How Open Banking Reduces Fraud & Chargebacks for High-Risk Transactions
Introduction: The Structural Flaw of Card Payments
For the Head of Payments at a high-risk enterprise, the credit card network represents a dangerous anachronism. We are currently securing billions in 2025 digital volume using infrastructure architected for physical retail in the 1950s. The “Card Not Present” (CNP) transaction is not merely a payment method; it is a vulnerability by design. It relies on the insecure transmission of static secrets—the PAN and CVV—which, once compromised, allow endless unauthorized withdrawals.
The cost of this structural flaw is catastrophic. In 2024, card fraud losses across Europe surged to €1.58 billion, driven primarily by CNP attacks. However, for verticals like iGaming and Forex, the true predator is “friendly fraud,” which now accounts for up to 75% of all chargebacks. This is not a line item you can optimize away; it is an existential threat to your chargeback ratio and MID survival.
Open banking for high-risk merchants offers a definitive exit from this cycle. It does not merely “manage” fraud; it removes the attack vector entirely. By shifting from a “pull” model—where you ask to take funds—to a “push” model where the user sends them, you eliminate the mechanism of theft and the possibility of repudiation. As detailed in The Ultimate Guide to High-Risk Payment Processing in Europe, adopting this rail is the only way to immunize your revenue against the systemic failures of the card networks.
The Mechanism of Trust: “Push” vs. “Pull” Payments
The legacy card infrastructure relies on a “pull” architecture that remains fundamentally insecure for anonymous digital commerce. To initiate a deposit, a user must surrender their Primary Account Number (PAN) and CVV, effectively handing the merchant the keys to their liquidity. This model assumes a chain of trust that simply does not exist in iGaming or Crypto. Every time a customer types those sixteen digits, you are exposed to credential theft, and your payment gateway becomes a repository of toxic data that attracts sophisticated bad actors.
Even with robust tokenization, the initial transmission creates an interception point for replay attacks. The merchant demands the funds, and the network approves based on static data that is easily harvested and sold on the dark web. The liability for proving authorization sits squarely on your compliance team.
Open Banking completely inverts this dynamic by enforcing a “push” mechanism. The customer never hands you their credentials. Instead, they authenticate directly within their banking app and push the funds to your settlement account. The merchant receives the capital without ever touching the sensitive authentication data. Because the instruction originates from the account holder inside the bank’s trusted perimeter, the transaction cannot be spoofed or replayed. This is a shift from defensive secure payment processing to structural risk elimination. By integrating open banking for high-risk flows, you cease to be a guardian of customer secrets. You cannot lose what you never held, rendering the concept of stolen card data mathematically obsolete in your checkout flow.
The End of Friendly Fraud: Bank-Grade Authentication (SCA)
Friendly fraud—or first-party misuse—thrives on plausible deniability. In the legacy card model, a customer can easily claim their credentials were stolen, and because static data (PAN/CVV) is so easily compromised, issuers often default to refunding the cardholder. Open banking for high-risk merchants dismantles this loophole by enforcing a stricter standard of proof: PSD2 SCA (Strong Customer Authentication).
SCA mandates that electronic payments be validated by at least two of three elements: something the user knows (PIN), possesses (device), or is (biometrics). While card schemes attempt this via 3D Secure, the user experience is often disjointed, leading to fallback methods like SMS OTPs which are vulnerable to SIM swapping. In contrast, Open Banking flows occur directly within the customer’s banking app, leveraging the device’s native hardware security.
When a user authenticates a payment via biometric authentication (FaceID or Fingerprint), the “it wasn’t me” defense collapses. You are no longer relying on a typed password that could be shared or stolen; you are relying on biological inherence. The impact is quantifiable: the European Banking Authority’s 2024 report confirms that fraud rates for SCA-secured credit transfers have flatlined at 0.001%, whereas non-SCA card transactions face fraud rates over ten times higher. By implementing this authentication layer, you convert vague disputes into hard evidence, effectively ending the friendly fraud arbitrage.
For a detailed breakdown of these regulations, refer to What is PSD2 and How Does It Affect My Business? or review the official EBA Regulatory Technical Standards on SCA.
The “No Chargeback” Reality: Irrevocability Explained
For high-variance merchants, the Visa and Mastercard dispute mechanisms effectively grant players a veto over settled revenue. A player loses their deposit, claims “service not described,” and the scheme rules force an immediate debit from your account while you scramble to provide evidence. This guilty-until-proven-innocent framework is the default setting of card acceptance. Open banking for high-risk verticals fundamentally alters this power dynamic by utilizing the SEPA Credit Transfer rail.
Under the European Payments Council (EPC) Rulebook, a SEPA payment is legally irrevocable once the payment order is received and authenticated by the payer’s bank. Unlike card schemes, there is no inherent arbitration layer for buyer’s remorse or “friendly fraud” disputes. While banks can initiate a “Recall” request for technical errors or proven fraud, they cannot unilaterally claw back funds for authorized transactions without the beneficiary’s consent.
This structural finality shifts the burden of resolution. A dispute becomes a customer service ticket—a request for a refund that you, the merchant, evaluate based on your terms and conditions. You decide if a refund is warranted; the bank does not decide for you. For operators looking to reduce chargebacks igaming portfolios face, this is the only way to escape the scheme monitoring programs. You retain control of the capital, transforming potential financial strikes into manageable operational inquiries.
For more strategies on managing disputes across all payment methods, refer to A Merchant’s Guide to Chargeback Mitigation and Prevention.
Conclusion: Strategic De-Risking
Beyond the immediate fraud savings, there is a secondary operational victory: the drastic reduction of your PCI scope. When you eliminate the intake of Primary Account Numbers, you effectively remove the target painted on your infrastructure. You cease to be a vault for toxic credentials and become simply a destination for settled capital. This specific reduction in compliance overhead is a critical, often overlooked component of a modern risk management strategy.
The verdict is absolute. Continuing to rely predominantly on legacy card rails for high-variance traffic is a calculated gamble where the house odds—dictated by the card schemes—are increasingly stacked against the merchant. Open banking for high-risk transactions offers a permanent exit from this volatility. It replaces probability with certainty, converting reversible promises into irrevocable cash flow.
Do not wait for a breach or an acquirer audit to force a restructuring of your payment stack. Implement Sola’s banking infrastructure today to immunize your revenue streams against the structural liabilities of the card networks. For a detailed technical breakdown on compliance reduction, read A CTO’s Guide to PCI DSS Compliance Scope.
