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Open banking enabled payments could be a key driver of future competition between UK payments networks, but the adoption of such payments are still in the early stages, predominantly being used to make one-off payments, the government response to the Payments Landscape Review has cautioned.
Last week, HM Treasury published its response to the Payments Landscape Review — a call for evidence rolled out in 2020.
The government has used this to outline its vision for the future of payments and the priority areas that it wants to focus on, including topics such as equipping Faster Payments for the future, enhancing cross-border payment and access to cash.
Another focal point is unlocking open banking to enable safe and secure payments, allowing consumers to pay for goods and services in shops and online directly from their accounts, rather than using a debit or credit card, was also on the agenda.
This, it believes, would promote competition and choice between payments networks, while creating new opportunities for fintechs to build the next generation of payments.
However, respondents still deem open banking’s implementation to be in the early stages, according to the government’s findings.
“API [application programme interface] stability, user experience and success rates have come a long way in the UK, where open banking payments API calls have increased 664 percent in the past 12 months,” said Todd Clyde, chief executive of payments platform Token.
However, Clyde added, there are still areas for further improvements, such as the issues of long-lived consent for variable recurring payments and extended consent periods (over 90 days) for data access.
“The UK created the blueprint for open banking. So we’ve learned lessons to share with the rest of the world,” said Giovanni Caccavello, head of research and blog content for Open Banking Excellence (OBE), speaking to VIXIO.
Caccavello continued that this was notable at a launch event hosted by the OBE in Brazil, where Aristides Andrade, chief of cybersecurity and technological innovation at the Central Bank of Brazil, spoke about the trips they had made to the UK to visit many of the CMA9 banks and learn from them.
“The UK has one of the most advanced open banking ecosystems in the world, with banks, fintechs, regulators and service providers observing stakeholder and market adoption,” he said, adding that the regulatory-driven model has allowed for a common set of standards, and a solid platform for market acceleration.
However, that is not to say that there is not room for improvements, for example, when it comes to customer trust, Caccavello said.
There are two issues that need to be addressed, he said. “Safety and security need to be properly addressed at industry level as a large number of customers globally perceive the sharing of data as one of the most sensitive forms of information.”
Meanwhile, customers still need to be better taught and informed about the benefits of open banking, he said. “We need to know what we can do with it, and how it can really become a secure friend of ours.”
If we do not get better at explaining the benefits of open banking and getting our message out to the widest possible audience, then we will have missed a once in a lifetime opportunity to change the financial lives of millions of consumers for the better, warned Dan Scholey, chief operating officer at Moneyhub Enterprise.
This echoes the responses in the Payments Landscape Review, which argued further functionality and standards are required to improve reliability and ease of use if such services are to be adopted more broadly. This will include the right consumer protections for when a payment goes wrong.
There were mixed responses in the consultation about whether the adoption of an open banking trust mark would encourage take-up, which has been suggested by a number of organisations, including the British Retail Consortium.
In addition, there is the case of the big banks to contend with, Scholey said.
“The big banks lacklustre, some might say reticent, approach to open banking also risks sabotaging the project by slowing adoption and impeding growth,” he said.
This has been raised by fintechs as well in the UK.
Innovate Finance, the UK’s fintech lobby group, expressed concern at the Open Banking Implementation Entity’s plans to implement UK Finance proposals that the CMA9 should be obliged to fund a future entity for three years, but after that could withdraw membership within six months.
In particular, the newly proposed model could lack long-term sustainability, the trade association warned.
This chimes in with the fact that appropriate future governance for open banking following the completion of the Competition and Market Authority’s (CMA) mandated roadmap to provide strategic direction and to overcome potential vested interests was another priority of the government, who have already shown a keen interest in fintech through their commissioning of the Kalifa Review.
Although the UK has been able to jump ahead of its neighbours in the realm of open banking, the government’s sense of urgency in its Payments Landscape Review response, as well as concerns from open banking stakeholders, show that there is still a long way to go to make it a compelling alternative to existing payments options among UK consumers.
