Open Payments 101
Handling payments is crucial for many online applications. Open Payments provides a standardized way for applications to securely communicate directly with users’ accounts, whether those accounts are bank accounts, digital wallets, or mobile money accounts.
Benefits of Open Payments:
- Eliminates Reliance on Third-Party Gateways: Developers no longer need third-party payment gateways to communicate with credit card networks.
- Promotes Digital Financial Inclusion: Open Payments supports various account types with a single integration, including bank and mobile money accounts.
- Reduces Transaction Costs: Open Payments is free to use. Development costs are lowered by integrating a single standard, and direct communication eliminates fees and delays from unnecessary middlemen, reducing overall transaction costs for users.
Open Payments allows applications to send messages directly to users’ account providers to create payment obligations, not to transfer money. The actual transfer of funds occurs on the settlement layer, which handles the movement of money between accounts. While Open Payments facilitates communication between different systems, these systems must still connect to settle funds.
Open Payments works like email. Just as Gmail and Outlook use a shared language to communicate, Open Payments enables transactions between different account types. Account providers give users a human-readable wallet address, similar to an email address. Applications need only the sender’s and recipient’s wallet addresses to create a payment obligation. Once created, the parties involved handle the settlement of funds.
The advantages of this approach are that:
- Users don’t share sensitive financial data with third-party applications.
- Applications avoid the risks of storing sensitive data.
- Applications are free to innovate in the payment space without being registered financial service providers.
Users retain control over their transactions. Any withdrawal requires explicit consent, and users can define the amount, time frame, and frequency of access. This ensures transparency and security, providing seamless transactions, transparent fees, and enhanced control over financial data.
Open Payments Flow
Section titled “Open Payments Flow”Sign up for an account with an Open Payments enabled account provider
Please can I open a bank account?
Sure, your account number is 1089550
Your wallet address is https://superawesome.bank/ernie
Only hand over your publicly shareable wallet address
I want to buy these hiking boots
Here is my wallet address: https://superawesome.bank/ernie
The application can send messages to your wallet address to figure out how to get in touch with your account provider directly
Send message to https://superawesome.bank/ernie
“Hey, where can I contact this person's account
“Their account provider is Super Awesome Bank,
you should direct further communication to them”
The application can send messages directly to your account provider
Person with wallet address
https://superawesome.bank/ernie wants to pay me money
You remain in control and your account provider asks for your consent and can also show you all transaction fees upfront for total transparency
Do you want to pay Cool Gear Online $60 + $1 in transaction fees?
Yes!
If you consent, your account provider will give the application access to an amount of money that is set aside in your account. You control how much that amount is, whether or not it is a recurring payment or one-off? And if it is recurring, how long the duration should be and at what frequency?
Person has consented. I commit to making this payment to you.
The Open Payments standard ends here with the successful completion of a payment obligation.
Now the application can inform the user that the payment is sorted and their purchase can go ahead
Purchase successful. Your hiking boots will be delivered.
On the actual settlement layer where funds are moved between accounts, Super Awesome Bank will send the commited amount of money to Cool Gear Online's digital wallet
Sending $60…
