There are over 180 regulated Open Banking providers, making upwards of 180 million application programming interface (API) calls per month. These are being used to streamline lending processes, enable personal financial management and deliver new payment methods. However, the Open Banking Implementation Entity (OBIE) has suggested that more effort is required from account servicing payment service providers (ASPSP) to drive the growth of Open Banking. On 19 November 2019, the OBIE published proposals that would significantly broaden the scope of Open Banking. While the industry has concerns around the level and pace of change and the potential mismatch in capability across CMA9 institutions and challenger banks that it may create, the proposals can also be seen as an opportunity to extend development of propositions that go beyond compliance.
We explore some of the key scope items below:
1. Reverse payments
What is it
Making Open Banking practical for ecommerce by ensuring payment initiation service providers (PISP) can trigger a payment when a customer is entitled to a refund. For example, customer has made a purchase or money transfer using a payment initiation API, but the funds need to be returned – such as when the goods are faulty. This would offer an alternative to existing scheme refund processes.
Reverse payments will drive consumer confidence in the use of payment initiation APIs for ecommerce if based on a strong underlying framework that ensures users can get their money back when required. It will support the creation of new, innovative payment solutions from PISPs.
2. Variable Recurring Payments
What is it
Making recurring payments of a variable amount over a defined period. It is a real time alternative to direct debits with the benefit of immediate set up and cancellation, creating a simplified customer experience. Additionally, customers could approve an amount with a favourite merchant that is then debited when purchases are made over time.
It creates the opportunity for new, elaborate and innovative payment propositions with a great customer experience supported by real time access. Delivering a significant customer experience enhancement versus direct debit solutions. In SME banking there are many use-cases, for example enabling more flexible payment terms and the ability to receive cash sooner, providing SMEs with more consistent cashflow and the ability to meet their own payment commitments. This also drives the ability to manage more complex payment structures through accounting platforms – increasingly where SMEs manage their banking.
What is it
Automated movement of funds between accounts. This enables optimisation of interest earned across multiple accounts and avoidance of loan charges by ensuring the funds are in the right place to pay the outgoings. There are several propositions live with a ‘sweeping-like’ service (e.g. Moneybox), but these use Direct Debits to regularly move funds, rather than Open Banking.
Clear proposition opportunities across Retail, SME and Corporate banking – ensuring retail and business customers make the most of their money, ranging from micro payments (e.g. rounding up everyday spending) to improving financial inclusion through to the avoidance of overdraft charges or a small business combining takings from a number of outlets.
4. Trusted Beneficiaries
What is it
The ability for a third party provider (TPP) to identify a payee as a Trusted Beneficiary and remove the need for repeated strong customer authentication. This could affect all recurring TPP interactions. An equivalent example is the use of the Trusted Beneficiary for Online Shopping payments. For example, American Express allow their customers to mark a merchant as a Trusted Beneficiary meaning that for subsequent payments, they do not need to use strong customer authentication.
Given many API interactions are with the same provider, if ASPSPs are willing to put in unilateral agreements with PISPs, this could offer a major simplification of customer journeys and increase the viability of new propositions. Additionally, it would eliminate friction for high frequency online payments with a single TPP.
Including the four above, the proposed roadmap contains a total of 25 items that would offer a range of propositional and performance benefits to customers. Regardless of whether this roadmap is ultimately agreed, or the market is allowed to develop more organically over time, it is therefore still important for ASPSPs participating in the new ecosystem to consider the opportunities these new capabilities present.