Open Banking and the Evolution of Digital Payments

Open Banking is shaking up the financial services sector and opening up new avenues and opportunities for both banks and payment service providers (PSPs). The open API ecosystems that are emerging are helping players in the sector create next-generation value propositions – evolving their existing operations to make more of emerging digital technologies.

The initiative enables banks and PSPs to be more creative with the services that they offer consumers. It also cultivates a more competitive banking environment, in which banks and PSPs have new ways to access customers, expand their audience and ultimately improve the bottom line.

For instance, HSBC's 'Get Connected' App aggregates competitor data to present users with a view of their bank accounts from all suppliers in one place. This not only provides consumers with a better understanding of their money, but also creates scope to attract customers from other providers. The app uses Open Banking APIs for a feature that actively makes suggestions about where consumers can cut day-to-day costs, which enhances the customer experience.

Opening the door to payments innovation

The benefits and opportunities of Open Banking are many. Chief amongst them, consumers are starting to gain greater control and understanding of their finances and banking data, which is helping encourage the development of new payment innovations through digital channels in order to bolster consumers’ control over their data.

One recent example is the Royal Bank of Scotland’s launch of NatWest Pay. The service leverages Open Banking technology and was piloted with Carphone Warehouse, enabling consumers to pay for goods and services directly through their bank accounts without using a debit or credit card. Such services follow the Request for Pay concept, where the user sees the balance on their account updated in real-time, which helps them to better manage everyday finances while at the same time offering the convenience of paying with a smartphone. Request for Pay solutions capture electronically the moment a payee sends a payment request and passes this securely through the consumer’s bank, enabling them to evaluate which of their accounts is most suitable for the payment before confirming. This lowers cost for merchant, eases reconciliation, and gives the consumer a more secure and slick customer experience.

Plenty of other financial institutions are also recognising the need to adapt to Open Banking and are using it to drive their innovation strategies. For instance, Erste Bank Hungary (EBH), which is using a universal payments solution to ensure customers can access real-time balance data across all banking channels on a 24/7 basis. Alongside providing a more convenient customer experience, EBH is also bolstering customer protection, using proactive risk management software that monitors in real-time to ensure maximum security across customers’ accounts.

The evolution of consumer payments

The big problem for emerging technologies, when it comes to consumer payments, is familiarity. Naturally, consumers are wary when it comes to their finances, which leads to a degree of scepticism over new technologies claiming to offer better ways to manage money. This presents an obstacle for any service based on emerging technology and makes it very difficult to set out a timeline for when innovations such as Request for Pay will reach the mainstream. However, with major financial institutions endorsing and adapting to Open Banking, we can expect to see the release of more innovations such as NatWest Pay – and this will serve to boost consumer confidence.

The financial services landscape is becoming a firmly consumer-centric environment. Across the UK and Europe, we’ll continue to see the rollout of technologies that put control in the hands of consumers. The proliferation of real-time payment schemes will continue to cultivate an environment in which new technologies can be developed, and we’ll see this reflected in more widespread adoption of Request for Pay technologies and continued modernisation of established payment methods.