no matter which product they use. We use intelligent APIs but can also handle the processing of large volumes of Bacs files. Nuapay has solutions to cover all types of insurance clients.

This leads to a much lower-risk recurring solution, particularly when coupled with Nuapay’s Direct Debit options. We operate at the very forefront of industry trends and are already offering large payment file processing and API connectivity, and access to Open Banking to help businesses capitalise on every new opportunity.

With the rise of Insurtech, we expect to see more and more insurance providers offer Open Banking options to meet growing consumer demand. Upgrading Direct Debits is a great place for insurers to start their exciting journey.

Discover the benefits of Nuapay’s Direct Debit solutions for the Insurance industry.