Open Banking and the Evolution of Digital Payments

Dean Wallace, Practice Lead, Real-Time and Digital Payments, ACI Worldwide

• Consumers are set to benefit from an improved user experience under Open Banking, but what is the opportunity for banks and PSPs in the new Open Banking era?

Open Banking is without doubt one of the most significant changes in the European banking sector in recent years.

Many banks in the US, Australia and Asia are paying close attention to what’s happening here in the UK and other European countries, thinking about the challenges and implications of implementing similar systems in their countries.

Open Banking is shaking up the financial services sector and opening up new avenues and opportunities for both banks and payment service providers (PSPs). The open API ecosystems that are emerging are helping players in the sector create next-generation value propositions – evolving their existing operations to make more of emerging digital technologies.

Open Banking enables banks and PSPs to be more creative with the services that they offer consumers. It also cultivates a more competitive banking environment, in which banks and PSPs have new ways to access customers, expand their audience and ultimately improve the bottom line.

For instance, HSBC’s ‘Get Connected’ app aggregates competitor data to present users with a view of their bank accounts from all suppliers in one place. This not only provides consumers with a better understanding of their money, but also creates scope to attract customers from other providers. The app uses Open Banking APIs for a feature that actively makes suggestions about where consumers can cut day-to-day costs, which enhances the customer experience.

• How is Open Banking influencing the types of payments services and technologies being developed today?

Open Banking gives consumers greater control and understanding of their finances and banking data. In response, we’re seeing new payment innovations being developed through digital channels, which help bolster consumers’ control over their data.

One recent example is NatWest’s launch of an online shopping system, in conjunction with Carphone Warehouse, enabling consumers to pay for goods and services directly through their bank accounts without using a debit or credit card. The user sees the balance on their account updated in real-time, which helps them to better manage everyday finances whilst at the same time offering the convenience of paying with a smartphone. Based upon ‘Request for Payment’ technology, this system mandates the payee to send a payment request through the consumer’s bank, enabling the user to evaluate and choose which of their accounts is most suitable for the payment before confirming. I expect we’ll see this type of service gather pace for consumer payments.

• What are the benefits of ‘Request for Payment’ services for merchants and consumers?

For merchants, Request for Payment represents experimentation with Open Banking APIs, enabling them to offer and explore innovative new ways to purchase goods and services while improving the overall customer experience. On the consumer side, Request for Payment means greater control and visibility over the money leaving your bank account. Improved money management fits in well with changes in employment patterns, as the rise in self-employment or multiple employment means increasingly unpredictable income streams for some consumers. This renders established payment methods such as direct debits and standing orders less suitable.

• Have you seen any other examples of Open Banking enabling financial institutions to innovate? 

Plenty of financial institutions are recognising the need to adapt to Open Banking and are using it to drive their innovation strategies. A great example is Erste Bank Hungary (EBH), which is using a universal payments solution to ensure customers can access real-time balance data across all banking channels on a 24/7 basis. Alongside providing a more convenient customer experience, EBH is also bolstering customer protection, using proactive risk management software that monitors in real-time to ensure maximum security across customers’ accounts.

• What challenges do emerging payment technologies like ‘Request for Payment’ face, and when can we expect them to reach the mainstream?

The big problem for emerging technologies, when it comes to consumer payments, is familiarity. Naturally, consumers are wary when it comes to their finances, which leads to a degree of scepticism over new technologies claiming to offer better ways to manage money. This presents an obstacle for any service based on emerging technology and makes it very difficult to set out a timeline for when innovations such as Request for Payment will reach the mainstream. However, with major financial institutions endorsing and adapting to Open Banking, we can expect to see the release of more innovations such as NatWest’s Request for Payment service– and this will serve to boost consumer confidence.

• How else can we expect to see consumer payments evolve in the future?

The financial services landscape is becoming a firmly consumer-centric environment. Across the UK and Europe, we’ll continue to see the rollout of technologies that put control in the hands of consumers. The proliferation of real-time payment schemes will continue to cultivate an environment in which new technologies can be developed, and we’ll see this in more widespread adoption of Request for Payment technologies and the continued modernisation of established payment methods.

Dean Wallace, Practice Lead, Real-Time and Digital Payments, ACI Worldwide

• Consumers are set to benefit from an improved user experience under Open Banking, but what is the opportunity for banks and PSPs in the new Open Banking era?

Open Banking is without doubt one of the most significant changes in the European banking sector in recent years.

Many banks in the US, Australia and Asia are paying close attention to what’s happening here in the UK and other European countries, thinking about the challenges and implications of implementing similar systems in their countries.

Open Banking is shaking up the financial services sector and opening up new avenues and opportunities for both banks and payment service providers (PSPs). The open API ecosystems that are emerging are helping players in the sector create next-generation value propositions – evolving their existing operations to make more of emerging digital technologies.

Open Banking enables banks and PSPs to be more creative with the services that they offer consumers. It also cultivates a more competitive banking environment, in which banks and PSPs have new ways to access customers, expand their audience and ultimately improve the bottom line.

For instance, HSBC’s ‘Get Connected’ app aggregates competitor data to present users with a view of their bank accounts from all suppliers in one place. This not only provides consumers with a better understanding of their money, but also creates scope to attract customers from other providers. The app uses Open Banking APIs for a feature that actively makes suggestions about where consumers can cut day-to-day costs, which enhances the customer experience.

• How is Open Banking influencing the types of payments services and technologies being developed today?

Open Banking gives consumers greater control and understanding of their finances and banking data. In response, we’re seeing new payment innovations being developed through digital channels, which help bolster consumers’ control over their data.

One recent example is NatWest’s launch of an online shopping system, in conjunction with Carphone Warehouse, enabling consumers to pay for goods and services directly through their bank accounts without using a debit or credit card. The user sees the balance on their account updated in real-time, which helps them to better manage everyday finances whilst at the same time offering the convenience of paying with a smartphone. Based upon ‘Request for Payment’ technology, this system mandates the payee to send a payment request through the consumer’s bank, enabling the user to evaluate and choose which of their accounts is most suitable for the payment before confirming. I expect we’ll see this type of service gather pace for consumer payments.

• What are the benefits of ‘Request for Payment’ services for merchants and consumers?

For merchants, Request for Payment represents experimentation with Open Banking APIs, enabling them to offer and explore innovative new ways to purchase goods and services while improving the overall customer experience. On the consumer side, Request for Payment means greater control and visibility over the money leaving your bank account. Improved money management fits in well with changes in employment patterns, as the rise in self-employment or multiple employment means increasingly unpredictable income streams for some consumers. This renders established payment methods such as direct debits and standing orders less suitable.

• Have you seen any other examples of Open Banking enabling financial institutions to innovate? 

Plenty of financial institutions are recognising the need to adapt to Open Banking and are using it to drive their innovation strategies. A great example is Erste Bank Hungary (EBH), which is using a universal payments solution to ensure customers can access real-time balance data across all banking channels on a 24/7 basis. Alongside providing a more convenient customer experience, EBH is also bolstering customer protection, using proactive risk management software that monitors in real-time to ensure maximum security across customers’ accounts.

• What challenges do emerging payment technologies like ‘Request for Payment’ face, and when can we expect them to reach the mainstream?

The big problem for emerging technologies, when it comes to consumer payments, is familiarity. Naturally, consumers are wary when it comes to their finances, which leads to a degree of scepticism over new technologies claiming to offer better ways to manage money. This presents an obstacle for any service based on emerging technology and makes it very difficult to set out a timeline for when innovations such as Request for Payment will reach the mainstream. However, with major financial institutions endorsing and adapting to Open Banking, we can expect to see the release of more innovations such as NatWest’s Request for Payment service– and this will serve to boost consumer confidence.

• How else can we expect to see consumer payments evolve in the future?

The financial services landscape is becoming a firmly consumer-centric environment. Across the UK and Europe, we’ll continue to see the rollout of technologies that put control in the hands of consumers. The proliferation of real-time payment schemes will continue to cultivate an environment in which new technologies can be developed, and we’ll see this in more widespread adoption of Request for Payment technologies and the continued modernisation of established payment methods.