Open banking (OB) payments have the potential to offer greater payment choice to merchants and customers. There are now over 2.5 million Open Banking payments a month. In 2018, there was a total of 320,000 Open Banking payments.
The UK’s future strategy for Open Banking payments
While there is significant growth in Open Banking payments in the UK and across the European Union, internationally, there are also significant developments in other jurisdictions, for example Australia, Brazil and Canada as these nations try to unlock the benefits that Open Banking payments can bring to their economies.
For the UK, while the general requirements of the EU’s second payment services directive (PSD2) have been delivered by the market, there are still undelivered elements of the Final Open Banking Roadmap which will further enhance Open Banking payments.
What is the market vision for Open Banking payments?
According to a UK Finance report on the future of Open Banking, there is a shared vision across the market – to see Open Banking payments offer greater choice to customers and merchants on how payments are made and received.
Open Banking payments offer the opportunity for payments to be made account-to-account in near real time. In particular, extending the use of the underlying Faster Payments Service – typically used for person-to-person and person-to-business – to e-commerce, charitable donations, tax collection and other types of payments has demonstrated significant benefit.
The payments benefit from strong customer authentication and the investment in customer guidelines that make that authentication as smooth as possible.
There is a shared purpose, continues the report, across the market to explore how to improve the standards that underpin the customer experience of open banking payments building on regulatory requirements to make that choice even more compelling.
There is particular interest in how the incentives of banks and third parties can be aligned through developing these standards through voluntary commercial frameworks.
This takes place against growth in OB payment volumes. The number of successful OB payment transactions has increased from 0.5 million transactions in September 2020, to 2.6 million in September 2021.
For single immediate payments, OB payments work well with improving conversion rates particularly where the payer uses mobile apps.
Many FinTechs have based their business models on this new and exciting technology and there is significant industry investment in these firms.
What strategic steps will drive forward that ambition?
UK Finance has said previously that OB payments needs a Participant Group – leaders from the market who will help promote the commercial development of OB payment standards and help the market meet its ongoing regulatory obligations.
The Working Group has laid the foundations for a Participant Group and has begun to provide the future vision, direction and industry governance for taking forward those improvements.
It is imperative that this procompetitive, collaborative approach continues to tackle both technically complex issues but also to explore the case for the voluntary, commercial frameworks that might be needed for the future development of OB payments.
What issues need addressing?
The report sets out enhancements to open banking payments that can underpin the products and services provided by PISPs and ultimately the end-customer experience.
Different firms place varying degrees of weight on these enhancements reflecting their own business models and capabilities. They provide the starting point for driving improvement.
Broadly the enhancements divide into three categories – those that could be resolved through technical development alone, those that might potentially require a multi-lateral framework agreement involving banks and third parties (which we refer to as a Payment Arrangement) or bi-lateral contracts and those that require both.
The report provides case studies illustrative of the enhancements that could be made to the OB standards, for example, on introducing more payment execution certainty and visibility of payment status.
The legislation (Payments Service Directive 2 (PSD2)) allows PISPs to initiate payments but does not require banks to let them know the payment has been executed.
For some use cases where the merchant would like to immediately release high value goods or services this can be problematic.
For a Benchmarking report on Open Banking in Europe, where the UK was position No.1 CLICK HERE
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