May 7, 2021

Open Banking is poised to drive innovation

Mike Peplow, CEO, Paynetics UK
4 min
Mike Peplow explores a key industry trend, Open Banking, and details the fundamental changes that are poised to transform financial services
Mike Peplow explores a key industry trend, Open Banking, and details the fundamental changes that are poised to transform financial services...

Open Banking is changing the way we bank in the UK and the rest of the world. With Open Banking, consumers can enable third-party providers to use the financial data held by their bank to develop new products and services that improve their daily lives.

In the UK, the number of Open Banking users increased from one million in January 2020 to three million in 2021. The technology has already taken off in countries such as South Korea, which has over 20 million users, and it is set to penetrate the US market in the coming years.

The way we think of banks and our expectations of them are constantly evolving. And Open Banking is the next frontier for financial services.

The proliferation of Request to Pay

One of the most exciting applications of Open Banking is Request to Pay (RtP), which allows users to proactively request payments from other bank accounts. Although customers can already make real-time payments between accounts using mobile banking, RtP is revolutionising invoicing and regular payments - something particularly useful for merchants and self-employed business owners. 

Debtors receive a notification with the amount due, granting them greater visibility over what they owe, while payees can track the status of all bills and invoices on a single device, providing them with a simple and efficient way to reconcile accounts.

Open Banking users can also make more accurate financial forecasts and reduce billing costs thanks to electronic invoicing. For business users, the removal of legacy and manual processes means that they can operate more efficiently, reducing the time wasted chasing overdue invoices, as Open Banking enables a 360-degree view of payments on a single platform. 

The end of BACS payments

Open baking technology is also primed to replace BACS payments. BACS is currently the most widely used bank-to-bank payment method, accounting for around 90% of all regular monthly payments via direct debit transactions. One of the more popular uses of BACS is for payroll transactions. 

But, Open Banking offers a simpler, more effective payment option for payroll providers. In short, it allows employers (or payroll providers) to make payments directly to employee’s bank accounts rather than submit complex batch files via a bank for BACS processing.

Moreover, Open Banking will improve real-time payments, challenging traditional card schemes to enable instant transactions between retailers and consumers. This is particularly relevant for e-commerce where retailers are constantly looking for ways to reduce cost and transaction friction.

Savings for merchants

Over the last few years, Open Banking has grown rapidly. Accelerating its adoption among merchants, are the cost savings for businesses. Open Banking eliminates the risk of cash mishandling. And the lower transaction costs from online purchases, make Open Banking attractive to merchants and easily accepted by customers. 

The pandemic has seen more of us go online for retail purchases than ever before. In fact, 87% of UK households made online purchases last year. So as more customers shop online, we will see more retailers gravitate towards Open Banking technology due to its cost-saving benefits. There are still issues to address such as chargebacks and purchase protection, however, the prize for the retailers is significant, so expect these issues to be actively addressed.

Growth overseas

Although the speed at which Open Banking has been adopted in the UK is impressive, markets such as the US still have a way to go. A key factor that has helped popularise Open Banking on this side of the pond has been the passing of data legislation that has encouraged its adoption

Regions such as Europe, the UK, and Australia have all drafted or implemented regulations to nurture Open Banking innovation. For example, PSD2 legislation in Europe, enforcing data and privacy standards for APIs, and Australia’s Consumer Data Right Act have both supported Open Banking innovation, while reassuring customers that their money, and data, is safe. 

Although the US is currently lagging behind, the next few years is likely to see Open Banking start to permeate the North American market, especially following the success experienced in other parts of the world.

The future of banking

Businesses and consumers want easy-to-use payment solutions that save time, reduce costs, and are convenient. So the way we understand banking will continue to change. 

Fintechs and solution providers are leading this innovation within the payments industry. In just a few short years, we have gone from in-branch banking to mobile, and now Open Banking. It’s an exciting time for the financial services industry as we're able to deliver groundbreaking products that significantly improve the banking experience for consumers and merchants alike.

With these solutions, of course, comes greater demand and expectation from the market. Thanks to Open Banking, the UK has the payments infrastructure to support this innovation now, and in the future.

This article was contributed by Mike Peplow, CEO, Paynetics UK 

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Jun 23, 2021

CMA warns UK and Irish banks over bank transaction histories

2 min
The UK’s Competition and Markets Authority has issued warnings to several high-profile banks in the UK and Ireland over customer transaction histories

Specifically, the CMA named prominent challenger bank Monzo, the Bank of Ireland, NatWest Group, and Virgin Money as not providing customers with records of their bank transactions within the maximum outlined timescale (40 days after closing the account).

Such information is crucial not only for ensuring a smooth transition from one bank to another, but also to provide a foundation for credit applications in the future. 

According to the Retail Banking Market Investigation Order 2017, 95% of bank and building society customers should receive their bank transaction histories in at least 10 days.

Reputation: A bank’s greatest asset?

Of the 150,000 customers affected, Monzo was by far the main contributor - 143,000 (95.3%) - with the other three dividing the remaining 7,000.

The extent to which the magnitude of its mistake is attributable to being a digital-only bank is not clear, although it may give some customers pause for thought. With a superior customer experience being among the bank’s greatest assets, continued reputational damage is something that it cannot afford to sustain.

Although the CMA’s action in this instance has been to issue each bank a warning and order the immediate dispatch of all outstanding information, it has warned that future breaches will carry heavier consequences. Measures could include legally enforceable compliance audits on a yearly basis.

Helping customers get a better deal

Condemning the banks for negligence that could negatively impact customers’ desires to take out loans or mortgages, Adam Land, CMA Senior Director of Remedies Business and Financial Analysis, promised that his organisation would remain vigilant to similar behaviour moving forward.

“Banks must comply with all the rules – that includes providing a full transaction history promptly.

“We will be watching closely to make sure these leading names stick to their word and don’t let their customers down again. The Bank of Ireland, Monzo, Natwest Group, and Virgin Money should be in no doubt that the CMA stands ready to take further action if these failures are repeated.

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