Was Amazon’s stand-off with Visa the catalyst Open Banking needed? Prakash Sinha thinks it could open the door to even more consumer choice.

By Prakash Sinha, Radware

Prakash Sinha, Radware

Last November, in one of the most dramatic financial announcements of the year, Amazon emailed its account holders to say that from 19 January 2022 it would no longer accept payments made with UK-issued Visa credit cards.

As news spread, consumers were unsettled. For anyone lacking a Mastercard, the only payment option would be a Visa debit card, an option that requires immediate payment and lacks some consumer protections under Section 75. Seamless payments are a bedrock of the digital economy. What had caused Amazon to take such drastic action against the world’s biggest card network?

In fact, the situation is another effect of Brexit. The enforced cap on card issuer fees that payment providers must abide by in the EU, no longer applied in the UK following its divorce. This meant that Visa was able to raise fees from 0.3% to 1.5% for transactions made on its credit cards, a large hike Amazon felt disinclined to swallow.

Open Banking opportunity

As the companies entered private negotiations to avoid the unthinkable, advocates of digital payments and Open Banking spotted an opening. For these platforms and transaction providers, Amazon v Visa offered the perfect illustration of why the traditional payments platforms tied to card networks and banks is in dire need of reform.

The big advantage of new digital payments networks is their lower transaction fees, good for retailers as well as consumers who ultimately foot these charges. That’s especially true for smaller merchants, for which card payments can often be prohibitive, despite the advantages of offering customers choice and hassle-free, quick payment options.

What’s more, there are plenty of new payment platforms making in-roads into this market, especially in the UK thanks to the growing maturity of the Open Banking community. This is the second advantage of innovations such as Open Banking – dramatically increased competition.

One implementation of Open Banking is Pay by Bank, a MasterCard system that allows consumers to pay for goods from their accounts using a mobile app without the need to enter or remember bank details. One early adopter is DIY retailer Toolstation, which recently announced it would offer trade-account customers Pay by Bank payments. The retailer’s use of Open Banking products from Ecospend is expected to not only improve the customer experience but cut errors and fraud.

Slow adoption

Despite this, Open Banking still has a lot of work to do to overcome the natural inertia and conservatism that often holds back new financial ideas. There is also scepticism in some quarters, with Starling Bank’s CEO, Anne Boden, branded Open Banking a ‘flop’ in her statement to the UK Treasury Committee’s review of post Brexit financial regulation. Slow adoption was her chief cause for concern.

Open Banking only gathered pace in 2018 and it’s difficult to say that a new technology has been a success barely four years in. What it has done, however, is provide a way to build an entirely new relationship between consumers, businesses, and the banking community. This is as true for neo-banks as traditional institutions, which can now share data securely and with consent.

Open Banking promises more choice and control for consumers. People can access credit and financing more quickly and easily and obtain a more complete picture of their financial situation.

And therein lies the crux of this story; Amazon’s stand-off with Visa is likely to have made companies of all sizes and in all sectors think about their preferred payment methods and whether they should consider other options.

Today, companies are scrutinising every cost as rising inflation, energy bills, interest rates, and supply chain costs explode. The technology, innovation, and lower costs that Open Banking boasts could now come into their own. Open Banking services is one way to lower or even remove the overhead of card fees. It will encourage those who have until now resisted digital or card payments to adopt the technology.

Next steps

Even so, consumers still need to be convinced. Although they may be open to new payment methods, there is still a need to provide reassurance that people’s data and money is secure. For that reason, it’s imperative that the Open Banking community does everything to ensure services are secure. Every Open Banking inter-connection must meet not only the regulatory requirements such as know your customer (KYC) to prevent fraud but also ensure that data integrity and theft is prevented at all costs.

It is no longer just pure optimism to say that Open Banking has reached a tipping point. Over the next two years we should see a transformation in its use by consumers and businesses alike. The stand-off between Amazon and Visa simply accelerated this shift, one that has been coming for a long time and is now overdue. I hope that this provides a turning point and that everyone involved in the Open Banking ecosystem embraces the opportunity to deliver secure, innovative services.