I know a bit about Open Banking and after I attended a panel session yesterday it became clearer to me the true state of things in the UK/EU.
There’s a lot of hype around Open Banking payments, some would tout that it will bring the end of card based commerce, direct debits and other payment methods. Well, if this does happen (which I don’t think it will), it won’t be for a long time yet.
Here’s my summary of the issues that I can see:
We’re all waiting on the banks to add features and improve their own customer digital experiences. This is a massive bottleneck, but nobody else in the chain can implement recurring payments etc until they provide a consistent way to achieve it.
Which brings me to probably the biggest underlying issue – nobody is mandating the payment method feature set or setting standards for things like customer experience. If we look at India and UPI, it’s phenomenal what they’ve done in terms of traction and rollout, but it all comes down to the National Payments Corporation setting the agenda and the form. Open Banking payments in the UK and EU is a dribbling mess in comparison, so beyond the above the question is why?..
Well firstly, because there’s no commercial incentivisation, there are a number of players in the chain and yet OB payments might be charged at 5p. And if they run over Faster Payment rails, this might cost 75p, but who’s going to work to consolidate and accept these ? In reality we actually need something like the interchange ++ model that the card schemes use. Again, it’s about standardisation.
The go-to-market approach for OB payments is clearly going after B2C channels. I get the idea that if you get consumer adoption you get salience and businesses will follow. But is there any point trying to disrupt consumer card usage in markets like the UK? OB payments seems better suited to accelerating the B2B space. Improving digital transformation and cashflow for businesses. Not to mention that the B2B commerce opportunity is larger and can actually leap frog the consumer state.
The major missing feature is VRP (Variable Recurring Payments) – the ability to save the payment method and charge it later. Natwest have a merchant live with VRP, but they’re the only bank (apparently) that have the functionality and therefore how can an Open Banking Fintech roll this out? They can’t. I did discover, however that you can schedule future payments on the initial authentication; this is helpful, but it requires the merchant to know the value of those future payments plus the schedule. Seems like a good fit for B2B SaaS – no?! In truth, VRP is two years away, or until the banks sort themselves out.
Wallet adoption doesn’t exist yet (which is how I pay for everything now), UPI has been so successful IMO because of the adoption by Google Pay. I spoke to some Indian guys I met at Web Summit, they told me that they pay for EVERYTHING via their Google Wallet. It’s all recorded in one central ledger, it was amazing. Their utility bills, their shopping, all consolidated within the wallet and with payment method choice. It’s difficult to imagine Open Banking in the UK/EU hitting this state any time soon.
Open Banking payments aren’t running on some new super highway, they’re running over existing networks, hence there’s technical and commercial complexity when dealing with different networks, something already solved by card schemes…
You can’t pass enough data points via Open Banking. For example, you can’t pass basket items like you can with cards over the network… Again, why are you going after B2C retail when you fall short of the requirements?!
Security, hyped as a major benefit to Open Banking, but already fraudsters are getting around the SCA mandate in the EU with AI. Not to mention accounts need to be KYC’d in the first place. This problem has birthed some new security players, but of course, this comes at a cost… ‘Oh but OB is so cheap!’ Well, it won’t be for long.
I hope you found this helpful and demystifying, there’s a lot of fog out there. Open Banking – great idea, left to a load of bankers to lead with no commercial incentive results in a waining rollout and lack of customer centricity. But yeh, 7m people in the UK have used it, not sure if 7m people love it.
Let me know if you think the state of Open Banking payments right now is any different.