Making good on open banking payments’ promise

Open banking is the most exciting disruption to hit financial services in a generation and is fundamentally changing the payments landscape. Account-to-account (A2A) payments offer not only cost savings and better cash flow but unrivalled reach by covering anyone with a bank account, all while providing smoother onboarding processes and superb bank-grade security. Because their benefits are so compelling, I predict that A2A payments will no longer be an ‘alternative’ payment method but will cross over to the mainstream within five years. 

While in the UK specifically, an early majority of merchants are asking for this payment capability, ultimately, consumers are driving A2A payments’ unstoppable momentum. Whether at checkout, loading digital or crypto wallets, paying utility bills or (one of the fastest-growing use cases this year) repaying debt, A2A payments offer familiarity, convenience and clarity for consumers, all wrapped in a sleek user experience. There’s no training and no onboarding, you simply initiate and authenticate the payment in the banking app you likely use every day. Consumers just get it, and that’s key: drop-out rates have reduced over the last year as consumers become more comfortable with A2A payments as a choice, and success rates are now over 98% for those that proceed with the payment type. 

In the three years since open banking became a regulatory requirement in the UK, API call volume has increased from 66.8 million in 2018 to 9.5 billion in 2021. There are now 518 registered TPPs in the UK and Europe, and over 4 million UK consumers and businesses are using open banking-enabled products, which has caused the number of total payments to increase by 664% from July 2020 to July 2021. Token has captured 28% of all market growth in the UK for open payments year-to-date and generated an estimated £12 million in savings for merchants. Across Europe, merchants still have to adopt en masse, of course. Still, we’re moving beyond early adopters in the UK and expect a similar acceleration in growth rates in European markets like Germany. Once A2A payments are available from all gateways and PSPs, there will be an even greater boost in the numbers.

Open payments are paving the way for A2A payments to achieve 20% penetration of all eCommerce and surpass the use of cards by 2023. And strategic partnerships like Token and BNP Paribas’ are setting the stage. Launched this year, BNP Paribas’ Instanea is the first SEPA Instant immediate payments offering for merchants in Europe. Powered by Token, Instanea now enables consumers across France to pay by bank both online and in stores. 

Signals point to open payments nearing a critical inflection point, as research from Token reveals that Variable Recurring Payments (VRPs) may be poised to ignite further explosive growth. The OBIE has mandated variable recurring payments for the purpose of sweeping, which is a significant step forward in open payment functionality. Token’s industry survey of over 60 senior-level open banking and finance professionals found that 67% have a strategy to commercialise VRPs once banks support them. Furthermore, if VRP functionality were offered tomorrow, 100% of merchants surveyed would make them available to consumers, with security and fast settlement times reported as their most compelling benefits. 

In parallel with broader tech industry trends, it is clear that financial services evolved from web-first to mobile-first and will now embrace API-first strategies. Yet, this journey is not without its challenges. The industry must continue to consider protection for consumers: both payment protection (ensuring resolution if something goes wrong when executing a payment) and purchase protection (insurance against the failings of a product or merchant). I don’t believe purchase protection should be part of A2A payments, and regulation already mandates payment protection. However, a key challenge is educating consumers about this, as well as the need for a common dispute management mechanism. While A2A payments are more secure than legacy online payments and cards, the industry must also go further with fraud protection. Open banking can open up another avenue for authorised push payments fraud when online banking credentials are already compromised. We need to make consumers aware of new beneficiaries, and of all of their transactions, in real-time. TSPs and TPPs also need to step up and invest in fraud tools to help police this new ecosystem. 

In Europe, there is also a need to negotiate the hurdles put up by a fragmented Open Banking ecosystem (lack of harmonisation in pan-European Open Banking API standards, bank processes and predictability are but a few). The good news is: solutions are within reach. Industry and regulatory pressure can get us all over the line together. For example, European regulators can encourage and enforce banks to continue to raise the bar on stability and reliability. At the same time, industry bodies can apply pressure on banks to adopt SEPA Instant consistently or implement a form of payments guarantee (such as an authorisation API specified by SWIFT).

Given the current complexities and fragmentation of open banking in Europe, having the right solution and partner is critical to gaining a strategic advantage in open banking opportunities, the most promising of which is open banking payments. That is why, while other service providers solely aggregate data access to banks, Token provides third parties with a single API for the broadest payments connectivity for banks in Europe. As we drive the shift from traditional payment methods to A2A payments, Token’s focus has enabled us to develop deep functionality that makes accepting bank direct payments elegant and simple. We white labels our entire solution to enable other players in the existing payment value chain to bring bank direct payments to their customers. To that end, Token also has sophisticated, reseller-friendly features baked-in, including merchant onboarding, merchant management, customer billing, hierarchical configuration management, and certificate management. 

I believe there is a huge cause for optimism regarding A2A payments and a strong sense that they are crossing a critical threshold. All signals point to an explosion in growth in line with consumer appetite and new use cases on the horizon. In Token’s survey on the future of open payments, we found the three most compelling use cases for variable recurring payments: subscription services, recurring bills, and one-click e-commerce payments. Any one of these use cases has the potential to make good on the promise that open banking payments present a credible challenge to the dominance of cards. Nail all three, and we arrive at the holy grail that lies beyond open payments’ tipping point: irreversible ubiquity.