Over the last year, there has been a lot of debate around open banking. Ugne Buraciene, CEO at payabl., discusses how open banking offers solutions to several payment solutions. Could it be the answer we’ve all been looking for?
Four years ago, open banking became a regulatory requirement in the UK. Ever since it’s been a hot topic of conversation causing a divide in the fintech and payments industries. One side of the debate says it’s over regulated 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 payment ecosystem to develop, offering a variety of solutions to businesses and consumers alike.
It’s time to open your mind to open banking
While there is no doubt that open banking hasn’t matured in terms of adoption, the fintech ecosystem that has emerged because of open banking cannot be underestimated. Open banking has made significant steps forward in the past year offering innovative solutions for several payment issues, for example…
Facilitating cheaper and faster cross-border payments
This year, cross border payments are expected to go over $156 trillion. As a result of Brexit, UK retailers are facing higher fees and eCommerce businesses are complaining that there are few good options for global payments. The reason? Varying complex regulations in different countries.
Banks and fintechs alike are working on solutions by exploring the use of Blockchain and crypto. However, I can’t see the technology delivering on cheaper and faster cross-border payments anytime soon. Banks need to get involved and regulations need to be met in different countries for this to happen. Put simply, for any payment option, the less intermediaries involved, the less cost. Open banking takes out the middle man to offer a much better solution than crypto or Blockchain.
In 2022, we’re seeing 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 stresses associated with cross-border payments for UK businesses.
Solving the Buy Now, Pay Later (BNPL) regulation headache
Growing faster than any other UK payment method, BNPL continues to hit the headlines – specifically around regulation and credit checks. In fact, a number of UK credit reference agencies will start including people’s ‘buy now, pay later’ borrowing data on their credit reports later this year. Alongside, the US Consumer Protection Board’s inquiry into companies using PayPal and Klarna asking them to respond by March 2022.
These movements within the sector will likely result in increased regulation for BNPL companies and rightly so. I believe that the success of BNPL services is all about balancing consumer choice with risk management. However, the risk management element needs to be seamless or invisible to the end customer to ensure that adoption does not slow.
Open banking can run in-app risk management checks prior to payment, enabling BNPL services to continue working seamlessly for customers and merchants. The checks ensure consumers who shouldn’t have access to these services due to affordability, don’t, and those that should be able to access the services, have the choice available to them. As it matures, open banking can really change the game here.
Stopping further post-Brexit fee disagreements
At the start of 2022, the fintech industry watched as Amazon threatened to no longer accept Visa due to rising fees. It was a game of corporate chicken that was hard to take your eyes off.
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. However, it’s a cost increase that they are free to make. Following Brexit, fees are no longer controlled by EU regulations, leaving payment companies to charge what they like.
While they can raise fees, it’s important to remember that credit card companies do not have a monopoly in payments. In the UK, nearly everyone has a bank account. With marketplaces on the rise, open banking could enable consumers to benefit from cheaper and faster online payments. Plus, the potential of hybrid methods, where the transaction is started with a card but finished with open banking.
These approaches are much cheaper compared to card processing, and this approach benefits the merchant in particular. In the US, ACH payments are already in place and rising in popularity. ACH uses open banking, doing checks in real-time by seeing how much money is actually in the account before taking the payment, offering the user an instant, seamless experience. In comparison to the system used by most companies today, waiting days to see if a payment has been successful, it’s no wonder ACH is gaining ground.
Based on my 10 years of experience within the global Fintech space, I think businesses, consumers and countries alike need to adopt an open mindset when it comes to open banking. With the potential to instantly offer resolutions to three of the biggest industry challenges, the sky’s the limit for open banking innovations. Having recently hit five million users, open banking is going to completely revolutionise online payments.
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