At the MoneyLIVE summit in London last week, leaders from the payments and banking industry came together to discuss the transformation of the sector.
Banking Circle’s Sarah Lauridsen, Head of Products & Solutions, spoke on a fireside chat session where she was joined by Jessica Richards, Head of Market Development, Payments, at NatWest Group, alongside moderator Juliette Foster.
Sarah and Jessica shared their insights on the road to Open Payments and the impact on the existing value chain. We’ve wrapped up the key points from the discussion below.
What is the potential of Open Payments?
Open Payments, which leverages Open Banking to allow people and businesses to pay directly from a bank account in real-time, is “changing the game”, according to Jessica Richards, Head of Market Development, Payments, at NatWest Group.
“I think it will enable us to make payments simpler, smarter and safer,” she said. “For customers, it will give a better customer experience; for merchants, I think we can make the cost cheaper and reduce fraud; and for payments providers, we can grow the pie while still giving customers a better experience.”
Jessica explained that while there has been a lot of talk about the potential for exponential growth in Open Payments – and indeed a significant increase in volume in the past two years – the numbers are still small as a proportion of all payments made in the UK.
“We are on the start of the journey,” she explained, drawing comparison to the uptake of contactless payments, which was slow at first and then mushroomed after Transport for London enabled them on their system.
According to Banking Circle’s Sarah Lauridsen, Head of Products & Solutions, Open Payments has the potential to completely revolutionise the landscape.
“I think what might be notable, is that some of these Open Banking payment solutions actually have the potential to replace cash, where we haven’t seen cash replaced yet, because they’re often easier to adopt for micro merchants, compared to a card-based infrastructure which is a little bit heavier to implement,” she said.
The payments value chain today
Sarah highlighted the proliferation of Alternative Payment Methods in the current landscape, adding that consolidation is a likely response to this trend. We are already seeing the payments value chain be impacted by this, she went on to explain.
“Most obviously, we’re seeing new players replacing the card schemes at a particular place in the value chain… So we have Open Banking aggregators aggregating access to many banks’ APIs in one place, and we have providers of new Alternative Payment Methods using those Open Banking aggregators to provide the payment methods. I think we’ll see that the Open Banking aggregators themselves will increasingly go after payments licenses to be able to take on that place in the value chain… We’re seeing companies like PPRO, who aggregate several Alternative Payment Methods to make it easier for PSPs and merchants to sell across many geographies with only one integration point.”
Request to Pay: the new Direct Debit?
Request to Pay could be a real contender for Direct Debit – which has huge penetration in the UK – according to Jessica.
“For most people, [Direct Debits] are simple, and you actually don’t have to think about it. But the world is changing,” she said, pointing to increases in the cost of living as well as the rise of the gig economy. Request to Pay can be particularly beneficial for gig economy workers, who often have variable income levels, she went on to say.
“It gives people more control [over their finances], and in the world we live in, that has to be a good thing,” Jessica said, highlighting the ability for consumers to choose exactly when to pay their bills via Request to Pay, compared to via Direct Debit, which automatically takes the from your bank account.
From the UK to Europe-wide?
Could we see Open Payments unlock Europe-wide interoperability? According to Sarah, while theoretically possible, the reality would be significantly challenging: “I think in practice, Open Banking and Open Payments will have a lot of obstacles to overcome,” she said.
“Open Banking still operates on the domestic schemes, so to cross borders you still need to move between domestic schemes. That’s possible – we help our clients to do just that. But to make this work, you’d also have to connect all of the banks out there. And even with Open Banking aggregators in the space, that’s a daunting thing to achieve. You also have to consider that not all countries are as mature as the UK in terms of Open Banking, so you will not see the same success rate everywhere from Open Banking payments.”