There has been much debate over the past year about open banking. Ugne Buraciene, CEO at payabl., discusses how open banking is the language of love for payments, offering the solution for several payment issues.
Since becoming a regulatory requirement in the UK back in 2018, open banking has been a hot topic of conversation on everyone’s lips. One side says it’s overregulated and take up, particularly when it comes to individuals switching accounts, has been poor. However, on the other side, we’re seeing banks building more open APIs, enabling a diverse ecosystem to develop that offers more choice and a variety of solutions to businesses and consumers alike.
Open banking is the language of love for payment solutions.
The fintech ecosystem that has emerged because of open banking cannot be underestimated. While there is no doubt that open banking still hasn’t matured in terms of its technology and adoption, it has made significant steps forward in the past year presenting innovative solutions for several payment issues. For example, an open relationship with open banking could…
Enable cheaper and faster cross-border payments
Long-distance love? Cross border payments are expected to go over $156 trillion this year. Following Brexit, UK retailers are facing higher fees and e-commerce businesses are complaining that there are few good options for global payments. This is caused by the complex variety of regulations in different countries.
Whilst Banks and Fintechs alike are working on Blockchain and crypto-based solutions, I don’t see the technology delivering on cheaper and faster cross-border payments anytime soon. We are yet to see an application for Blockchain and currently, banks need to get involved and regulations need to be met in various countries.
Essentially, for any payment option, the less intermediaries involved, the less cost. That’s why open banking provides a much better solution than crypto or Blockchain.
The good news is we’re seeing more and more countries get on board with open banking. As the ecosystem continues to develop, this really could be the perfect solution for alleviating the current headaches associated with cross-border payments for UK merchants and marketplaces.
Be the answer to Buy Now, Pay Later (BNPL) regulation
As the fastest growing online payment method in the UK, BNPL continues to hit the headlines – specifically around regulation. In fact, the US Consumer Protection Board has launched an inquiry into companies using PayPal and Klarna asking them to respond by March 2022.
It’s likely that the outcome will be increased regulation for BNPL companies and rightly so. The success of BNPL services is all about balancing consumer choice with risk management. However, if regulated the experience needs to be seamless or invisible to the end customer so that adoption does not slow.
Open banking has the potential to ensure these services work for customers and the merchant by running in-app risk management checks prior to payment. These checks would ensure that those who shouldn’t have access to these services don’t, and those that are able to afford it, have the choice available to them. It’s an innovation that we expect will emerge as open banking becomes more ubiquitous globally.
Open banking can really change the game here as it matures.
Prevent further post-Brexit fee breakups
We welcomed 2022 with threats of corporate divorce as Amazon threatened to no longer accept Visa due to rising fees.
Visa’s decision to move its fees up from 0.2% to 1.15% for debit cards and 1.5% for credit cards is a significant cost increase for any online business. But, Brexit means fees are no longer controlled by EU regulations, leaving payment companies to charge what they like, a topic that is likely to continue to rise.
It’s important to remember that while credit card companies are free to do this, they do not have a monopoly in payments. Nearly everyone in the UK has a bank account and so the potential for open banking’s use on marketplaces, in particular, is huge, with the merchant, the marketplace and the consumer all stand to benefit from cheaper and faster online payments. Not to mention the potential of hybrid methods, for example, starting the transaction with a card but finishing it with open banking.
This approach is much cheaper compared to card processing, and this approach benefits the merchant in particular. We are seeing this already happen in the US with ACH payments which are on the rise. ACH uses open banking, enabling a payment to happen instantly by doing checks in real-time by seeing how much is actually in the account before taking the payment. Compare this to the system used by most businesses today where there can be a two day wait to see if a payment has been successful, and it’s no wonder ACH is gaining ground.
Based on my years of experience in banking and payments within the global Fintech space, I think it would be a mistake to not embrace and open relationships with open banking. The opportunities open banking presents to the payment sector are endless, with the potential to revolutionise online payments even further, improving services for consumers and businesses alike.
Could 2022 be the year open banking breaks barriers and finds resolutions? I think so.