The European Union is preparing to raise the stakes for open banking. With the Third Payment Services Directive (PSD3) and its accompanying Payment Services Regulation (PSR) moving through final approval stages, the bloc is edging closer to its most significant payments overhaul since PSD2.

EU lawmakers have published their final compromise texts for the proposals, suggesting that major political negotiation is largely complete. The next steps are formal approval by the Council of the European Union and the European Parliament, after which the rules will go into effect 20 days later.

At its core, open banking is built on the relationships between banks and third-party providers—fintechs and partners that enable the modern digital banking ecosystem through application programming interfaces (APIs).

Therefore, it makes sense that a key emphasis of the new framework is strengthening the rules governing these partnerships. For example, under PSD3 and the PSR, banks and third-party providers will need to ensure that APIs are secure and that all participating firms are appropriately authorized or licensed.

Tightening Fraud Controls

Another major focus of the legislation is fraud prevention. Fraud has become a global threat as  payments have accelerated and cybercriminals have become more savvy. To this end, the PSR introduces stricter transaction monitoring requirements, including real-time checks for instant payments.

The regulations also set higher standards for identity verification. For example, payment service providers will be required to verify that the recipient’s name matches the account identifier before initiating a transfer. Additionally, the framework implements enhanced customer authentication rules, clarifying when step-up security measures must be applied.

A More Unified Regulatory Approach

The overarching message of the new rules is that while open banking delivers benefits, its high degree of interconnectivity also introduces new risks. PSD3 and the PSR represent a more targeted evolution of the regulatory framework, aiming to close gaps identified in earlier iterations of the Payments Service Directive.

Responsibilities are more clearly divided. PSD3 will primarily address licensing and supervisory arrangements, while the PSR will set directly applicable conduct and operational requirements across EU member nations. This separation is designed to reduce the inconsistencies in implementation that emerged under PSD2.

Ultimately, the goal of PSD3 and the PSR is to create a more secure and harmonized open banking environment across the EU. Once adopted, financial services firms are expected to comply with the new requirements within 27 months of the rules entering into force.

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More emails about privacy practices and data disclosures are landing in consumers’ inboxes. As users’ digital footprints expand, these messages seem to come from every direction—big-box retailers, healthcare providers, financial services firms, and even streaming services.

While these emails may feel like a rote legal exercise to some—or an unwelcome intrusion to others—the growing emphasis on protecting personal data is a positive trend. These notifications not only provide greater transparency but also serve as an opportunity to build trust with consumers who are increasingly concerned about how their data is collected and shared.

Despite improvements in messaging, there are still many areas where privacy processes can be optimized.

For example, the emergence of open banking has introduced a web of intricate relationships between banks and third-party providers. As Tracy Goldberg, Director of Cybersecurity at Javelin Strategy & Research, examined in the Data Transparency in the Age of Cyber and Privacy Risk report, this complexity—combined with escalating cyber threats—has made delivering clear, effective privacy disclosures both more difficult and more essential.

A Hot Topic

Historically, privacy disclosures were often treated as an afterthought, buried within layers of website navigation. Even when customers managed to find them, they were frequently confronted with dense, jargon-heavy documents that were difficult to understand.

“It’s been nice to see that as we have done our Cyber Trust in Banking evaluations over the course of the last three to four years, that financial institutions are making it much easier for consumers to find privacy disclosures on their website,” Goldberg said. “In some cases, financial institutions are even breaking out privacy disclosures for senior citizens, for children, and for those who fall within the working-age consumer category.”

Along with this personalized touch, institutions should prioritize clarity and accessibility, ensuring disclosures are easy to find and written in plain language. In addition, privacy documentation should be updated regularly—at least on a quarterly basis. Many consumers seek out these materials to confirm that their financial institution has adequate data protections in place. Outdated policies can quickly erode that confidence.

When significant policy changes occur, customers should be notified as soon as possible. However, even in the absence of major updates, periodic privacy notices remain valuable. These communications act as important touchpoints, reinforcing that customer data is both protected and prioritized.

Ultimately, the goal of these privacy best practices is to foster trust—a challenge that continues to grow amid persistent concerns around the economy, fraud, and evolving technologies.

“We’re finding that consumers are actually reading privacy disclosures,” Goldberg said. “A lot of that has to do with the fact that privacy is such a hot issue for consumers, especially in this age of AI. Consumers have concerns about their data being everywhere and they’re starting to pay attention.”

“Making it easy for consumers to find those disclosures—and this would apply to any business, but financial institutions in particular—is important because consumers want to know that their data is secure,” she said. “They want to know their privacy is being respected.”

Linked by Choice

While financial institutions are doing a better job of managing their own privacy policies, the increasing role of fintechs in the digital banking ecosystem has rapidly muddied the waters.

For example, customers attempting to understand how their personal data is shared with third-party partners often encounter a labyrinthine task that rivals the privacy practices of the past. In many cases, opting out of data sharing is just as cumbersome, despite being a feature that should be straightforward and accessible.

On the other hand, placing all third-party relationships front and center in a website or app risks overwhelming users with too much information.

“There are so many places where your data is linked,” Goldberg said. “Sometimes it’s by consumer choice—I choose to link my bank account to my Venmo account, that’s a choice I’ve made. I choose to link my bank account to some of the retailers that I use. When I log into online banking, I’m going to see all of those connections, and for some consumers, that may be overwhelming.”

“It’s a fine line,” she said. “Part of it goes back to knowing your customer and knowing what your customer can handle. Some of the options that you provide to one customer may not be the same as the options you provide to another. That’s where it gets a little bit difficult for financial institutions because it’s not a one-size-fits-all approach.”

Thinking Ahead to Open Banking

Although the proliferation of fintech companies has made privacy documentation more complex, these providers play an integral part of the predominant open banking model. This trend is unlikely to reverse, as consumers increasingly expect the convenience and functionality fintechs enable. Moreover, the competitive nature of financial services demands strong technological infrastructure—something many banks can’t build independently.

The benefits of open banking have prompted many regions to develop regulatory frameworks to support it. In the United States, however, a more market-driven approach has created challenges for financial institutions seeking to define their privacy and security strategies.

Most notably, uncertainty remains around the final implementation of Section 1033—the open banking rules finalized by the U.S. Consumer Financial Protection Bureau—which continues to leave key questions unanswered.

“Financial institutions don’t have a lot of guidance to go on,” Goldberg said. “They need to be thinking ahead because we know open banking is here. It makes life easier for the consumer; it’s not something that we can just forget about. But we do also have to remember—from a financial institution perspective—that there are privacy considerations that have to be taken into account and transparency is key.”   

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Third-party fintech companies have transformed financial services and accelerated the rise of open banking, but their access to sensitive customer data continues to introduce significant risks.

While the U.S. has largely allowed industry participants to address these challenges on their own, countries like New Zealand have adopted a more regulatory approach. After instituting open banking rules in December, New Zealand’s regulators have indicated they plan to move forward with more extensive reforms.

The objective of these efforts is to secure open banking interactions, drive competition among domestic financial institutions, and imrpove payments efficiency.

“It is great that New Zealand is approaching open banking from a regulatory perspective,” said Don Apgar, Director of Merchant Payments at Javelin Strategy & Research. “Mandating compliance forces the banks to invest in the technology and creates a level playing field. Of course, retailers are excited about the potential for lower fees compared to card-based transactions, but enabling the technology is only the first step to making direct bank payments a reality.” 

Developing the Standard

One of the main steps New Zealand’s banks have taken is the development of standardized application programming interfaces (APIs), which allow authorized third-party firms to access data and perform services—provided customers give consent.

Similar to the revised Payments Services Directive (PSD2) implemented by the European Union, New Zealand’s framework also aims to reduce the practice of screen scraping, in which non-bank providers extract financial data for use within their own platforms.

Secure APIs help mitigate the need for screen scraping, along with the associated security and privacy risks.

Challenges and Advantages

In addition to enhanced security, pay-by-bank options offer consumers an alternative payment rail at a time when many are burdened by debt from credit cards and buy now, pay later loans.

For merchants, adding account-to-account payments means they also have an alternative to card networks and their associated interchange fees. However, implementing pay-by-bank functionality presents its own set of challenges.

“Merchants must also make the investment to connect to the new payment rails being built by the banks, and consumers need to see a clear value proposition to paying via open banking versus using their cards,” Apgar said. “Card payments have become remained popular with consumers because of rewards structures and easily accessible dispute mechanisms with zero liability.”

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Secure real-time payments are foundational to the open banking model, enabling users to pay directly from their bank accounts across a wide range of use cases. This capability is largely delivered through APIs provided by third-party fintechs.

This is the model that eBay plans to implement in the UK, where the e-commerce giant will tap into the substantial pay-by-bank network of TrueLayer to introduce account-to-account payments for its customers.

However, this partnership goes further than simply adding another payment option. eBay is also making a substantial investment in TrueLayer through its venture capital arm, signaling confidence in both the fintech itself and the broader open banking model. While this is a notable development, the long-term implications remain to be seen.

“This will be interesting to watch,” said Don Apgar, Director of Merchant Payments at Javelin Strategy & Research. “It’s a stretch to say that the fact that eBay implemented pay-by-bank is now a broad validation for open banking platforms. What will amount to validation is how many eBay shoppers choose that payment method at checkout vs traditional card payments.”

“The proof will be in the figgy pudding—as they say across the pond—when we see the payment volume materialize,” he said.

Two Key Features

Many merchants have been drawn to real-time payments as a lower-cost alternative to credit cards and their associated interchange fees. That said, credit cards do offer certain benefits that help justify their costs.

“Card payments have evolved over their 50+ year lifespan, and the two-step process enables sellers to verify and claim good funds immediately at the time of purchase, while not actually charging the cardholder until the goods are shipped,” Apgar said. “This, combined with a well-defined chargeback and dispute process, highlights two key payment features that consumers forfeit when opting for pay by bank.”

A Challenging Road

These advantages, coupled with the dominance of card payments, suggest that real-time payments still face a challenging path to wider adoption in the UK.

“The lower fees and real-time settlement are certainly advantages for sellers, and we may see eBay and others offer incentives to consumers who select pay-by-bank,” Apgar said. “While there are many great use cases, it remains to be seen if buying goods from e-commerce marketplace sellers is one of them.”

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One of Africa’s largest payments processors, Flutterwave, is acquiring API-driven fintech Mono, a move that could reshape how lenders assess creditworthiness in the absence of standardized credit scores.

Mono has made a splash since it was founded five years ago, and its APIs connect a significant portion of Nigeria’s digital banking system. For its part, Flutterwave facilitates domestic and cross-border payments across more than 30 African countries. The acquisition will expand both the reach and the breadth of services offered by the two companies.

This open-banking-based partnership could have particularly meaningful implications in Africa, where consumers lack standardized credit scores. The limited scope of many credit bureaus in these markets means lenders are often forced to rely on banks’ transaction histories to evaluate creditworthiness.

A Critical Juncture

The combined infrastructure of Flutterwave and Mono could improve access to borrowers’ banking data at a critical juncture. According to Mono’s CEO Abdulhamid Hassan, Africa is undergoing a transitional period in which regulators are increasingly promoting lending initiatives that will drive financial inclusion.

These inclusion efforts not only create new opportunities for consumers, but also unlock significant potential for banks and businesses. Research from Galileo found that roughly half of global financial leaders surveyed reported their organizations had lost 10% or more in potential business due to absence of truly inclusive technology.

The Inevitable Adoption

Open banking technology—especially APIs offered by third-party providers—is at the heart of this transformation. Due to the eclectic financial infrastructures across the world, open banking has gained traction at varying rates.

However, the flexibility, security, and inclusion benefits of open banking make its widespread adoption inevitable.

“The idea of having open access via APIs to data and to accounts—that’s not going to go away,” James Wester, Co-Head of Payments at Javelin Strategy & Research told PaymentsJournal. “It may change based upon the way regulations are crafted and the way the market develops, but at its core, that open-banking paradigm where you and I have access to our bank account and to the data—that’s going to continue. Customers want that, small business customers want it, and commercial clients want it.”

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Fintechs play a pivotal role in the financial services landscape, yet many existing regulatory frameworks were not designed with them in mind. For this reason, the UK is set to launch a licensing program aimed at reducing the red tape that has hindered many fintechs.

Under this program, financial services companies will be able to conduct certain regulated activities under a provisional license for up to 18 months while they working toward full authorization.

The new framework responds to criticism from UK fintechs over the time and expense required to secure a full license. At the same time, easing these requirements is part of a broader initiative by UK regulators to boost economic growth.

Expanding Fintech Access

Calls for better regulation of disruptive financial technologies aren’t relegated to the UK. U.S. Federal Reserve Governor Christopher Waller recently posited that payment services companies should be able to obtain a limited account with the Fed.

Traditionally, master accounts that access Federal Reserve services have been restricted to licensed banks. However, Waller’s proposed “skinny” master account could allow fintechs to access these services directly. This could eliminate a pain point for many U.S. fintechs that currently rely on licensed banks’ master accounts to conduct their payment services.

A Growing Acknowledgement

These regulatory proposals and initiatives reflect a growing recognition among regulators worldwide that fintechs are critical to the modern financial services industry. Third-party financial service providers are the building blocks of the open banking system, which is gaining global traction.

These fintechs enable customers to control their data while allowing financial institutions to deliver innovative products. While open banking has achieved faster adoption in the UK than in the U.S., the model is steadily advancing worldwide.

“The idea of having open access via APIs to data and to accounts—that’s not going to go away,” James Wester, Co-Head of Payments at Javelin Strategy & Research told PaymentsJournal. “It may change based upon the way regulations are crafted and the way the market develops, but at its core, that open-banking paradigm where you and I have access to our bank account and to the data—that’s going to continue. Customers want that, small business customers want it, and commercial clients want it.”

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The humble demand deposit account has been the cornerstone of the financial services system for decades. However, banking customers who manage all their finances through checking and savings accounts at a single financial institution are in short supply.

At the same time, more fintech companies have transformed from niche, one-off services to full-service financial ecosystems.

As James Wester, Co-Head of Payments at Javelin Strategy & Research, detailed in the 2026 Debit Payments Trends report along with Javelin Analyst/Content Specialist Craig Lancaster, the emergence of open banking, coupled with novel payment rails, has created an environment in which financial institutions must adjust their long-held strategies to stay at the forefront of their customers’ financial lives.

Accounts Under Threat

Open banking has gained significant traction in many of the world’s leading economies. However, the well-established U.S. financial infrastructure and a market-driven approach by its regulators have hindered the growth of a formalized system of open banking.

Although there may be some debate about how and when the final product will appear, U.S. open banking is inevitable.

“The idea of having open access via APIs to data and to accounts—that’s not going to go away,” Wester said. “It may change based upon the way regulations are crafted and the way the market develops, but at its core, that open-banking paradigm where you and I have access to our bank account and to the data—that’s going to continue. Customers want that, small business customers want it, and commercial clients want it.”

This demand for open banking has been driven, in large part, by the functionality and efficiency that fintech companies have delivered. Although the established banking paradigm isn’t likely to be replaced anytime soon, the traditional banking relationship is no longer an integral part of how many consumers interact with the economy.

For example, the traditional peer-to-peer model consisted of a consumer bank account linked to a P2P service like Venmo or Cash App. Now, fintechs like Venmo offer accounts with debit cards that can operate independently. Although many of these P2P companies don’t offer FDIC insurance, that may not be a dealbreaker for customers who are focused on convenience.

Although this trend may not be novel, it is accelerating. This means that the conventional bank account, and more important the customer relationship, has been jeopardized.

“As open banking has made financial services more modular for the retail consumer—the ability to have accounts that you pay out of, accounts that you save into, accounts that you pay friends out of, accounts that you pay bills out of, maybe accounts that you shop with—having all of that and that ability to immediately access that through open-banking standards means that the core DDA, that core relationship you have with your primary financial institution, is under threat,” Wester said.

Reintroducing Friction

Along with these new players, the debit landscape has been disrupted by the emergence of real-time payment rails. Instant rails like FedNow and the RTP network have gained traction in the United States, and the benefits of real-time settlement have become increasingly evident.

However, faster payments create a set of challenges that U.S. financial services providers must address.

“Traditionally, the idea of friction is that it is a bad thing in payments,” Wester said. “What we’re beginning to see, though, is that friction had some benefit. When you have batch processing—where all the transactions are batched together and cleared and settled overnight or over a couple of days—what it allows you to do is flag any suspicious transactions, fraud, accidental transactions, or mistakes.

“When you’re talking real-time gross settlement, it is immediately pulled from your account; it’s settled in real time. What we’re beginning to see is that as real-time payments mature, fraud exceptions are able to flow through the system just as quickly as real-time settlement.”

Because many financial institutions don’t yet have the proper fraud management tools to flag exceptions in real time, tension is rising between the growth of real-time payments and the need for customer protections.

This tension is likely to exacerbate as real-time payments take precedence in retail situations. Financial institutions could be forced to reintroduce friction points to ensure that consumers are fully protected.

Ripe for Exploitation

However, along with the challenges that arise from emerging payment rails, opportunities are also blooming. One of the main debit trends is that more financial institutions are likely to be involved in payouts.

Payouts from commercial and government entities have typically been conducted through the ACH protocol, but many debit rails have begun to gain traction in these use cases. For example, an organization could use Visa Direct or Mastercard Move to push money directly into a recipient’s bank account.

“The implications are big for ACH,” Wester said. “ACH does allow for certain faster settlement, but direct debit just puts money in consumers’ accounts quicker, and that’s what consumers want. Especially when you’re talking about things like insurance payouts when there’s been a disaster, people want their money.”

Because the payout market is substantial, more financial services companies are considering these services. This could cause a marked shift in the way financial institutions view debit products.

“It doesn’t mean ACH goes away, but it does mean there’s a significant pool of transaction volume that can go over those direct-debit rails,” Wester said. “I think that if banks are aware of that and start pushing for that—because they make more money off of that—then that’s an area that’s ripe for exploitation by banks. I think that’s going to be an interesting thing that happens over the next probably 12 to 24 months.”

Playing to Strengths

This dynamic landscape means financial institutions must adjust to ensure they meet customers’ expectations. While regulatory decisions may dictate some of these changes, open banking is about much more than a data-sharing standard.

Customers increasingly desire a connection with their bank. In the past, many financial institutions have taken the tack that consumers need their bank more than the bank needs them. Accordingly, many institutions have given less attention to less profitable accounts.

However, as consumers have been offered more options, the balance of power has shifted.

“Financial institutions need to do better at working to see customers over time,” Wester said. “In other words, lifetime value—recognizing that the consumers that stay with you, grow with you, and that their profitability grows as well. They start going from being just a simple DDA where they pay bills to credit cards, to car loans, to mortgages, and to 401(k)s.”

Banks shouldn’t gauge customers’ profitability based on a single moment in time but should instead seek to predict how a customer will grow, then proactively offer solutions.

“If I have my account through Venmo, Venmo doesn’t really have the ability to provide me with a car loan or a mortgage or a 401(k),” Wester said. “What banks need to do is play to that strength of being a core part of overall financial health, as opposed to just being a place that provides an account that is FDIC-insured and allows them to pay bills.”

Fighting for Deposits

As part of this mindset modification, many financial institutions will have to adjust how they view debit rails. The demand deposit account has long been the fundamental building block of financial health, and debit products have been largely unchanged for decades. This is no longer the case, as more consumers are opting out of the traditional bank account.

“It’s no longer, ‘I have money; I put it in the bank, and the bank is how I do all of my financial services,’” Wester said. “It’s now, ‘I have money; I put it where I want it to go; I can access it however I want—through a device, through my computer, through my phone. I’m more reliant on different interconnections than I am on a financial institution.’

“That could have some profound impacts on banks because they depend upon those deposits to be able to provide loans. What will accelerate that even more is as we start looking at things like stablecoins, deposit tokens, and crypto, and as people begin to pull their money out and put it into things like that for whatever reason. As those use cases develop, that’s going to have some profound impacts on financial institutions. They’re going to have to fight harder for those deposits.”

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In another sign of open banking’s growing role in crypto, Coinbase and Tink have launched direct bank-to-crypto transfers in Germany.

The new capability lets users move funds instantly from their bank accounts into crypto, authenticating the transaction through their bank’s interface. The underlying account-to-account payment rails are powered by Tink’s infrastructure—acquired by Visa three years ago and now integrated into platforms such as PayPal and Revolut.

The Coinbase integration is currently limited to Germany, but there is potential for broader expansion, as Tink’s network spans multiple European Union countries including Spain, France, and Sweden.

The Open Banking Drive

This collaboration was made possible by the EU’s ongoing drive for open banking, which enables third-party providers to connect with banks through APIs. These connections give consumers greater flexibility to switch financial institutions while allowing banks and credit unions to integrate with a wider array of digital services.

To govern these developments, the EU introduced its revised Payments Services Directive (PSD2)—a regulatory framework designed to secure customer data and increase competitiveness among the region’s banks.

Leveraging Interest

One way banks can deliver greater payments optionality to customers is by supporting cryptocurrencies. After an exceptional year of growth last year, crypto initiatives have become top of mind for nearly every financial institution worldwide.

Coinbase has capitalized on this momentum to forge new partnerships and expand its offerings. It launched a stablecoin acceptance platform for merchants through a collaboration with Shopify and gave app developers the ability to integrate crypto purchases via Apple Pay—streamlining a process that was once complex and costly.

Perhaps more notably, Coinbase recently launches was its x402 payments agentic commerce protocol, a platform which allows APIs, apps, and AI agents to conduct transactions during web interactions with minimal code integration. This opens the door for AI agents to autonomously perform stablecoin transactions.

While these integrations have expanded both Coinbase’s footprint and digital assets adoption, they also—and perhaps more importantly—represent progress toward an API-driven open banking model.

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In a deal that could have far-reaching ramifications for the U.S. financial service industry, Plaid will pay JPMorgan Chase (JPMC) fees to access consumers’ banking data.

Plaid’s aggregation platform connects banks and their customers with third-party services, ranging from peer-to-peer payments and credit score monitoring to crypto trading.

Until now, fintech companies have had unfettered access to banks’ customer data. That will change for Plaid under its updated agreement with JPMC, which establishes a pricing structure for data access and sets clear guidelines for how both parties will protect consumer information.

A Foregone Conclusion

This shift in the financial services paradigm seemed almost inevitable after JPMorgan Chase recently highlighted the increasing number of API requests it receives from fintechs.

JP Morgan Chase reported receiving 1.89 billion requests in a single month, most of them from aggregators. Only a small fraction of these requests were initiated by customers; the rest came from fintechs pulling data for various purposes, including improving their products and marketing.

In addition to the strain on banks’ systems caused by the flood of API calls, JPMorgan Chase has also raised concerns about how some fintechs exploit consumer data. The company noted that opening access to fintechs not only creates potential privacy issues but also exposes banks to increased fraud risks.

The Insights into Why

There has been substantial resistance to both JPMC’s stance on fintechs and its decision to charge fees. The current system—which represents a shift toward the open banking model—has been built on free access to information. Charging fintechs fees could severely hinder many smaller companies’ ability to innovate and compete, potentially leading to greater centralization in the financial services industry.

In an email to PaymentsJournal, Plaid offered insights into why it agreed to pay fees to JPMC. One of the main reasons was continuity—the deal will cement the firm’s long-standing relationship with JPMC and ensure that all of Plaid’s services remain available to the bank’s customers.

While Plaid didn’t provide specifics regarding pricing, it confirmed that there will be no changes to current contracts or pricing as a result of this agreement, and customers won’t face additional fees at this time.

Finally, Plaid emphasized that it still believes consumers deserve the right to freely access and share their own information with whomever they choose. It noted that it will continue advocating for a regulatory framework to be created under Section 1033, even though that rule faces significant challenges.

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As concerns grow over the relationships between fintechs and banks, Visa will reportedly shut down its open banking services in the United States.

Open banking relies on third-party relationships, where financial technology companies connect banks to each other and to a range of services. These offerings have become essential to the digital banking experience consumers now expect, including everything from credit score monitoring to peer-to-peer (P2P) payments.

As the operator of one of the largest financial networks in the world, Visa is a natural fit to drive open banking initiatives. Indeed, the company sought to acquire one of the largest U.S. fintechs, Plaid, several years ago. However, the U.S. Department of Justice blocked the deal due to antitrust concerns.

Two years later, Visa acquired Swedish open banking platform Tink, in a move indicative of its new open banking strategy. Visa said that once it shutters its U.S. open banking service, it will focus on high-potential markets such as Europe and Latin America.

A Regulatory-First Approach

These regions have become open banking leaders because they have taken a regulatory-first approach to the model. One key difference between the EU and the U.S. is that European regulators have mandated that their banks share data with third parties for free, while the U.S. has left banks and fintechs to negotiate terms privately.

Until recently, U.S. fintechs were able to receive banking customer data for free, like their European counterparts. However, this could change following the news that JPMorgan Chase has considered charging fintechs fees to access customer data. Shortly after, PNC Financial indicated it may follow suit.

Focusing Efforts Elsewhere

These announcements sent shockwaves through the financial service industry because they could fundamentally reshape how banks and fintechs operate. Many smaller fintechs have warned that paying fees to access customer data could make it difficult for them to sustain their businesses.

Chase and PNC, however, have argued that charging fintechs fees has become a necessity to cover the costs of keeping customer data safe. They point to concerns that fintechs could exploit data for their own purposes, which in turn increases risks for banks—who remain ultimately accountable for safeguarding consumers.

There is still uncertainty around how these fees will be implemented, just as questions linger over open banking regulations in the U.S. After the Consumer Financial Protection Bureau finalized its Section 1033 rules governing open banking last year, the regulations hit an administrative roadblock. A revised version is reportedly in the works.

Until these issues are ironed out, Visa—and likely many of its competitors—will continue to focus its open banking efforts elsewhere.

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The European Union is working on the third iteration of its regulatory framework governing open banking. Meanwhile, across the Atlantic, open banking rules remain in legislative limbo and have faced pushback from many financial institutions, causing some to speculate whether the model will ever gain traction in the U.S.

At its core, open banking is about unlocking consumer financial data—once the sole domain of banks—for third-party service providers. Using application programming interfaces (APIs) as a bridge, these fintech companies can provide the array of financial services that consumers have come to expect, including everything from mobile banking to peer-to-peer payments.

The demand for these services means that the open banking model is moving forward regardless of whether nations take a regulatory-first or market-driven approach—and likely will for years to come.

Breaking Down Siloes

One of the initial reasons the EU issued its revised Payments Services Directive (PSD2) was to reduce the practice of screen scraping—where non-bank partners copy banking data for use in their own platforms. Because screen scraping is fraught with privacy and fraud concerns, PSD2 dictated the use of APIs as the secure method for connecting banks with third parties.

Another motivation behind the issuance of PSD2 was to enhance competitiveness, both within the region and in relation to foreign banks. In many European countries, a small number of dominant players have long controlled the financial services market—an issue regulators believed open banking could help address.

Leveling the playing field can drive innovation, but it also requires establishing uniform compliance and technology standards across the region. However, years after PSD2 went into effect, fragmentation persists.

France, for example, has implemented a nationwide API standard that consolidates its financial operations around the Systèmes technologiques d’échange et de traitement (STET) clearing house—a protocol developed by the country’s six major banks. In contrast, many other EU countries, such as Spain and the Netherlands, still lack a standardized API format.

To address the gaps in PSD2, EU regulators are already at work on PSD3, which could launch in 2027. Among its goals are breaking down the siloes that still exist across the region, enhancing consumer protections, and fostering innovation. PSD3 is also designed to support the development of a unified EU payments market, simplifying both cross-border and cross-currency transactions.

An Uphill Battle

Along with the EU, Britain has been at the forefront of the open banking movement, and according to a recent whitepaper, the UK government aims to keep it that way. The country’s National Payments Vision manifesto outlined the current issues and proposed solutions within the sector.

One key insight from the research is that open banking is critical to the future of the financial services industry in Britain. Additionally, for open banking to scale and foster competition in the UK, the country must establish a more robust regulatory framework.

Another innovation is real-time payments, a hallmark of the open banking model. UK regulators noted that account-to-account payments should become ubiquitous due to their substantial benefits. Beyond instant settlement, real-time payments offer minimal transaction fees and increased transparency.

For these reasons, real-time payments have rapidly caught on in countries like India and Brazil. However, despite the UK government’s goal to bring real-time payments widespread, it is facing an uphill battle. There were 31.4 billion purchases made by UK-issued debit and credit cards last year, a 4% year-over-year uptick.   

Challenges to the Use Case

The ubiquity of cards and the established financial infrastructure are two of the main reasons why U.S. consumers have been slow to adopt both real-time payments and open banking. After all, many consumers view paying by debit card and ACH as paying by bank, and these payment types are efficient enough that there has been little significant outcry for change.

Still, there has been movement toward real-time payments in recent years. The Clearing House, a consortium of major U.S. banks, launched the RTP Network in 2017. Two years ago, the Federal Reserve launched its FedNow service.

Both networks have made strides since then, as both services have drastically increased the transaction limits on their systems. Due to its longer tenure, RTP is dominating the U.S. real-time payments market, but businesses still account for 80% of the transactions on the RTP network.

There are several reasons why real-time payments haven’t caught on in the U.S consumer market. First, there is currently no way to dispute a real-time payment transaction that appears suspicious or erroneous—a capability most consumers expect.

“That functionality doesn’t exist on RTP and FedNow,” Don Apgar, Director of Merchant Payments at Javelin Strategy & Research told PaymentsJournal. “So, when we talk about use cases, it’s the sender knows the receiver, and the sender and the receiver agree on the amount. The sender agrees that there’s no dispute, and he’s got no claim to the money once it leaves his account. It’s done, and he has zero recourse.”

Another reason why RTP and FedNow are not yet ready for merchants’ use cases is they only allow users to send money.

“There’s no function where you can request money,” Apgar said. “If you walk into my store and tap your debit card, I’m sending a request and saying, ‘Take money out of his account and put it in my account.’ But there’s no way for me to do that. You have to initiate the payment.”

An Uncertain Framework

These limitations are part of the reason real-time payments haven’t flourished in the U.S. However, another major factor is the absence of a comprehensive regulatory framework to govern them.

Last year, the U.S. Consumer Financial Protection Bureau (CFPB) announced its much-anticipated rules to guide open banking. These regulations marked the implementation of Section 1033—a portion of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was enacted after the 2007-2008 financial crisis. This rule had been shelved for over a decade before finally being activated.

The goal of the regulations was to give individuals the freedom to switch financial services companies with the ease of switching a streaming subscription. According to the CFPB, once consumers have the power to shop around for financial products, it will drive financial institutions to innovate and provide better customer service.

Much like PSD2, Section 1033 was designed to protect consumers’ data from bad actors, but it also contained provisions to eliminate junk fees— transactions fees that are sometimes charged by banks and fintechs.

However, a change in presidential administration has called the future of Section 1033 into question, as there is speculation that the CFPB could vacate the rule entirely. Still, it is possible that the CFPB could instead revise Section 1033 and move forward with the rule.

Taking a Step Back

One of the main reasons the future of Section 1033 has been uncertain is the substantial pushback from many leading financial institutions. A central concern among banks is that the rule could exacerbate the compliance burden on financial institutions that are already heavily regulated.

There are also ongoing concerns that unlocking customer banking data could do more harm than good.

Worries about third parties in the financial system intensified after the collapse of fintech Synapse, whose failure to properly document its money flows led to approximately $85 million in frozen customer funds. In the aftermath, many regulators called for stricter oversight of banks’ partnerships with third parties.

“We created these words like neobank, digital-only bank, and fintech bank, but they are really just pass-throughs for various banking aspects,” James Wester, Co-Head of Payments at Javelin Strategy & Research told PaymentsJournal. “We added an entire layer of technology and technologists, oftentimes without considering compliance.”

“However, a bank is a real thing,” he said. “It is a licensed institution that is regulated, and fundamentals like risk mitigation and ledger management should never fall by the wayside.”

The substantial risks banks face drove JPMorgan Chase to consider an action that could reshape the U.S. financial system. It announced plans to charge fintech companies a fee for accessing customer banking data.

Fintechs have thrived in recent years largely due to free access to such data. Imposing fees could cost the industry hundreds of millions of dollars and potentially threaten the viability of many fintech business models.

With or Without Blessing

If Chase moves forward with this plan, it could have significant implications for the open banking model in the U.S. One of the core principles of open banking is that third parties should have free access to consumer data in order to deliver better solutions and drive innovation.

Because of this, there has already been pushback against Chase’s strategy, and the bank could still revise its plans. Chase has stated that its proposed fee structure remains open to negotiation.

This is just one of many challenges that must be ironed out before open banking can become a global reality. However, the digitalization of banking and modernization of payments have raised consumer expectations to the point where most financial institutions can no longer meet demand without third-party support.

This dynamic alone is likely to keep open banking moving forward—with or without regulatory blessing.

The post Whether Market-Led or Directive-Driven, Open Banking Marches On appeared first on PaymentsJournal.

To further foster innovation within the UK’s strong open banking ecosystem, Mastercard has developed a sandbox where financial institutions can experiment with the latest instant payments technology.

The sandbox gives banks access to Mastercard’s fifth generation account-to-account (A2A) real-time payments infrastructure. Within this environment, UK financial institutions can test payment use cases across retail, peer-to-peer (P2P), and B2B transactions.

For example, the sandbox will enable institutions to implement a “5-leg credit transfer,” allowing a consumer to make a real-time payment at a merchant with the retailer receiving instant confirmation.

Far Richer Data

According to Mastercard, the merchant and their financial institution would also receive richer data from these transactions, as the sandbox will adhere to the ISO 20022 format.

This messaging protocol was designed as an international standard for the payments ecosystem, supporting efficient and transparent cross-border payments in both consumer and commercial applications.

ISO 20022 compliance will become even more critical in the coming months, because one of the world’s leading cross-border payments systems, SWIFT, has mandated ISO 20022 adoption by November.

Big Tech Sandboxes

While there are benefits to ISO 20022 adoption, many financial institutions—especially small- to mid-tier banks—have yet to achieve compliance. Beyond the costs associated with upgrading, a key reason for hesitation is concern around risk and fraud.

This is where the sandbox model can provide value for highly regulated financial institutions looking to adopt emerging technologies. For example, artificial intelligence has become one of the most transformative technologies in recent years. Yet, many financial institutions worry it could make errors or jeopardize sensitive customer data.

In response, Nvidia launched its own sandbox, allowing UK banks to experiment with AI and uncover use cases in a controlled setting. This approach helps financial institutions stay competitive while minimizing exposure to risk.

Such environments are equally critical in the context of real-time payments, where faster transactions often come with increased fraud risk. Unlike regulated institutions, bad actors aren’t bound by compliance regulations and tend to adopt new technologies faster than financial institutions—an issue that big-tech-built sandboxes have been developed to mitigate.

The post Mastercard Builds Sandbox for UK Real-Time Payments Experimentation appeared first on PaymentsJournal.

Consumers expect flexibility at checkout, and Mastercard has inked deals with PayPal and Deutsche Bank to deliver more payment alternatives.

The partnership with PayPal centers around Mastercard One Credential, a platform that allows consumers to pay in multiple ways using a single credential—both online and in-store.

According to Mastercard, this functionality resonates with Gen Z users, who expect more personalized payment experiences. The collaboration with PayPal will not only allow both companies to develop new features in One Credential but also extend the platform’s reach to a broader consumer base.

Taking a Different Tack

In Europe, Mastercard is taking a different tack toward expanding payment options. Its collaboration with Deutsche Bank will leverage Mastercard’s open banking network to bolster the bank’s merchant payment solutions.

By enhancing Deutsche Bank’s request-to-pay service, Mastercard will effectively introduce real-time payments at checkout. While this model has become commonplace in countries like Brazil and India, it has struggled to gain traction in many other regions.

Real-time payments offer substantial benefits for merchants, such as low transaction costs and a more transparent reconciliation process. However, in the United States, the ubiquity of cards has hindered widespread adoption of real-time payments, as many consumers view paying by debit card as equivalent to pay-by-bank.

Another barrier to real-time payments adoption in the U.S. is that the rails—FedNow and RTP—haven’t historically supported payment requests. This limitation makes it more difficult for merchants to accept real-time payments as seamlessly as card transactions.

Gaining Momentum

Mastercard’s partnership with Deutsche Bank is designed to address this issue in Europe and boost open banking efforts in the region.

Open banking has seen increased adoption in Europe, largely due to government backing. While the model has been a key driver in reshaping the payments landscape over the past few years, it’s unclear whether Europe will follow in the footsteps of countries like Brazil and India.

“Pay-by-bank is gaining momentum in Europe through this new request-to-pay product announced by Mastercard and Deutsche Bank,” said Don Apgar, Director of Merchant Payments at Javelin Strategy & Research. “Leveraging account-to-account payments presumable means lower costs for merchants, and it will be interesting to see if consumers are attracted to using this new payment type in lieu of traditional card payments.”

The post Mastercard Launches Initiatives to Drive Choice at Checkout appeared first on PaymentsJournal.

For years, banks and credit unions have been urged to upgrade their tech and infrastructure to support the next generation of financial services. However, with so many vendors and an overwhelming amount of information on emerging solutions, many institutions struggle to map the way forward.

In their report, 2025 Tech & Infrastructure Trends, James Wester, Co-Head of Payments, and Matthew Gaughan, Payments Analyst at Javelin Strategy & Research, detailed  three key tech and infrastructure trends shaping the industry—artificial intelligence, payments modernization, and open banking—and how having the right people in place can help institutions build systems that meet rising customer expectations.

AI Across the Entire Bank

There’s little debate that artificial intelligence has been the most talked-about technology in the financial services industry over the past year. While AI may still be a new consideration for small to mid-sized banks, the largest banks have been deploying it for years.

For example, JPMorgan Chase CEO Jamie Dimon recently said that the bank has been using AI for decades and employs a team of over 2,000 AI and machine learning experts, along with data scientists. These experts have helped JPMorgan Chase implement AI across multiple areas, including marketing, fraud detection, and risk management, supported by the bank’s $12 billion annual technology budget.

Bank of America has made similar investments, using the technology to support its customer-facing chatbot, Erica, for years. The bank has also explored ways to enhance its programming capabilities through AI-driven solutions.

“It’s clear that AI is having a big impact across the entire bank at these organizations,” Gaughan said. “It’s not just some buzzword that they’re putting in outbound marketing material to make it seem like they’re on trend. Given that, it is an all-bank—front, middle, and back office—initiative where functions across those areas will be increasingly supported by AI. In the near term, it will most deeply be felt across the middle and back office.”

These offices are crucial to the institution’s operations, ensuring that its processes and products function properly. AI can supercharge anti-money laundering verification, Know Your Customer checks, fraud mitigation, and even credit scoring decisions.

Banks have also begun integrating AI into their accounting and IT operations, further expanding its impact.

“In utilizing AI across the organization, bank leaders will need to be more comfortable with the knowns and the unknowns,” Gaughan said. “It’s typical in technology investments at banks, that these are things that require steep investments where the return on that investment isn’t necessarily clear at the beginning. It’s harder to pin down beyond the potential cost savings because this will impact multiple functions across the entire bank.”

Though AI is an enterprise-wide endeavor, it is not a one-size-fits-all tech solution that can simply be plugged into any process. For this reason, banks will continue to look for top talent—both internally and externally—to navigate the complexities of AI implementation.

“The competition for tech talent will be fierce, as it always is,” Gaughan said. “The fact that JPMorgan Chase has 2,000 people focused on AI tells you there’s a lot of people needed to build out these functionalities, and that’s just one bank. Especially among the biggest banks, there’s going to be a lot of competition over tech talent.”

Modernizing Cores for the New Payments Era

For all the attention it gets, AI is far from  the only technology institutions should prioritize. As customers increasingly expect modern payment solutions—such as open banking, instant payments, and embedded finance—many banks will need to upgrade their core systems.

However, determining the right scope of such an upgrade isn’t always straightforward. Additionally, many banks still don’t feel an urgency to update legacy core systems they have functioned reliably for decades.

While these systems work now, banks that have neglected to upgrade their core platforms over the last decade will find it difficult to adjust to the next wave of financial innovation.

“The ecosystem has expanded, and your core needs to be able to adapt and integrate these outside solutions more easily,” Gaughan said. “The it-isn’t-broke-don’t-fix-it mentality has worked, but band-aid fixes to connect to cores won’t be effective over the long term if consumers are expecting more forward-looking offerings like real-time account management and instant payments.”

Many of the largest financial institutions have already modernized and have the resources to continue evolving. However, beyond the top-tier banks, institutions will increasingly rely on vendors for support in their payments modernization projects.

These vendors can assist with key aspects like integrating a wide array of API connections with new payment rails and systems. They can also help banks streamline business processes and offer guidance on technology adoption. In some cases, third-party providers can even support a full-scale transformation of core banking systems and architecture.

Regardless of whether financial institutions handle modernization in-house or get third-party help, it is critical to start the process now.

“For the smallest banks, payments modernization might not be the most important thing, if they like the simplicity,” Gaughan said. “But there are over 9,000 financial institutions across the U.S., so it’s a highly fragmented market. To compete in that landscape, you’re going to want to offer these things, especially if they become table stakes. It’s better to invest now than scramble later and feel like you fell behind.”

Open Banking Puts Developers in the Spotlight

The fragmented U.S. financial landscape is one reason why efforts to import elements of the open banking model—widely adopted in many other countries—have gained traction. Open banking connects disparate institutions through third-party providers, ultimately giving consumers greater freedom of choice.

While this model might seem like a natural fit for the U.S., lawmakers have largely opted to let the market drive open banking adoption. In contrast, government mandates have accelerated its implementation in many other regions.

“In the UK, it was much easier for them to take a regulator-driven approach because there are not as many banks,” Gaughan said. “There are probably 10 to 20 institutions, and most of the usage is concentrated in the top 10. It’s much easier in a country with less banks to take a regulator-driven approach where the lawmakers set the tone and the requirements, than in the U.S.—where what works for one bank probably doesn’t work for another one.”

Still, the U.S. is beginning to make strides. According to the Financial Data Exchange—a leading nonprofit that offers banks a data-sharing standard—more than 94 million customer accounts now connect to financial institutions using its open banking standard, up from 21 million just three years ago.

This increased adoption has accelerated open banking’s momentum and thrust one community into the spotlight.

“Pulling the curtain back, it’s the developers who are the technology decision-makers who look across the vast array of these different APIs offered by banks and data aggregators as they create these new and better financial tools,” Gaughan said. “Not only are they responsible for creating APIs, they also are responsible for ensuring they adhere to evolving standards and provide useful connections into financial data.”

The key role of these tech professionals means that courting developers—making their lives easier and providing them with clear, easily accessible documentation—will become an essential product marketing strategy.

To attract developers, some banks have followed the lead of technology companies by building portals to house developer documentation. Other institutions have created sandbox environments where developers can test applications.

This developer-centric approach could lead to a substantial strategic shift for many institutions.

“Building these technology-driven communities will require a rethinking of a bank’s financial product marketing approach,” Gaughan said. “There will need to be a rethinking of its go-to-market strategies, messaging, and outreach. It means banks will need to find marketing talent that can understand financial services, technology standards, and compliance, among all the other important competencies that flow throughout this area.”

The post As Tech Takes Center Stage for Financial Institutions, Talent Becomes Key appeared first on PaymentsJournal.

Two UK financial organizations are planning to establish an independent firm, Open Banking Limited, designed to foster the adoption of variable recurring payments (VRPs).

The Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR) said that Open Banking will operate as an independent central entity and aims to launch live services as early as this year.

Variable recurring payments are payments made by businesses and consumers to utilities, government agencies, and financial institutions. Open Banking Limited’s goal will be to create a platform that allows payors to adjust the amount and timing of these transactions.

A better VRP system gives users much more control and reduces the chance of unexpected payments. For businesses, the platform could lead to lower processing costs and more efficient settlements.

Broader Adoption of VRP

A dedicated VRP organization is the latest effort in advancing the broader adoption of open banking in the UK. The country recently released its National Payments Vision whitepaper, outlining plans to accelerate the adoption of the open banking model.

In the whitepaper, the FCA was tasked with leading efforts to establish a stronger regulatory framework for open banking. According to Electronic Payments International, the organization’s endeavors have been successful so far, with over 11.7 million active UK open banking participants and more than 22.1 million open banking payments processed each month. 

Laying the Groundwork

The UK is not alone in its open banking efforts. In the U.S., the Consumer Financial Protection Bureau recently announced the activation of Section 1033 of the Dodd-Frank Act, which is designed to lay the groundwork for an open banking system. The rules are intended to put consumers in control of their financial data and give them the freedom to shop around for the best financial products.

Freedom of choice, lower transaction costs, and faster payments are three of the key tenets of the open banking model that many consider to be the future of banking. As more governments prioritize the model, financial institutions, businesses, and consumers will begin to understand the benefits and open banking adoption will accelerate.

The post UK Plans Launch of Organization to Facilitate Variable Recurring Payments appeared first on PaymentsJournal.

The Digital Operational Resilience Act (DORA) went into effect last week in the European Union, and many of the region’s financial institutions are not yet compliant with the new cybersecurity laws.

DORA is a set of tough regulations designed to strengthen the technology operations of financial institutions. These laws also extend to their partners. The legislation aims to prevent data breaches, cyberattacks, and system disruptions that could lead to widespread financial impacts.

Compliance with DORA is mandatory, and violations come with substantial penalties. Financial firms may face fines of up to 2% of their annual global revenue. Furthermore, individuals can also be held accountable under DORA, with penalties of up to $1 million for non-compliance.

Surpassing the Baseline

DORA mandates that financial firms install sophisticated IT risk and incident management systems. It also requires more substantial reporting and documentation, periodic operational resilience testing, and the sharing of intelligence about risks, incidents, and bad actors.

The scope of the regulations is far-reaching, which is why many of the EU’s financial services organizations are struggling to understand what is required of them.

“We saw this too with GDPR (General Protection Data Regulation) and other broad legislation that is subject to interpretation—what does it actually mean to comply?” Harvey Jang, Chief Privacy Officer and Deputy General Counsel at Cisco, told CNBC in an interview. “This lack of a common understanding of what qualifies as robust compliance with DORA has in turn led many institutions to ramp up security standards to the level that they’re actually surpassing the “baseline” of what’s expected of most firms.”

A Mindset Shift

One of the most impactful aspects of DORA is it forces financial institutions to shine a spotlight on their third-party relationships. Organizations will be required to conduct assessments of “concentration risk” to ensure they aren’t outsourcing too many functions to third parties or relying too heavily on partners for critical operational tasks.

While banks may ultimately be responsible for compliance, the new rules will also put pressure on financial technology organizations. Under DORA, technology providers can be fined as much as 1% of their average daily worldwide revenue for up to six months for non-compliance.

The increased scrutiny on third-party relationships could prompt a total mindset shift in how EU’s banks engage with their fintech partners. Many banks have relied on these partners to help them accomplish digital transformations on a faster and wider scale. However, due to the vulnerabilities this model creates, financial institutions may need to scale back their outsourcing strategies.

“Advances in technology may allow financial institutions to move services back in-house, simplifying this aspect and reducing the risk of non-compliance,” Richard Lindsay, Principal Advisory Consultant at Orange Cyberdefense, told CNBC in an interview. “Either way, existing contracts will need to be updated to ensure compliance is contractually mandated and monitored between entity and provider.”

Under the Microscope

Regulators have long been concerned about the increasing role of fintech companies in the new banking-as-a-service model. Many technology companies have built their financial solutions with speed and innovation in mind, while compliance was often an afterthought. That mindset doesn’t align with the heavily regulated and highly scrutinized financial services industry.

In the U.S., concerns about the relationship between unregulated fintechs and banks reached a head after the highly publicized collapse of fintech Synapse. Synapse failed to keep proper records of funds for its customers, particularly Evolve Bank & Trust. When Synapse went bankrupt, roughly $85 million in funds were frozen—with no records of who it belonged to.

In the aftermath of the Synapse collapse, lawmakers have increasingly put fintechs and financial institutions under the microscope. The continued demand for regulation has even called the banking-as-a-service model into question.

Controlling Data

Another model that hinges on the capabilities of third-party financial companies is the open banking model, which has long been considered the future of the financial industry. In open banking, third parties serve as facilitators, enabling the secure sharing of protected consumer financial data among organizations.

Though there are concerns about the impact of fintechs, the U.S. recently rolled out its rules designed to regulate open banking. The Consumer Financial Protection Bureau (CFPB) announced it would activate Section 1033 of the Dodd-Frank Act, which is designed to give consumers the freedom to control their own data and switch between financial institutions with ease.

The new laws also require financial institutions to implement stronger data security protocols and beef up their recordkeeping processes.

An Original Concern

There will certainly be growing pains as organizations seek to comply with the various regimes that are being established worldwide. However, there is largely agreement among all players in the industry that a stronger regulatory framework is necessary to prevent events like the Synapse collapse, and to protect organizations from the increasing number of fraud attacks they face. Until that system is in place, challenges will persist.

“The big takeaway is that compliance is becoming more of a technology concern,” said James Wester, Co-Head of Payments at Javelin Strategy & Research, in an earlier conversation with PaymentsJournal. “That’s a two-fold issue. For the technologists that are tasked with making the open banking environment work, compliance now needs to be one of the original concerns when building out anything that’s going to be dealing with consumer data.”

“The other part of it is that compliance teams often still don’t understand a lot of the technical considerations and concerns,” he said.

The post The Ramifications of the EU’s DORA Regulations Go Far Beyond Cybersecurity appeared first on PaymentsJournal.

Open banking has been lauded as the future of the global financial system, and the U.S. is now beginning to adopt a model that has already gained significant traction overseas. After the Consumer Financial Protection Bureau (CFPB) released its rules governing open banking, many are wondering about the impact these regulations will have on financial institutions—and the technology that powers them.

In his latest report, Navigating 1033: Technology Considerations for the New Rules of the Road, James Wester, Co-Head of Payments at Javelin Strategy & Research, discussed the motivations and implications of Section 1033, and how financial technology professionals can prepare for the changes to come.

Freedom of Choice

Section 1033 refers to a portion of the Dodd-Frank Wall Street Reform and Consumer Protection Act which Congress passed in the wake of the financial crisis. The data protections laid out in Section 1033 have been largely inactive for over a decade, but the CFPB is now set to bring these regulations into effect.

At the heart of the new rules is the concept of freedom of choice. Consumers will have greater control over their financial data, enabling them to transfer their information between financial institutions at no cost or restrictions.

The regulations are designed to eliminate excessive fees often charged by banks or fintechs and to drive innovation in the market. Consumers will be able to shop around for the best rates and financial products, which the CFPB hopes will foster competition among banks, encouraging them to offer better products and services.

While the new model promises substantial benefits for consumers, banks are also expected to see long-term benefits. However, the increased focus on safeguarding consumer data will present some short-term obstacles for financial institutions.

“The big takeaway is that compliance is becoming more of a technology concern,” Wester said. “That’s a two-fold issue. For the technologists that are tasked with making the open banking environment work, compliance now needs to be one of the original concerns when building out anything that’s going to be dealing with consumer data. The other part of it is that compliance teams often still don’t understand a lot of the technical considerations and concerns.”

Translating Tech

On the technology side, making the product works has often been a more important consideration than compliance. However, technologists who may not have previously interacted with compliance teams will now frequently be called upon by risk, compliance, and regulatory affairs teams to help address technology considerations.

“It’s hard to find a person in a technology role who is not comfortable with telling people about technology,” Wester said. “However, they’re now going to have to look at it through that compliance lens. That can be oftentimes frustrating to folks on the technology side—translating tech for the layman. But doing so for a compliance audience is going to now be a more important consideration and something they’re going to have to become more comfortable with.”

Collaboration will be necessary to ensure that an institution’s customers are given the full transparency demanded by Section 1033. Before giving a third-party access to consumer data, banks must get consent from customers and explain what data will be collected and how it will be used. They will also have to verify the identity of the customer and the third-party.

However, Section 1033 goes beyond the initial consent process. Financial institutions must provide consumers with accessible tools that allow them to revoke their consent to share data at any time. Consumers must renew their consent every year, and any changes in consent status must prompt notification to all affected data providers.

Third-party financial providers will not be allowed to collect more consumer financial data than explicitly specified, sell consumer information, or use it for any other purpose that isn’t directly tied to the customer’s request. Additionally, fintechs will have to provide developer portals for their APIs, including documentation and support systems.

Financial institutions will also have more robust recordkeeping requirements under Section 1033, and they will have to undergo periodic audits to prove they are compliant with the standards.

Growing Pains

While the open banking model will likely prove worthwhile in the long run, many financial institutions have limited time to prepare for the upcoming changes. Large banks and fintechs have just two years to comply with the new rules, whereas smaller banks will have a bit more leeway, with up to six years to conform to the CFPB’s regulations.

“Especially in smaller institutions, many of the technology and infrastructure professionals who might not have been paying attention to the compliance angle will now need to,” Wester said. “From a payment standpoint, it is going to involve more moving parts to initiate payments through a third-party provider and include all those things that are in a larger financial toolbox, while still maintaining compliance.”

The post Section 1033 Rules Make Compliance Top-of-Mind for Technology Professionals appeared first on PaymentsJournal.

The RTP network now averages over 1 million payments per day, positioning the platform for strong momentum going into the holiday season.

Between September and October, transaction volume on RTP, which is operated by The Clearing House, increased by 6.2%. On November 1, the instant payments powerhouse reached a new single-day record, processing 1.45 million transactions valued at $1.24 billion.

“It is exciting to see that the RTP network is supporting real world payment needs of both consumers and businesses with almost half of payments happening after banking hours,” Margaret Weichert, Chief Product Officer at The Clearing House, said in a prepared statement. “With the holiday season upon us, consumers can send money instantly to pay for gifts, holiday meals and other festivities, while small businesses can get paid in real time.”

Compelling Use Cases

The ability to send payments overnight, on weekends, and on holidays makes instant payments a compelling solution for businesses. This capability allows merchants to securely pay suppliers or partners, pay employees or contractors, and complete reconciliation and accounting functions in seconds.

These aspects have fueled a growing number of use cases for instant payments, including in the gig economy, the insurance industry, and even for government disaster relief funds. Cross-border payments are another promising use case, and RTP has explored a connection to SWIFT, a global messaging network, to facilitate payments from the U.S. to Europe.

A Banner Year

Instant payments—and the open banking model—have been adopted much more readily in countries like Brazil and India. Brazil’s Pix has become so popular that it is expected to surpass credit cards as the dominant payment method in the country. Following this success, speculation has grown around how and when instant payments will gain significant traction in the U.S.

Although the government launched its instant payments service, FedNow, last year, the RTP network is still the largest system of its kind in the country. As more merchants recognize the benefits of instant payments, this holiday season could serve as the springboard for a banner year for the RTP network.

The post Instant Payments on the RTP Network Surge Ahead of the Holidays appeared first on PaymentsJournal.

Open-banking platform Dwolla, which allows businesses to integrate into the U.S. instant payments rails, will expand its partnership with data firm Plaid.

The new integration will bring Plaid’s instant account verification and risk assessment functionalities to Dwolla’s pay-by-bank operations as soon as next year. Businesses will also be able to onboard to Dwolla using Plaid, a platform well known to many organizations.

The new solution is expected to interface with accounts at more than 12,000 U.S. financial institutions, according to a news release.

“Our expanded partnership with Plaid represents a significant step forward in our mission to simplify and streamline pay-by-bank payments for businesses,” said Dave Glaser, CEO of Dwolla. “By integrating Plaid’s advanced account verification and risk assessment features into our open-banking services, we’re providing a single, unified solution that addresses the complex needs of modern enterprises in the evolving payments landscape.”

Significant Deals

The expansion of the Plaid partnership is the latest in a series of significant deals for Dwolla. Earlier this year, Dwolla announced an agreement with Visa that would bring its open-banking platform to the credit card giant’s infrastructure. That deal came on the heels of Dwolla’s agreement with cybersecurity company MX Technologies.

Dwolla’s platform integrates into both U.S. instant payment rails—RTP and FedNow—in a single interface. In addition to real-time settlement, instant payments offer businesses a more secure payment method that can include much more transactional data.

A Prime Position

Dwolla is in a prime position to benefit from the Consumer Financial Protection Bureau’s new rules that should give the U.S. open-banking industry a clearer regulatory framework. The CFPB’s rules are designed to protect consumers but also aimed at increasing innovation in financial services.

Although the CFPB’s new regulations are mostly about giving customers the freedom to switch between financial institutions whenever they want, the agency specifically cited instant payments. The CFPB believes pay-by-bank can be a better option for merchants and consumers because it is more cost-effective than credit cards. Instant payments are also more secure because they require the consumer to authorize the transaction.

The post Dwolla Instant Payments Platform to Expand Plaid Integration appeared first on PaymentsJournal.

The Consumer Financial Protection Bureau has announced its much-anticipated plans to shepherd the adoption of open banking in the United States.

Third-party financial companies are the driving force behind the open-banking model. However, regulators, including the CFPB, have expressed ongoing concerns about the growing dependence on fintech companies that aren’t required to comply with conventional banking regulations.

The new rules are designed to protect consumers while still developing a framework where open banking can flourish. Another driver behind the regulations is giving individuals the freedom to switch banks or financial services companies in much the same way that consumers can change their cellphone provider and keep the same phone number.

Once consumers can shop around for the best financial products, ideally financial institutions will have an incentive to innovate and improve customer service.

“Too many Americans are stuck in financial products with lousy rates and service,” said Rohit Chopra, Director of the CFPB. “Today’s action will give people more power to get better rates and service on bank accounts, credit cards, and more.”

Pressing Forward

The rule is the long-awaited fruition of Section 1033, a portion of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was enacted by Congress after the 2007-08 financial crisis. Section 1033 has been dormant for over a decade but will be activated as the United States continues to press forward toward adoption of the open-banking system that has gained traction in the UK and the EU.

The crux of Section 1033 is that consumers will be able to transfer their data between financial institutions for free, and without encumbrances. Individuals will be given full control of their financial data, and they will be able to revoke a bank’s access to their information at any time. Another of the CFPB’s goals is to eliminate “junk fees” that are charged by banks or fintechs.

Narrowing Timeline

Another hallmark of open banking is instant payments, or pay-by-bank, which is much more efficient and cost-effective than many competing payment methods. The CFPB’s new rule is designed to facilitate instant payments adoption and build a framework where consumers, merchants, and banks will be able to move money freely among accounts.

Although the regulations are a step in the right direction, the timeline for adoption is narrow—large banks and fintechs will have two years to comply with the new rules. Smaller banks will have up to six years to conform to the regulations, and some community banks and credit unions will not be required to comply with the CFPB’s new rules at all.

The post CFPB Unveils Rules to Guide Open Banking in the U.S. appeared first on PaymentsJournal.

It’s increasingly common for consumers to pay at the point of sale using Apple Pay or Google Pay. This transaction is made possible by two emerging payments technologies: contactless payments and digital wallets. If a customer has integrated a buy now, pay later option into their digital wallet, that single transaction could include three payments innovations.

Many digital wallets have also begun to support crypto transactions, but the infrastructure behind digital assets is equally crucial to the future of payments. Tokenization, stablecoins, and blockchain have been adopted by financial companies and are increasingly being used to drive innovation and build global connections.

Connectivity is also central to the open banking model that has emerged in recent years. This system is built on financial technology companies that serve as intermediaries between banks and their clients. It’s best exemplified by instant payments, also known as pay-by-bank or account-to-account transactions, where funds move from one bank account to another in seconds.

These five forces—contactless payments, BNPL, crypto, digital wallets, and open banking—have dominated headlines in recent years, and for good reason. These emerging payments trends are driving the future of the financial industry.

Introduction of Emerging Payments

BNPL is often seen as an evolution of layaway, but unlike traditional layaway, consumers don’t have to wait until an item is fully paid off to receive it. Instead, they can split their purchase into smaller installments at the point of sale and receive the product immediately.

BNPL loans have soared in popularity because they often come with no interest or fees, making them an attractive alternative to high-APR credit cards. However, customers who miss a payment may face late fees.

While BNPL is often associated with e-commerce checkout, it is increasingly being supported by digital wallets for a myriad of transactions. A digital wallet is an application that stores payment details and passwords for multiple payment methods in onr plsvr. Popular digital wallets, such as Apple Pay and Google Pay, originate from mobile platforms, which is why they are often referred to as mobile wallets.

The bridge between point-of-sale devices and digital wallets is contactless payment technology. Contactless payments, also known as tap-and-go, use radio frequency identification, near-field communication (NFC) or quick response (QR) code technology to process transactions.

In the U.S., most consumers use NFC to transmit payment data from their smartphones, wearable devices, or cards. In other regions, such as China and India, it is more common for customers to pay by scanning a QR code.

While digital wallets in the U.S. most frequently integrate with credit cards, mobile payments in Brazil or India more often rely on instant payments. These payments are facilitated by third-party technology companies that function as intermediaries between consumers and banks.

Third-party developers drive these transactions, and for the open banking system. One of the central tenets of open banking is unlocking customer banking data for third parties through application programming interfaces (APIs).

Some of the most well-known third-party fintechs are peer-to-peer platforms like Venmo and Cash App. In addition to allowing users to send payments to friends and family, both Venmo and Cash App have added support for cryptocurrency transactions in recent years.

Cryptocurrency is a digital currency that is not issued by any government or central bank. It is supported by blockchain, a network of computers that constantly validate and authenticate transactions. The goal of crypto is to create a decentralized platform where funds can be exchanged without the need for third parties.

Key Trends in Emerging Payments

Although designed to be decentralized, some of the world’s largest financial institutions have increased their involvement in digital assets. Institutional investing has accelerated since the approval and launch of bitcoin and ether ETFs, which allow retail investors to buy and sell crypto as easily as they would buy stocks.

Many of these institutions are finding innovative ways to use blockchain technology beyond crypto. There are a multitude of use cases for tokenization, which is the digitalization of physical assets. A house deed, for instance, could be tokenized, placed on the blockchain, and then bought or sold in near real-time. A token can also be fractionalized and sold to multiple parties.

Along with the growing adoption of digital asset technology, more organizations are leveraging open banking platforms to lower costs and increase efficiency. Instant payments, being secure and real-time, help businesses reduce fraud while enabling faster and more accurate reconciliation.

Another emerging trend for non-financial companies is offering financial products on their platform, known as embedded finance. For example, when a company provides a buy now, pay later option at their e-commerce checkout, the customer isn’t redirected to a separate payment system. Instead, the transaction is embedded within the company’s platform.

BNPL has become a popular addition for companies like Apple, which shuttered its in-house BNPL operations and integrated BNPL options from Affirm into Apple Pay. This integration highlights another trend for digital wallets: they are increasingly storing many of the same items found in physical wallets, including gift cards, loyalty cards, and even driver’s licenses in certain states. Digital wallets can go beyond physical wallets, also storing everything from coupons and tickets to crypto.

The continued adoption of digital IDs is a key trend for digital wallets. One factor hindering wider adoption is that consumers still often have to carry a physical wallet, often simply to house their ID. This duplication leads many consumers to question the need for both a physical and a digital wallet. However, as digital IDs gain ground, digital wallets have the potential to become the only wallet a consumer needs.

Contactless payments will be the primary method for these transactions as digital wallets gain traction. Verifying a digital ID through NFC technology also offers more security. When a customer purchases an age-restricted item like alcohol, they can verify their age without sharing any other personal data with the merchant.

The Opportunities of Emerging Payments

While contactless technology is driving the new payment paradigm, there is still ample room for growth. One of the most important benefits of contactless payments is its simplicity—customers can make purchases while leaving their cash or card in their wallet.

However, QR codes can transmit more payments data, which is why they have been widely adopted in countries where open banking is prevalent. QR codes offer both merchants and consumers added protection against fraud, as well as increased ease of use. When a customer scans a QR code, they can send the relevant payment data without compromising their personal details.

One of the key opportunities for digital wallets is integrating instant payments into the U.S. market. FedNow and RTP are instant payments rails that launched in the U.S. last year. While many financial institutions have joined the networks, their connectivity is often limited. The number of banks fully integrated with these rails is still just a fraction of the U.S. banking system.

BNPL has come much further in the U.S., but there is still the opportunity for expansion, especially among different demographics. BNPL has been most widely adopted by younger and lower-income consumers, leaving an opportunity for the tech to make inroads with older and more affluent consumers.

One of the reasons why many U.S. consumers still use credit cards is the airline miles and cashback perks they offer. These rewards aren’t currently an option with buy now, pay later services, but they could be in the future. There is also the potential for BNPL to become a viable option in cross-border payments.

Cross-border payments are in high demand, yet issues persist with slow payment settlement, complex currency conversions, and country-specific regulations. One of the most promising candidates for facilitating cross-border transactions is stablecoins. A stablecoin is a type of crypto that tracks the value of a fiat currency, such as the U.S. dollar, one-to-one.

Stablecoins are an attractive alternative for organizations because they are less volatile than many other cryptocurrencies. They can be a reliable way to send instant cross-border payments in the situations where they are accepted.

Challenges Facing Emerging Payments

The insufficient regulatory framework surrounding digital assets has become an increasingly urgent issue for the crypto industry, especially in the U.S. The U.S. Securities and Exchange Commission has taken the position that cryptocurrencies are securities, not  commodities, meaning that digital assets fall under securities laws. The SEC has initiated enforcement actions against many major crypto players, alleging they are operating as unregistered securities brokers.

Regulators worldwide are concerned that bad actors might use crypto and digital assets to conduct nefarious activities like money laundering and fraud. There has been a rise in fraud attacks across the industry, with decentralized protocols making crypto holders more vulnerable to criminals. Once a crypto owner transfers their assets, the transaction is irrevocable and there are often no consumer protections in place.

That irrevocability is also a challenge for instant payments. Users can be manipulated into sending an instant payment to criminals, leaving no framework for reimbursement. The potential for fraud or misrouting increases with cross-border instant payments.

Another challenge to the adoption of instant payments is that many financial institutions aren’t equipped to invest the time and money required to upgrade their systems. The U.S. has a well-established and efficient banking system, so  many businesses and consumers don’t see the benefit in switching.

While many banks and credit unions have successfully undergone digital transformation, they often rely on third-party companies for an increasing number of functions, which can lead to gaps in service. Such was the case with Synapse, where the fintech company failed to do their due diligence with compliance. There is also increased potential for fraud when there are multiple parties that have access to customers’ banking data.

Digital wallets also carry risks of fraud. As digital wallets contain more sensitive data, they become targets for hackers. If a user’s phone is stolen, a criminal can  gain access to all the data stored in the wallet.

Though contactless payments are generally more secure, there have been concerns that hackers could intercept contactless payment details at the point of sale, either by installing a device at checkout or standing nearby with a mobile phone.

Fraud isn’t as much of a concern with BNPL, but the industry has attracted regulatory scrutiny because of its lack of consumer protections. BNPL providers aren’t required to report their loans to the New York Federal Reserve like credit card companies, and the skyrocketing growth of BNPL debt has led many to speculate that there is a mounting amount of “phantom debt” that could soon spiral out of control.

The U.S. Consumer Financial Protection Bureau recently issued rules stating BNPL companies must conform to the same standards as credit card companies. BNPL services will have to send monthly billing statements, fully disclose their fees, and handle disputes like their credit card counterparts. 

The CFPB has also become apprehensive about the massive amounts of consumer financial data that is available to non-bank companies. To that end, the CFPB has proposed rules that would require digital wallet providers to abide by the same laws that govern banks.

What’s Next for Emerging Payments

Those regulatory concerns aren’t likely to hinder the growth of digital wallets or BNPL. Instead, BNPL services have increasingly expanded their efforts to make BNPL a payment option at brick-and-mortar stores.

There may also be growing support for instant payments at U.S. One factor that will drive the traction of instant payments is collaboration between instant payment networks and merchants to offer loyalty rewards or discounts that can compete with credit cards. The industry also has room to improve its consumer protections.

One way to ensure transactions are accurate and secure is through biometric authentication. While contactless payments are currently accomplished through a mobile device, there have been pilot programs for customers to pay by facial recognition or fingerprint verification. These purchases are faster and much more secure, which is why biometrics have been adopted by many digital wallet providers.

Digital wallets are set to become the central hub of payments behavior, and one of their main integrations will be increasing support for crypto, stablecoins, and central bank digital currencies. CBDCs are like stablecoins that are issued and backed by a government instead of a private company.

Conclusion

In addition to tokenization and stablecoins, blockchain will be a powerful driver for payments because it provides a highly secure infrastructure for real-time transactions. Although there has been some uncertainty in the U.S. about digital assets technologies, the EU has begun to define a framework for crypto regulation that could serve as the blueprint for other countries to follow.

Any emerging payment method will be subject to regulatory scrutiny, but a clearer framework should only serve to guide the financial technology industry as it shapes the way forward. There are proven use cases for BNPL, digital wallets, contactless payments, crypto and open banking, and that will continue to drive these technologies—and the payments industry—forward for years to come.

The post Emerging Payments: Trends, Technologies, and the Future of Transactions appeared first on PaymentsJournal.

Open banking has come to encompass so much that it can be hard to define. At its heart, open banking is about opening consumer financial data—once the sole domain of banks—to third-party service providers that manage the data using APIs.

In a recent PaymentsJournal podcast, Vladimir Jovanovic, VP of Innovation at Velera, and James Wester, Co-Head of Payments at Javelin Strategy & Research, discussed open banking’s evolving regulatory framework, its benefits for banks and credit unions, and its accelerating adoption in the United States.

A Changing Perspective

Most consumers don’t understand the infrastructure or the technological innovations driving open banking, but they are fully aware of its benefits.

“They understand it in terms of access to third-party services, streamlined onboarding processes, and embedded finance and payments,” Wester said. “They may not know the umbrella term, but they have adopted open banking, and they’ve come to expect it. Whether they know it or not, open banking has affected the way consumers view banking and financial services.”

The days of screen scraping, a method third-party providers used to access financial data, are over. Now platforms like Plaid and MX are, in many instances, required to use structured APIs to pull consumer financial data back. Banks and other payment ecosystem participants  are joining with other providers of financial services to participate in consortiums like the Financial Data Exchange (FDX).

The members of the FDX consortium work together to standardize the APIs that enable data exchange between participants. Concerted efforts like the FDX will be a principal driver for U.S. open banking adoption in the years ahead.

The Regulatory Environment

In other countries, governments have mandated the creation of open banking standards. Though there are many regulatory bodies in the U.S. banking space, such as the FDIC, there isn’t likely to be a government mandate any time soon for U.S. open banking adoption.

However, the Consumer Financial Protection Bureau is emerging as the regulatory agency that could help shape open banking requirements in the financial services market.

“The CFPB is going to be heavily involved because banks and credit unions are opening up protected consumer financial data to third parties,” Jovanovic said. “The CFPB is going to scrutinize that process and make sure any approach is aligned, centralized, and regulated properly, and centered around consumer rights and protections related to financial data sharing.”

To expand that reach, the CFPB proposed Rule 1033, which addresses personal financial data rights from a consumer standpoint. Though Rule 1033 has yet to be approved, banks and credit unions might have to make significant adjustments to their data management practices, privacy policies and security practices to comply with the new regulation.

In data management, organizations will have to determine the appropriate IT infrastructure to support consumer permissioned data sharing. When consumers give a third party access to their financial data, institutions must have the infrastructure to accept and standardize data sharing across different participants.

Banks and credit unions will also have to determine which privacy policies and security practices should be in place to prevent breaches and unauthorized access.

“Open banking might give financial institutions the chance to broaden their products and services, but it presents an opportunity for fraudsters as well,” Jovanovic said. “Banks and credit unions need to understand how they can deploy the right tools and processes to ensure the consumer has consented and any emerging fraud schemes are managed effectively.”

A Marathon, Not a Sprint

Many banks and credit unions might be tempted to trust the technological aspects of open banking to a third-party partner. However, they must still fully understand the process because the institution is ultimately accountable for compliance.

“Oftentimes, institutions look at compliance as a box to be checked and a cost to be borne,” Wester said. “But the open banking shift is an opportunity for banks and credit unions to rethink their overarching strategy and identify new revenue drivers. It shouldn’t be an onerous task. It’s a way to become more embedded in your customers’ financial lives.”

Though the switch to open banking might be daunting, the model has been implemented successfully elsewhere. In the European Union, open banking was regulated under the Payment Services Directive (PSD), which was subsequently replaced by PSD2.

However, when PSD2 was released, key financial innovations like crypto and blockchain weren’t part of the picture. That is why PSD3 will be implemented, and it will include additional data sharing, standardized APIs, and expanded financial services.

As in the EU, any regulations instituted in the U.S. are likely to evolve to accommodate new innovations, different business models, and niches that haven’t been considered yet. However, just because the regulatory framework might shift is no reason to delay implementation.

“Other open banking ecosystems have evolved in iterations, and they will continue to evolve,” Jovanovic said. “Many banks and credit unions are concerned about open banking, the new regulations, the unfamiliar ways to share data, and about selecting the right technology solutions. But the objective should be to develop a long-term strategy and work it incrementally. It’s a marathon, not a sprint.”

Leveling the Playing Field

Consumers want personalized experiences and services, and open banking offers ways to customize their services and get a consolidated view of their financial information across multiple institutions and providers.

More service providers are involved in the banking system than ever before, which will increase competition and create better products and services for consumers.

“The opportunity for collaboration with new financial players gives banks and credit unions a chance to reinvent the way they serve their customers,” Jovanovic said. “Consumers won’t have to open another account elsewhere, because they can obtain the products and services they need from their primary financial institution. Open banking levels the playing field and creates opportunities for community banks and credit unions to compete with their larger counterparts.”

Scratching the Surface

Though the new model offers a substantial opportunity, the potential for the misuse of consumer data means any new open banking initiatives will face regulatory scrutiny.

“I would emphasize that regulation is coming,” Wester said. “Regulators care about this and they are very serious when it comes to handling consumer data. There may be polarized politics in the U.S., but all sides band together when consumers are victimized and their personal data is exposed.”

Most financial institutions enter customer relationships with the best intentions, but a few wrong moves can taint an organization’s reputation and draw regulatory attention. Third-party partners can help institutions mitigate those risks while giving banks and credit unions full visibility into the process.

Regardless of an organization’s strategy, open banking is gaining momentum. Banks and credit unions should plan accordingly to meet their cardholders’ rising expectations.

“There is still a long way to go, and we’re just scratching the surface,” Jovanovic said. “In the end, it might not matter if consumers understand open banking as a concept. Consumers are after an experience, and as long as they have the freedom to structure that experience, they are going to continue to demand open banking in the future.”

The post Open Banking Can Be an Equalizer for Small Banks and Credit Unions appeared first on PaymentsJournal.

With regulation directed toward open banking imminent, now is the time for banks to set a strategic vision for their data management. A coherent data management strategy not only addresses compliance issues but also meet customers’ evolving needs in an increasingly data-rich society.

Customers may be uncertain about what open banking entails, but there is still an opportunity for financial institutions to define the process for them. Javelin defines open banking as enabling customers to easily and securely share their bank data with third parties. Given this focus, the first step a bank should take toward open banking is developing a data strategy to serve as a solid foundation.

Unfortunately, much of the conversation has been driven by regulation, leading many financial institutions to be guided primarily by legal considerations.  

“Before open banking starts kicking into high gear, the digital banking folks need to make sure they’re in the room and that the lawyers aren’t running the show just by themselves,” said Dylan Lerner, Senior Analyst of Digital Banking at Javelin Strategy & Research. His new report, Open Banking: A Vision for Customer-Driven Data Management, provides a “3 Cs” framework for bankers to follow as they embark down the road to open banking.

A Customer-Centric Framework

Javelin’s “3 Cs” framework for customer-driven data management outlines a strategy for FIs to develop an open banking approach: centralization, consent, and control.  One challenge banks face today is that customer options are fragmented. They manage marketing opt-outs in one place and privacy preferences in another. “It’s completely unorganized and a mess for customers to deal with,” said Lerner. “The first thing a bank needs to do is centralize all of those options and information.”

A customer’s digital banking experience should feature a central data management hub that consolidates these functions. When changes are needed, there should be one place for customers to manage their connections. Centralization is about making it easy for customers to find what they need.

Consent—specially informed consent—ensures that customers are making their own decisions. A strict policy for “informed consent” transforms transparency into education and understanding, ensuring that terms, conditions, and functionality are not just disclosed but are also presented in clear, understandable language.

Lastly, control is about empowering customers to act on their decisions. Customers gain control through granular permissions, allowing them to share only what they feel is necessary. This means providing not just the controls but also the capability to manage their digital footprint effectively.

“My favorite analogy here is those cookie consent pop-ups,” said Lerner. “You might have seen some of them that will just give you a nuclear option: all cookies or no cookies. We want to change that to something that emphasizes that there’s more going on here. We want to give you the control to say what exactly you want to share.”

Winning the Customers Over

Another important step toward open banking is demonstrating to customers that it serves their best interests. According to Lerner, the best way to generate excitement is showcasing the potential benefits of having all their data in one place.

About half of the top 20 financial institutions are dipping their toes into services like external account aggregation and third-party access oversight and control. A handful of them are advancing further with capabilities such as automated direct deposit switching and card-on-file management.

For instance, Bank of America allows access to a range of information, from student loans to credit scores. Being able to combined all this data to create a comprehensive, value-added service is what will truly engage customers.

Lerner’s report offers examples of how some larger banks are experimenting with new ways to engage their customers. U.S. Bank’s data-access reports, for example, enhance transparency and keep customers informed, while using YouTube videos and other multimedia educational materials to promote accessible learning.

Above all, Lerner emphasizes that financial institutions should not let lawyers dictate the digital banking experience. It’s important to not only meet regulatory requirements but to exceed consumer expectations.

“The compliance requirements and regulations are out there now, but that’s not where a bank needs to start,” Lerner said. “Before we can address those concerns, though, a bank needs to develop a solid data strategy as its foundation for open banking.”

The post Getting Customers Ready for Open Banking appeared first on PaymentsJournal.

The United States has been slow to fully embrace the open-banking philosophy, but there are signs the shift is accelerating. As more Americans link their banking, credit, and financial accounts, they expect customizable payments solutions, faster access to funds, and increased control of their financial wellbeing.

Globally, the open-banking market is expected to top $130 billion by 2028, fueled by consumer demand and technological capability. A report from Ripple, Trends in Regional Payments: Inside the Evolving Global Payments Landscape, examines how payments are changing worldwide and the trends driving North American adoption.

Benefits to Open Banking

Third-party companies are at the center of the open-banking model. Banks give approved third-party platforms access to their clients’ accounts, and the platforms can then perform payments and share financial data.

Though Americans have been reluctant to grant access to third-party platforms, the benefits outweigh the risks. Open banking gives businesses and consumers the ability to accept more revenue streams and grant access to more financial products. The model also increases the number of customer touchpoints, which creates the opportunity for personalization.

In many cases, third-party providers can also process transaction data faster. Increased transparency into creditworthiness should make credit scores more accurate, aiding lenders and consumers.

Imminent in North America

Europe has spearheaded the open-banking movement. In the UK, account-to-account (A2A) payments increased by 280% year over year in 2023.  But the United States is trending upward, with 71% of consumers indicating they prefer to make purchases and pay bills from their bank account.

Open-banking solutions gained ground in North America in 2023, exemplified by the partnership between Coinbase and a Canadian A2A infrastructure provider designed to offer alternatives to the traditional banking experience.

The open-banking model keeps banks and fintechs competitive and drives margins down. In turn, that will push traditional banking institutions that dominate the U.S. market to look for alternative ways to boost revenue and cut costs. Open-banking innovations, especially distributed ledger technology, can solve those issues.

Though Americans’ hesitation to adopt open banking has centered on security concerns, third-party platforms are innovating to keep payments safe. Data from the Financial Data Exchange (FDX), a nonprofit organization driving U.S. open-banking adoption, indicated that in 2023 more than 30 million Americans converted from credential-based account access, using IDs and passwords, to tokenized API access.

The FDX believes open banking is imminent in North America because of consumer preferences but also because of a more established regulatory framework. Still, more consumer education is needed. Visa recently reported that 87% of Americans have linked their bank accounts to third-party companies, but only 34% are aware of how the process works.

The Arrival of FedNow

Instant payment rails should also serve to drive the open-banking movement. FedNow, the instant payments service launched by the United States Federal Reserve, gives U.S financial institutions of all sizes the ability to deliver fast, customizable payments services.

Launched in mid-2023, the rail should bolster the awareness and adoption of open banking. That growth should become exponential as more financial institutions understand the service’s benefits.

Accessibility is chief among the advantages. FedNow is available to small businesses, large corporations, and individuals. Real-time rails will make U.S. businesses more competitive because they can operate with the same speed and precision as their global competitors. FedNow also improves the efficiency of payments and settlements.

Because customer expectations will likely increase after they use the service, FedNow should push financial institutions to innovate. Financial flexibility for businesses and consumers will expand as more avenues for revenue are available.

On the downside, financial institutions are likely to feel more pressure to increase spending on tech stacks to meet the demands of solutions like FedNow.

The Universal Language

Because of the complexity involved with connecting global open-banking systems, there must be a universal language that can translate messaging between financial institutions. ISO 20022 is the messaging standard that allows companies to securely share financial information worldwide. It’s an essential tool to support payments modernization and plays a crucial role in facilitating instant payments.

The standard should reduce transaction errors, even in cross-border payments, while making transactions faster and safer. ISO 20022 provides an established, robust common language between businesses and banks that puts a halt to end-of-day batch file payments processing and fully integrates with real-time payments.

ISO 20022 also delivers better analytics, improving financial institutions’ decision-making. Operational efficiencies should improve as companies are able to exchange enhanced remittance information. The standard should also eliminate the need for manual processing, reducing inaccuracies.

The ISO 20022 messaging standard is the foundation for FedNow, but it also offers the payments service the capability to evolve as the payments landscape changes.

What’s In Store for Stablecoins

Stablecoins are digital currencies tied to the value of a fiat currency, such as the U.S. dollar. These types of digital assets allow for direct transactions between customers and merchants, thus reducing transaction fees.

The currency is also cryptographically secure, meaning it is fully predictable and unbiased. Users can settle transactions in near real time without double payments or other settlement issues. Established on distributed ledger technology, stablecoins can serve as a bridge from the traditional Web2 financial model to the innovative Web3 economy.

PayPal made a substantial move into the stablecoin market in 2023, launching its dollar-based stablecoin, PayPal USD (PYUSD), which can be redeemed on a one-for-one basis with U.S. dollars. The new stablecoin makes for speedy and accurate payments, but it also has intriguing applications as a cross-border payment option. The emergence of PYUSD is a milestone that further legitimizes alternative payments and boosts the profile of digital currency.

While there are still regulatory hurdles in store for stablecoins, the backing of fintechs, banks, and governments is speeding the adoption. In the United States, there has been bipartisan support for the Clarity of Payments Stablecoin Act. The legislation is designed to accelerate stablecoin adoption and foster innovation.

Learn more about the changing landscape of payments in North America and beyond.

The post Trends in Regional Payments: Spotlight on North America appeared first on PaymentsJournal.

The Federal Reserve Bank of Kansas City examined the capability of U.S. depository institutions (DIs), including banks and credit unions, to send and receive instant payments. It found that many banks, particularly smaller ones, will have to modernize their systems or outsource functions to remain competitive.

The main challenge for many banks, according to the report, is that they were not initially structured to accommodate the 24/7 connectivity that instant payments demand. Wire transfers and ACH transactions typically adhere to specific processing hours, and the receiving bank can adjust the timing of transactions throughout the day.

While larger banks can automate the sending and receiving of funds, smaller DIs often rely on manual intervention by personnel during processing payments. While this approach may suffice for banks with lower volumes of wire and ACH payments, it may not be feasible as instant payments gain traction.

The Global Transformation

Though the trend has been slow to catch on in the U.S., instant payments are inevitable. Smaller banks, which likely can’t afford to build the infrastructure to support it, will have to reach out to third-party companies to outsource their instant payments process.

Fintech companies create payment hubs for banks with connectivity to instant payments rails like Real-Time Processing (RTP) and FedNow. However, many banks will also need to outsource customer-facing operations like mobile banking apps, online banking, and B2B payments.

The adoption of front-end solutions has been slow. Though 1,000 DIs had connectivity with FedNow or RTP as of April 2024, many of those institutions only had the ability to receive instant payments. They could not send payments because they did not have appropriate customer-facing solutions.

Losing Market Share

The Kansas City Fed sees core banking providers, or financial technology companies, as an integral player in the shift to open banking and instant payments. But even though fintechs might be the solution for many banks, they could also be the competition.

“As a result of these developments, DIs may collectively lose market share to fintechs; however, the effects on individual DIs may vary,” the Kansas City Fed wrote. “Proactive DIs may sustain or even increase market share by modernizing their core systems, implementing instant payments capabilities, adopting open banking, and sponsoring fintechs and nonbank businesses through BaaS services.”

The post Small Banks Could Lose Market Share to Fintechs Over Instant Payments appeared first on PaymentsJournal.

Klarna’s entry into the UK’s open banking arena should be seen as an evolutionary move. For a decade now, the Swedish buy now, pay later giant has been trying to elbow its way into the space.

This week, Klarna announced that its UK customers can bypass external card networks and pay directly from their bank accounts. This move offers open banking services to Klarna’s 18 million UK customers and 32,000 retailers, in a country where only five million people are currently using open banking services each month.

Klarna initially got into the open banking space in 2014 through its acquisition of Sofort, a direct bank-to-bank payment service in Germany, which has since expanded to serve several European countries.

In 2022, Klarna introduced a separate brand, Klarna Kosma, as its own open banking arm, only to drop it after less than 18 months. At the time, a Klarna spokesperson said that Klarna Kosma had experienced tremendous growth since its launch back in April 2022. But nevertheless, Klarna decided to shut it down in order to bring it under the flagship corporate umbrella.

This recent launch might be more of a relaunch and strategic realignment rather than a completely new venture. Klarna has already been offering open banking options, such as Pay Now, which is used by 20 million customers globally each month. The company plans to extend similar open banking functionalities for its Pay in 30 and Pay in 3 options later this year.

Taking On the Competition

Many observers have noted that this move positions Klarna to take on Visa and Mastercard in the open banking space. Apple has also been testing open banking features for its UK Apple Wallet users, adding another dimension to the competitive landscape. Additionally, Klarna will be competing with the British government and its GOV.UK Pay service. But as Ben Danner, Senior Analyst for Credit and Commercial at Javelin Strategy & Research, points out, it also is a broadside against the American-based Affirm, one of Klarna’s chief rivals in the buy now, pay later space.

“Being able to pay Klarna directly through a bank account rather than a debit card allows Klarna to bypass the card networks and save on fees,” Danner said. “Direct bank account connection also places Klarna in a better position to compete with Affirm’s physical card product, which already enables consumers to use their linked bank account to pay.” 

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Open banking continues to spread worldwide and is heading for the United States, in what some have been calling its “smartphone moment.” The infrastructure is falling into place to support open banking, and the Consumer Financial Protection Bureau has begun safeguarding the consumer protections necessary for this to happen.

In a recent PaymentsJournal podcast, Amit Shastri, Senior Director of Product Management at Worldpay from FIS, and James Wester, Co-Head of Payments at Javelin Strategy & Research, discussed the various payment rails that will facilitate open banking and what the benefits could be for banks, merchants, and consumers.

The Taxonomy of Open Banking

It’s important to understand the terminologies used in open banking, a new topic for many people. There are key differences between account-to-account (A2A) payments and open banking. A2A payments rely on legacy banking systems and often involve manual user steps, resulting in a suboptimal user experience. Open banking is not limited to the bank’s technology but can be seamlessly integrated into other apps with a stronger focus on conversion rates and experiences. A2A payments tend to lack interoperability across regions, whereas open-banking payments have the potential to be integrated into cross-border payments. In short: Although all open-banking payments are A2A payments, the reverse is not true.

In the United States, open banking is centered on the API-based connectivity that enables the sharing of bank account and balance information. U.S. consumers have become familiar with linking their bank accounts as part of the checkout process, then leveraging that connection to make payments again and again.

The term “real-time payments,” or RTP, refers to the underlying infrastructure that enables instant or near-instant transfer of payments between two parties. RTP operates 24 hours a day, weekends, and bank holidays. Open banking is effectively the overlay of services on these RTP rails, and it has the potential to revolutionize payments for consumers, retailers, small businesses, corporations, and governments. 

Where Open Banking Stands

According to Shastri, open banking accounted for nearly $525 billion of e-commerce transaction value in 2022 and is expected to see a 13% compound annual growth rate through 2026. Some of the key successes of open banking around the world are seen in Brazil, which has a payment scheme driven by the Central Bank of Brazil, and in India with UPI, which was launched in 2016 by the National Payments Corporation of India and the Reserve Bank of India. In India, there were 10 billion open-banking transactions in September 2023 alone. 

If the market and the regulators support it, the potential of open banking worldwide is phenomenal. “The market-led approach that we have in the U.S. works very well for most consumers,” Wester said. “But what we are seeing is recognition that the open-banking model does work better, and that is where we need to be going, regardless of how it’s being led.”

Today’s consumers want improved, innovative shopping experiences, and they want instant gratification. Consumers want greater access to their financial data, and they’re willing to share that if it results in improved services and less costly financial products. Meanwhile, merchants are under extreme pressure to reduce their operational costs. Because open-banking transactions happen outside of traditional card rails like those used by Visa and Mastercard, there are no interchange and scheme fees. Open banking has the potential to save merchants millions of dollars annually. 

“At Worldpay, we do not discriminate between payment methods,” Shastri said. “We offer a plethora of payment methods to our customers because, ultimately, we want to drive financial inclusion. When consumers are successful, businesses are successful, and that’s what we are striving for every day.” 

Open banking is proliferating around the world, but it’s just getting off the ground in the United States. Shastri explained that there are four U.S. rails upon which to build an open-banking ecosystem: 

• ACH has been the fundamental backbone of money movement since the 1970s. These payment methods are not real time, however; they are processed in batches. The cost of these payments is low and therefore a very effective choice for large-scale, repetitive transactions, but they typically take from one to three business days to settle. 

• The RTP Network was set up in 2017 and is governed by The Clearing House. According to The Clearing House, about 60% to 70% of U.S. consumers can send RTP payments, but more than 80% receive an RTP payment. 

• Wires are fundamentally used for high-value, cross-border, and urgent domestic transfers. They typically facilitate funds between banks and financial institutions and incur higher fees compared with RTP and ACH.

• FedNow is the newest real-time U.S. payment rail, live as of July 2023, with more than a hundred participating financial institutions and payment service providers. 

“For a payment method to be successful, it needs to reach the broadest possible consumer base,” Shastri said. “Shoppers don’t really care about RTP or ACH or FedNow. It’s for us as a payment service provider to solve that complexity for consumers and merchants, so that they have the broadest possible reach of the payment method in the country.” 

Perhaps the biggest challenge in this space is bank fragmentation. The United States has more than 12,000 banks, whereas countries like Canada are in the double digits. The legacy banking system that supports smaller financial institutions is not equipped to support real-time and clean data-sharing capabilities. 

Because no standards have been set, each bank can enable the sharing of data or enable payments in a slightly different way. “We could have tens of thousands of potential ways to connect to the bank account,” Shastri said. “The cost of integrating, managing, and maintaining these API integrations will be significant for the players in this space.”

Data Privacy Issues

With open banking, consumers are the ultimate owners of their financial data and can choose to share it with whomever they choose. But this leads to legal and ethical implications around sharing data with multiple third-party providers. “As an industry, we need to solve for some of these legal initial implications and assuage any concerns from a legal and ethical standpoint,” Shastri said. 

The legal basis of open banking flows from Section 1033 of the Dodd-Frank Act, which requires banks to make this data available to the consumer in a usable format. Earlier this year, the CFPB issued a notice of proposed rulemaking to allow consumers to have control over their financial lives and gain new protections against companies’ misuse of data. Consumers’ own data would be made available to them at no charge through digital interfaces that are safe, secure, and reliable. They would also have the legal right to share their data with whomever they choose and revoke their access to data as well. 

“This is the core basis for open-banking adoption in the U.S.,” Shastri said. “CFPB is doing a phenomenal job of regulating the space, making sure the ecosystem players behave and play by the rules while protecting consumers from malicious practices and data security.” 

‘The Smartphone Moment’

Shastri expects to see action around the fragmentation of APIs, with common standards for the interfaces being adopted at least at a country level. That will be closely also aligned through the ISO 20022 messaging standard to improve the insights through data and conversion rates. 

“To me, this is like the smartphone moment of financial services,” Shastri said. “This is the start of the journey of building innovative products using data. Open banking will become more and more feature-rich. There is already work going on around variable recurring payments, which will enable person-to-business use cases across a number of industries. 

“Open banking is not just about sharing your banking data but sharing all your financial data, including mortgage, savings, and pension. We could even add other nonfinancial data, like your utility consumption or your Internet of Things data sources. Not just in the United States, but around the world, we will enable our merchants with tools that they need to create value for their consumers. We will create a better, financially inclusive ecosystem where everybody wins.”

The post Laying the Groundwork for Open Banking appeared first on PaymentsJournal.

The Consumer Financial Protection Bureau (CFPB) has proposed a new rule that will enable customers to freely share their financial information with third-party financial service providers.

The rule prohibits financial institutions from stockpiling their customers’ personal data and  mandates that companies release this information if the customer requests it. Essentially, at the very core, the CFPB is looking to protect consumer data and put more control back in their hands.  

Companies that receive consumer financial data are forbidden from misusing or monetizing this information. Consumers are also free to leave a bank if they are receiving bad service. 

“With the right consumer protections in place, a shift toward open and decentralized banking can supercharge competition, improve financial products and services, and discourage junk fees,” said CFPB Director Rohit Chopra in a prepared statement. “Today, we are proposing a rule to give consumers the power to walk away from bad service and choose the financial institutions that offer the best products and prices.”

Open Banking and Consumer Data

Open banking gives third-party financial service providers access to data from consumer banking and transactions, derived from both banks and non-bank financial institutions.

Open banking regulations can be traced back to the European Union in 2015. Since then, many countries, including Australia, Brazil, and the United Arab Emirates, have moved forward in adopting open banking regulations.

Although open banking can transform the financial system, protecting personal data has been tricky. With personal data accumulating, being stored in various places by various companies, data is now more susceptible to risk.

According to James Wester, Director of Cryptocurrency and Co-Head of Payments at Javelin Strategy & Research, having “data silos and fragmented security measures is unsustainable.” As more companies fear the potential liabilities for data breaches or the mismanagement of customer data, now is the time for them to look into a more secure data management strategy—including multi-factor authentication, role-based access control, and encryption.

The post CFPB Proposes Open Banking Rule to Protect Consumer Data appeared first on PaymentsJournal.

Businesses are becoming keenly aware that offering a variety of payment methods for their customers is essential to remaining competitive in the digitally evolving market. Consumers want the choice to pay in a way that is convenient, secure, and efficient. Not offering their preferred form of payment could prompt them to take their business elsewhere.

Mastercard and J.P. Morgan Chase have addressed the importance of the customer payment experience by launching a pay-by-bank solution that enables billers to let customers pay their bills through their bank accounts.

With pay-by-bank, customers can now pay for recurring payments such as insurance, healthcare, utilities, rent, and tuition. Billers, whose customers are already using ACH to pay for their bills, can easily enable the pay-by-bank solution on their payments page. Customers simply must choose “pay-by-bank.” Then they will be asked to choose their bank and allow their bank information to be securely shared via Mastercard’s open-banking platform.

“This innovative payment option aligns with our commitment to providing our customers with convenient and secure payment choices,” Darrell Conn, Executive Director of Verizon, said in a prepared statement.

“We believe that Pay-by-bank will enhance the overall customer experience, making it easier and more efficient for our customers to pay their bills. We look forward to this partnership with J.P. Morgan and Mastercard to bring more innovative solutions to our customers.”   

Pay-by-Bank Growing in Popularity

Pay-by-bank is increasingly preferred by merchants across the country as it reduces payment processing costs, as there are no swipe fees. And with inflation, high interest rates, and other economic factors negatively affecting the average consumer, more are turning away from credit card purchases and opting for debit cards and pay-by-bank at checkout.

Amid the current economic conditions, expect pay-by-bank to continue to gain ground as a payment method. It is likely that it will join the ranks of other current interest-free methods of payment, such as debit cards and cash.

“The JP Morgan-Mastercard pay-by-bank launch reiterates the growing interest and demand for direct-debit and open-banking solutions in the U.S.,” said Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research. “It’s not surprising that Verizon is piloting the solution, especially given AT&T, T-Mobile, and Verizon have all been pushing customers to set up autopay with lower-cost debit cards and ACH payments. Verizon was also one of the first merchants to allow its customers to make instant bill payments via RTP and Citi.

“Many recent developments, including the CFPB’s proposed Personal Financial Data Rights rule, the Fed potentially lowering the debit fee cap, and the possibility of credit card fee regulation, could have a significant impact on the U.S. payments landscape. Additionally, growing real-time payment adoption could enhance pay-by-bank solutions and generate new revenue opportunities.”

The post Mastercard and J.P. Morgan Chase Launch Pay-By-Bank appeared first on PaymentsJournal.

Mastercard is betting big on open banking, working with leading players in the space—including Worldpay from FIS—to provide consumers and small businesses with the ability to authorize trusted entities access to their financial information.

Through its collaboration with Worldpay, consumers can facilitate direct bill payments from their bank accounts and authorize the sharing of their data—without it being stores—between trusted parties. Mastercard is also working with J.P. Morgan Payments on a pay-by-bank solution that leverages its open banking technology to simplify bill payments.

“Open banking solutions can speed up the lending process so consumers and SMEs are able to get quick access to funds they need and get back to running their businesses and completing purchases,” said Daniel Keyes, senior analyst at Javelin Strategy & Research. “It’s particularly important that SMEs and consumers are only given funds that they’re in a position to pay back, and open banking can help make sure underwriters have access to the financial information needed so neither ends up overextended.”

Trust is Fundamental

According to the company, trust is a vital component of open banking, and Mastercard is particularly keen on safeguarding consumer data.

“We’ve been in the data space for a very long time, so we have a very high bar on compliance, security, safety,” said Jess Turner, EVP, Head of Global Open Banking and API at Mastercard. “Even in the way we transmit things and how we use data, that’s a core focus of ours. And so we put a lot of energy into digital identification and into fraud reduction.”

“What we do with open banking is we embed those assets into the data flow,” she said. “When we talk about open banking, we talk about connecting to a bank’s APIs. And that is the most secure way to move data. When you bring these assets together, you have an ability to have consumer consented data with clear transparency for what they’re using it for.”

Tackling Fraud

Last year, consumers in the U.S. and Canada experienced $3.2 billion in losses from fraudulent opened accounts.

“That’s a lot from opening fraudulent accounts,” Turner said. “If that happens, and you’re a victim of that, you’re not going to try it again next time.”

“Consumers and small business own their data, and they should have access to it—and it needs to be protected. Everything we build around that is to support those policies and principles. We also believe that you should not be bias in the data, and it should be used in a clean and concise way,” she said. “That’s really important, because with that, we have boards across Mastercard that check all of the data products we have—whether it’s a new model, whether it’s an attribute to make sure we’re following our data principles and how it’s leveraged, and then to, to make sure there’s no bias in it. We take it very seriously.

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UK startup BuildMyCreditScore is leveraging open banking technology to let consumers boost their credit scores.

The company is offering consumers a Mastercard debit card that can be integrated within their current bank account, and consumers are encouraged to make purchases like they normally would. Finextra, which reported on the recent news noted:

“While the debit card works instantly like a regular bank card, the money—up to a daily cap of £30 per day—is collected via Direct Debit by BuildMyCreditScore around two working days after, allowing it to be reported to credit reference agencies. As a result, cardholders are able to build their credit score by demonstrating their ability to manage rolling outgoings and repay credit promptly.”

Boosting Credit

The primary advantage of this approach is that it empowers cardholders to strengthen their credit scores by showcasing their capacity to effectively handle continuous expense and swiftly settle any credit debts. Rather than depending on conventional credit-building offerings—which frequently entail obtaining credit and ensuring timely repayments—BuildMyCreditScore’s solution incorporates itself into an individual’s everyday spending patterns.   

According to Finextra, the company conducted a pilot program where it tested the credit building approach with 632 consumers between Dec. 2022 and June 2023. It found that most participants experienced a notable improvement in their credit scores within the first three months. In fact, score increases ranged from 11 to 55 points.

In a prepared statement, James Lynn, CEO and Co-Founder of BuildMyCreditScore, noted:

“Traditional credit builder products typically rely on someone making prompt repayments on credit they’ve taken out. If they fail to do so for any reason, they risk falling into debt and harming their credit score further. BuildMyCreditScore’s innovative use of open banking disrupts this model by integrating seamlessly with a person’s usual spending habits, allowing them to build their credit score in a safe, low-risk way through their everyday spending.”

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It’s been a few months since the European Commission (EC) published its package of proposals for the next generation of payments regulation in the EU. The proposals—which will see PSD2 split into a new directive (PSD3) and regulation (Payment Services Regulation/PSR)—have generated plenty of headlines since their release.

But what are the proposals’ potential implications for the open banking ecosystem specifically? And do they have the potential of realising the EC’s stated objective of “improving the competitiveness of open banking services”?

Having had some time to reflect on the proposals, let’s dig further.

Baseline Functionality and Performance Will Level Up

The size and complexity of the EU banking sector, combined with differences in interpretation of specific PSD2 requirements, has led to large differences in the level of functionality and performance of banks’ open banking interfaces, both within and between EU member states.

The EC’s proposal to introduce an explicit baseline level of functionality and performance that all bank open banking interfaces will, at a minimum, be required to meet is encouraging. This should help to level-up the minimum level of functionality and performance that can be expected consistently across the ecosystem.

As is frequently the case, however, the devil will be in the detail and the EC has left much of the specifics of the required functionality and performance to be defined in future by the European Banking Authority (EBA) in Regulatory Technical Standards.

There’s hope that the focus of these requirements will improve the quality and consistency of the end user experience, in particular for open banking-enabled payments. For example, minimum baselines for end user authentication flows (such as app-to-app redirection), as well as specific user experience guidelines, would provide a big boost to driving end user familiarity, confidence and ultimately uptake in ‘Pay by Bank’ propositions.

API-Based Open Banking Interfaces Will Become Universal

API-based interfaces offer the most secure and performant way for third-party providers to interface with banks. API-based interfaces help in delivering the most innovative, performant and secure open banking services, which ultimately drives better outcomes for end users.

EC’s proposal to introduce a new explicit obligation for banks to provide an API-based open banking interface is a good step forward. This will remove the current alternative option of enabling open banking access via modified customer interfaces (an enhanced form of “screen scraping”). While most EU banks already have API-based open banking interfaces, making this standard across the whole EU will further maximise bank coverage, as well as the potential customer base that API-focused third-party providers can offer open banking services to. Overall, this will support greater uptake and demand for open banking-enabled services overall.

Greater Visibility Into Open Banking Payments

It’s critical that third-party providers and their customers have better clarity on the status of open banking payments once they have been initiated. For example, many businesses will only release goods and services to their customers once they have confirmation that associated payments have settled into their accounts.

While PSD2 placed some limited obligations on banks to provide third-party providers with information on underlying payment statuses, the EC’s proposals strengthen these obligations. The new proposals make it clear that banks will need to provide payment status information to third-party providers both immediately after initiation and whenever subsequent information on the payment status becomes available to the bank.

This development, combined with the EC’s separate proposals mandating the EU-wide adoption of instant payments, will help further unlock the use of open banking payments in wider use cases.

A More Consistent and Enforceable Regulatory Environment

A hallmark of the PSD2 open banking regime has been divergence in interpretation and implementation of rules between different EU member states. For third-party providers operating across multiple member states, this has driven significant cost and complexity, and made offering consistent pan-EU open banking propositions challenging.

However, the structure of the EC’s new proposals—specifically the shift of most open banking rules from a directive into a regulation—will help drive a more consistent regulatory environment. Unlike directives, regulations are directly applicable in every member state and not subject to transposition into local law, which will minimise and potentially eliminate divergence between member states.

The EC’s proposals also include new elements aimed at improving enforcement activity, including against banks that aren’t meeting the required standards. A list of prohibited obstacles to third-party providers accessing bank dedicated interfaces, such as banks requiring customers to manually provide their IBAN to the bank to use open banking, has also been incorporated directly into regulation. Combined with the explicit baseline described above, these measures should further support in the levelling-up of ecosystem functionality.

Another Step Towards a Premium API Economy

PSD2 has provided—and future PSD3/PSR proposals will provide—the regulatory framework for open banking in the EU and the legal basis on which banks are obligated to provide third-party providers access to specified open banking functionality on a no-charge basis.

Premium APIs—those built on equitable commercial models, at least—pave the way for higher-quality and more innovative end-user propositions, such as dynamic recurring payments, and in the long term, will support the wider adoption of open banking-based payment propositions.

The EC’s proposals support the development of premium APIs in two ways. The proposals provide a more tangible specification of what specific functionality banks are required to offer to third-party providers on a no-charge basis. They also explicitly state that banks are free to charge third-party providers for any functionality offered beyond that required under law, removing any ambiguity that may have previously existed.

In summary, the EC’s proposals have the potential to unlock a more consistent, performant and featureful open banking ecosystem, while also helping to lay the path to an even more innovative ecosystem based on premium APIs.

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Apple is testing out a new feature for UK Apple Wallet users, allowing them to view their current bank account balance and transaction history directly within the app.

The tech giant is leveraging UK’s Open Banking API to fuel the effort, and according to 9 to 5 Mac, the feature will be available to a select group of Wallet users who have linked their Apple Pay card with one of the participating banks, which include Barclays, HSBC, Lloyds, RBS, Monzo, and Starling.

Transparency Around Finances

Apple’s move into open banking expands the capabilities of its Apple Wallet app beyond just facilitating digital payments. Open banking will allow users to monitor their financial activities and make more informed spending decisions by displaying their balances and knowing—in real-time—how much money they have in their account without having to open up their separate banking app.

This integration is a significant development for digital wallets, Apple, and open banking. Here’s why:

Digital wallets: This move enhances the functionality of digital wallets, making them more than just a tool for digital payments. By showing current account balances and transaction history, digital wallets are evolving into comprehensive financial management tools. This could lead to increased adoption and usage of digital wallets.

Apple: For Apple, this is a strategic move to increase the utility of both Apple Wallet and Apple Pay—potentially driving more users towards their ecosystem. It also positions Apple as a pioneer in leveraging open banking APIs for enhancing user experience.

Open banking: This is a validation of the open banking concept, which advocates for sharing of user-permitted data via APIs to provide better financial services. Successful integration could encourage other regions to adopt similar standards.

Future Integrations

Apple’s open banking pilot program is currently only available in the UK due to its established open banking standard that allows for such integrations. The introduction of a similar feature in other regions, including the U.S., may face challenges due to the absence of comparable standards.

That said, this may changing soon.

In a recent report, “Why Data Isn’t A Zero-Sum Game in Payments,” Matthew Gaughan, Payments Analyst at Javelin Strategy & Research, outlined how upcoming regulations will turbocharge open banking in the U.S.

The Consumer Financial Protection Bureau is working on a standardized rules framework ensuring that consumers can access their data uniformly, regardless of the data provider. If successful, this would pave the way for Apple to offer a similar service in the U.S.

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BNY Mellon has announced a strategic partnership with Trustly, a pioneer in open banking, to launch a new payment solution called Bankify, according to a recent press release. This innovative platform leverages the strengths of both companies to facilitate direct bank account payments for consumers, offering an alternative to traditional payment methods like credit and debit cards or third-party payment platforms.

Bankify is designed to cater to a wide range of consumer-to-business payment flows, including merchant payments, bill payments, and digital wallet funding. The platform guarantees funds for business receivables, providing a seamless user experience and ensuring secure transactions.

This alliance aligns with increasing prevalence of open banking and pay by bank.

Open banking allows customers to share their financial information securely and electronically with other authorized organizations, such as fintech companies, payment providers, and other banks. As we have covered in PaymentsJournal, open banking evangelists argue that open banking provides greater transparency and data control for account holders, and allow for increased competition and innovation in the financial sector.

The Pay by Bank trend is also gaining momentum in the banking world. This method allows consumers to make payments directly from their bank accounts, bypassing traditional payment systems.

According to Sophia Gonzalez, Research Analyst at Javelin Strategy & Research, the big winners of Pay by Bank are merchants, because they don’t have to pay interchange or transaction fees to credit card companies. But customers could benefit too if merchants pass some of those savings on by reducing prices.

Pay by Bank is not as common in the U.S. as it is in other countries. One reason is that the U.S. has a well-established credit card system, which has been the preferred payment method for many consumers for decades. Credit cards offer rewards, cashback, and other incentives that make them an attractive option for many people.

Another reason is that the U.S. has a fragmented banking system, with thousands of banks and credit unions operating independently. This makes it more challenging to implement a standardized Pay by Bank system across the entire country. However, Pay by Bank seems to be gaining ground slowly but surely in the U.S., and BNY Mellon is betting that trend will continue.

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The UK Government is planning to implement open banking within the GOV.UK Pay system. This is part of a larger initiative to enhance current payments functionalities for government services.  

Amanda Dahl, Deputy Director of Government Digital Services announced the news last week and said the government is exploring ways to offer open banking services, including how consumers pay for services with their banking app.  

“GOV.UK Pay already offers Apple Pay and Google Pay to central government digital services, but soon we’re releasing the same mobile wallet payment types  to local authority services and this will be a great benefit to people who are paying for government services on the go, like paying for Clean Air Zone charges,” Dahl wrote in a blog post.   

So far, GOV.UK Pay has incorporated 163 services over the last 12 months, allowing them to accept payments via online digital services. According to Dahl, 23 million payments were processed during this time, valued at £1.3 billion. 

Open Banking Is Revolutionizing the Financial Industry 

Open banking is continuing to make waves across the financial space. For the first time, consumers have control over their own financial information and how it’s being used. Banks are also benefitting as this exact consumer data is critical to creating a more customized and streamlined customer experience.  

We’ve seen the space continue to evolve over the past few months, most recently with Klarna who decided to bring its open banking brand Klarna Kosma under its corporate brand. The Swedish company reported that monthly transactions surged by more than 200% on the open banking platform.  

A recent PaymentsJournal podcast also discussed the current state of open banking and how many of the key players within the United States are made up of traditional financial institutions, fintech companies, and third-parties, such as neobanks. .  

Open banking can be one solution for growing concern over security, particularly as no party is allowed to gain access to a consumer’s private information without their permission. As the space continues to evolve, we’ll see extend security efforts, including from the Consumer Financial Protection Bureau (CFPB), which is currently drafting guidelines and frameworks to further educate users on consent control and usage.   

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Klarna has dropped its open banking brand Klarna Kosma, less than 18 months after its launch, and is planning to move the sub-brand directly under the Klarna corporate brand.  

According to a Klarna spokesperson, its open banking arm of the business has experienced tremendous growth since its launch back in April 2022. Monthly transactions from other companies have reportedly grown by more than 200% on the open banking platform in the last year.  

“By integrating its financing and open banking products under one brand, Klarna makes it easier for customers to choose payment options that best meet their needs in one place, whether it’s pay later or pay now solutions,” said Elisa Tavilla, Director of Debit Payments with Javelin Strategy & Research. 

Open Banking Offers Significant Promise 

Open banking is revolutionizing the way consumers interact with and manage their finances. It enables consumers to share their financial information with authorized third-party providers by using APIs. This information can be used by banks to offer more personalized and streamlined experiences for their customers, thereby building customer loyalty. 

Before open banking became available, most consumer information was controlled primarily by banks. Now, consumers can oversee their financial information and have easier access to it across a wide variety of platforms, ensuring a more customized and streamlined experience.  

It can also create fertile ground for innovation as it motivates larger banks to both enhance their offerings, as well as innovate to stir healthy competition with smaller banks. Customers get to enjoy improved technology and a rich customer experience at a much lower cost.  

We covered the current state of open banking in a recent podcast, delving into how it can improve the current financial system, how its data should be shared responsibly, and how banks can benefit by reducing security risks.  

As with any new platform, there are some downsides. Open banking is still in its infancy in the U.S. and the space is still undergoing regulation. Indeed, the Consumer Financial Protection Bureau (CFPB) is working to be at the helm of establishing a regulatory framework.  

There are also concerns around security. Sharing financial data online is never without risk, however, the upside is that customers will never need to share their sensitive banking credentials directly with third-party service providers. All authentication is carried out via their bank.  

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Open banking holds significant promise for changing the financial system for the better. With the ability to access and share their own financial information, individuals gain greater control over their data while enabling more efficient and tailored financial services. For banks, it has the potential to reduce security risks and open up new product ideas in the field of identity verification.

During a recent PaymentsJournal podcast, Caitlin Sinclair, Director of Proposition Development in Financial Crime at GIACT, an LSEG Business and James Wester, Co-head of Payments at Javelin Strategy & Research, provided insights into the state of open banking, the challenges it faces, and the potential for self-sovereign identity to revolutionize data control. They also spoke about how businesses can use open-banking tools more effectively, as well as the new consumer products open banking is likely to enable.

The State of Open Banking

Although open banking does not have a fixed definition within the industry, in simple terms it allows individuals to access and share their own information held by financial institutions.

In some regions, government and regulatory bodies have played a large role in promoting open banking. The push for U.S. open banking has mainly been driven by industry and commercial interests.

Open banking in the United States involves a few key players. There are the traditional banks that hold the data that open banking enables consumers to share with third parties of their choice, such as fintech companies. There are also third parties such as smart budgeting apps, insurance providers, and neobanks. And let’s not forget the connectivity provider, which facilitates the interaction among the third-party services, the bank account, and the account owner.

“Open banking initially started with banks and international initiatives, like those in the UK, aimed to create a more level playing field and empower individuals to determine what they want to do with their banking data,” Sinclair said. “This has led to the emergence of useful tools such as smart budgeting apps and dynamic fintech apps that help individuals manage their finances more conveniently.”

Open banking is a form of democratization in financial services, and it allows individuals to leverage the information held by banks without necessarily going through traditional banks for every interaction. Instead, they can benefit from tailored financial services provided by third-party companies that excel in user experiences.

For consumers, the term “open banking” may not mean much, even though around 80% of consumers are likely to have used it.

“Open banking is just a method or tool that allows consumers to access third-party services or verify payment details,” Sinclair said. “What’s important for consumers to know is that open banking operates based on their consent. No one can access their data without their explicit permission. And consumers should have the ability to easily withdraw their consent if they feel it’s no longer necessary or applicable to the third parties involved.”

The challenge lies in making customers aware of the risks associated with open banking, especially if they are not familiar with the concept. Providing clear information about the workflow and purpose of data sharing can increase customer buy-in.

“Education about potential risks is increasingly important in the U.S., where the development of open banking has been more industry-led rather than regulatory-led,” Sinclair said. “However, the Consumer Financial Protection Bureau is expected to introduce guidelines and parameters to inform users about data usage and consent control.

“The success rate of connecting accounts and receiving information through open banking can vary greatly, with factors like understanding the rationale behind data connection playing a significant role. By designing workflows that help customers comprehend the reasons for sharing their data, we can build confidence and increase their willingness to participate.”

Trends in Open Banking

Although it seems likely that open banking will continue to flourish, some factors—including economic ones—could derail its progress.

“Companies operating in the fintech space have realized the importance of having a solid business plan that generates revenue from customers and allows for long-term sustainability,” Wester said. “This realization has been a wake-up call for some companies that initially relied heavily on funding without a viable profit-generating model.”

Another factor could be regulatory changes or pushback, but according to Sinclair, as long as the major players offering open-banking capabilities have designed their products with data privacy in mind, they should be resilient.

“Looking ahead, the emergence of concepts like self-sovereign or permissioned data sharing, associated with distributed or self-sovereign IDs, could also impact open banking,” Sinclair said. “However, permission-based information sharing is likely to become the norm in the medium term.”

Sovereign Identity: Taking Control of Personal Data

Open banking is just the beginning of a broader evolution where data is not siloed but shared responsibly. The fundamental principle behind open banking is that consumers take control of their own data and decide how and where it’s shared.

“We are only scratching the surface of what’s possible with data sharing,” Wester said. “Web 3 technologies allow us to share specific pieces of information, fueling new experiences in areas like virtual or augmented reality and transforming how we buy, rent, and access goods and services. The potential for new and exciting developments is vast.”

Sinclair shares Wester’s optimism, particularly around the personal control of data that underlies open banking. One direction where this might lead is the concept of self-sovereign identity, where individuals have control over their own digital identities. This identity could be customizable to the role the consumer is adopting.  

“This means that you can have different personas or roles, like your work self, your parent self, or your regular self, each with associated data and information,” Sinclair said. “This allows for greater flexibility and personalized experiences across various sectors, not just banking.

“Imagine being able to connect your social interactions or even healthcare information to your self-sovereign identity and being able to share specific data on a permission basis when needed. It’s not just about banking or financial services, but about creating a broader ecosystem where this buildable identity can be utilized.”

Another positive of self-sovereign identity is that individuals can potentially separate and share only the specific pieces of information that are necessary without revealing everything.

“When you buy a beer, you don’t need to share your entire driver’s license with details like your weight or hair color,” Wester said. “You could provide just the relevant information, like your age, in a binary yes/no form. That way, you have more control over your identity and can tailor it to different contexts.”

Protecting Digital Identities

Personal data is often stored in multiple places by different companies, which can be risky. If a single company holds everyone’s information and experiences a security breach, the consequences could be severe.

Sovereign identity is different. Instead of one company having everyone’s data, different pieces of information can be held separately and accessed only with the owner’s permission through specific channels. This will be helpful to individuals in terms of controlling their data and reducing the administrative burden. For customers, part of the selling point is a user experience that enables efficient and secure access to financial information, minimizing friction.

“In the future, the hope is to move away from archaic methods like passwords and find more convenient and secure ways to authenticate and manage personal data,” Wester said. “This would eliminate the hassle of remembering multiple passwords and streamline user experiences.”

The shift in data management has commercial benefits as well.

“The current model of data silos and fragmented security measures is unsustainable,” Wester said. “Companies don’t want to bear the high liabilities associated with data breaches or mishandling customer information. They will likely recognize the need for a more secure and responsible approach to data management.”

The concept of self-sovereign identity holds promise, allowing individuals to customize their digital identities and share specific information on a permissioned basis. This shift toward responsible data management and enhanced user experiences will not only benefit consumers but also drive businesses to adopt more secure and responsible approaches to data protection. The future of open banking is poised to revolutionize the way we interact with financial services, laying the foundation for a more transparent, efficient, and personalized ecosystem.

In a recent white paper, GIACT (an LSEG business) explores the current uses for open banking products and their impacts to date, explores future applications, and helps firms understand how they can use the emerging suite of open banking tools to improve outcomes—for their organization and customers. Download now: https://lseg.group/OpenBankingWP

The post The State of Open Banking: Empowering Individuals and Redefining Data Control appeared first on PaymentsJournal.

A new Mastercard interface—which the card giant dubs its Open Banking for Account Opening solution—provides integrated identity verification as new accountholders and customers are onboarded and begin transacting with businesses and financial services.

Mastercard announced the new API last week.

In doing so, the card network cited the following numbers:

• 78 percent of U.S. adults prefer to bank through a mobile app or website.
• Digital transaction volumes are expected to hit $15 trillion by 2027.

“Our digital identity and opening banking networks instill confidence on both sides of an interaction,” Chris Reid, the Executive Vice President of Identity Solutions at Mastercard, said in the company’s news release. “By securing our online ecosystem, we are delivering on our promise to bring more people and businesses into the digital economy.”

The API performs verification of account ownership and identity in real time. The prefilling of account and routing information reduces errors, Mastercard says, touting it as a solution for financial institutions and fintechs that provides easy onboarding with minimized fraud risk and friction.

Deeper Into Digital Identities

In a February Javelin Strategy & Research report, titled The Future of Digital Identities Is Now, Senior Analyst Suzanne Sando detailed consumers’ growing comfortability with the technology, particularly as it pertains to government-issued IDs and mobile driver’s licenses.

But, Sando wrote, the potential for digital IDs is much greater. Being able to securely demonstrate who they are, consumers can make use of these credentials in a range of use cases, including the receipt of government benefits, the opening of financial accounts, and enacting legal documents, among others.

The report also cautioned that FIs and identity-proofing vendors must take the initiative in alleviating consumers’ privacy concerns as they step toward new technology.

Back to Mastercard

Mastercard leans on subsidiaries Ekata and Finicity to power its new solution.

Finicity provides the open-banking muscle for the API. Ekata offers an identity attributes database for insights on identity verification.

The result, Mastercard says, is a solution that lets banks and fintechs proceed confidently, knowing who their customers are and that they own the accounts to which they link.

“Digital account opening is central to onboarding new customers and growing a business,” Jess Turner, Mastercard’s Executive Vice President for Global Open Banking and API, said in the release.

The post Mastercard API Leverages Open Banking to Target Fraud in Onboarding, Transactions appeared first on PaymentsJournal.

Payments have become increasingly complex. As a result, technology providers have been prompted to revamp their delivery models. And with open banking relying heavily on flawless connectivity between tech systems, interoperability is no longer just a good idea but a requirement. The race to meet consumer needs while satisfying regulatory requirements is on.

Complexities of Reaching Interoperability

In a recent report, Open Banking Pushes Interoperability to the Payments Forefront, Marco Salazar, Director of Tech & Infrastructure at Javelin Strategy & Research, delves into the complexities of reaching interoperability and the importance of forming partnerships between tech providers and merchants to make that happen. Consumers continue to desire a seamless and more personalized digital experience, making those bonds essential.

“Vendors, technology vendors, or providers have had to change their delivery models, which is now focused on interoperability,” Salazar said. “What that means is the ability to work in tandem with other partners. It’s no longer a closed system. It’s more about how we can work with other vendors or other third parties in the ecosystem to deliver the end desired experience.”

Salazar noted that consumers’ choices in how to pay are paramount, with Javelin’s research tracking 18 methods of payment.

“Because of that, financial institutions or even merchants have to decide which ones they are going to allow consumers to pay with,” he said. “And as you can imagine, there is a lot of overlap in some of the delivery models. There are a lot of nuances, and this gets even more complex as you scale across regions and geographies.”

These complexities, according to Salazar, are exacerbated by the variety of regulations and compliance standards among different countries.

One-Stop-Shop Vendors No Longer a Reality

As banks have grappled with competitive pressure from fintech innovators that threatens their legacy systems, they have turned to investing heavily in the latest technological tools to stay ahead. However, the original idea of a one-stop shop for all banks’ needs is simply not possible. The environment must be more collective and collaborative.

“Technology has disrupted the entire financial services industry,” Salazar said. “And because of that, we’ve gone through this period of most FIs or technology providers investing in their infrastructure and technology. That created a single vendor or that mindset of the one-stop-shop mentality. That gave way to where we are today. It would be nice to be a one-stop shop, but that’s not the reality anymore. Now we have to be able to work with everyone. We’re shifting to this place where it’s an ecosystem of solutions, whether you’re a provider or a merchant. The more you can offer, the better.

“That doesn’t mean that if you’re a merchant, you have everything in-house. It can be white-labeled through other partners. So one-stop shop is still an aspiration, but I think vendors and merchants have come to realize that it will probably never happen, and it’s probably a good thing.”

The road to interoperability, like the payments ecosystem, is certainly complex, but navigating it will be necessary to flourish in the digital world.

“Standardization and interoperability are not sexy because they’re more so on the back end and they take years to essentially formulate standards,” Salazar said. “Whether it’s a data element or just the way a payment has to the payment flows, etc., they’re vastly important and many times don’t get the attention that they deserve.”

Learn more about how interoperability can fuel growth in alternative payments and how fintechs, FIs, and third-party providers can work cohesively to ease regulators’ concerns. Our research also delves into how a pro-competitive environment can be established among providers of services and products.  

The post Interoperability Will Challenge Banks to Navigate the New Digital World appeared first on PaymentsJournal.

GIACT, a London Stock Exchange Group (LSEG) business, is leveraging Mastercard’s open banking capabilities through a new partnership.

According to LSEG, businesses will be able to use its digital identity and fraud tools to validate the information of more than 95% of U.S. deposit accounts.  

“Digital acceleration has changed how people think about money and what they expect from financial services, and we are proud to be partnering with GIACT’s team to provide their clients the ability to automate account verification using consumer-permissioned, real-time bank data,” said Andy Sheehan, Executive Vice President of U.S. Open Banking at Mastercard in a press release.  

Via this partnership, GIACT is looking to streamline onboarding and decrease fraud by letting its customers confirm key information, including the bank account owner, the income account balance, as well as transaction information, within a single bank account.

By and large, GIACT has been working to solve the digital onboarding challenge—and at the same time—make sure there are proper protocols for regulatory compliance in place.

“A better customer experience brings really rich rewards,” said Gareth Walker, Global Head of Client and Digital Onboarding at Refinitiv, an LSEG business, during a recent PaymentsJournal podcast.

And according to Walker, in the financial services industry, satisfied customers are seven times more likely to increase their deposits and twice as likely to open a new account with an institution if they consider themselves a satisfied customer.

As more financial services businesses look to target new customers and retain existing ones, there needs to be more attention around d customer abandonment and conversation rates, as well as an understanding of how fraud may impact their bottom line.

Didn’t catch GIACT’s webinar last month on how to increase conversions without increasing risk? Register here for the on-demand webinar.  

The post LSEG Teams Up with Mastercard to Leverage its Open Banking Capabilities appeared first on PaymentsJournal.

From digital banking to Buy Now, Pay Later (BNPL), the financial services landscape has fundamentally changed as a result of technology-driven innovation—and it will continue to evolve.

Open banking is revolutionizing consumer banking and redefining it as a customer-centric ecosystem for banks and third-party providers alike to put the control of financial data back into the hands of the consumer.

Driven by the European Union adoption of the revised Directive on Payment Services (PSD2) in 2018, open banking was designed to support three important principles:

• Better consumer protection
• Secure payment schemes with strong customer authentication
• Innovative services and products accessed through the open banking concept

Open banking offers consumers control of their data, which in turn gives them a clearer view of their finances. It allows for quick, easy, and direct payments, and for consumers to shop around different financial services. It also enables banks to expand offerings by opening application programming interfaces (APIs) and connecting with other service providers and fintechs. It allows third-party providers to launch new products and services in an agile environment, gain market share from larger banks, collaborate between banks, and easily integrate into other platforms with added levels of security.

There are obvious benefits to the customer-centric concept of open banking, but because the U.S. has thousands of banks, it’s hard to regulate them to these specific standards. That said, the U.S. is taking a market-led approach and supporting best practices that go beyond open banking—to open finance (including mortgage, insurance, credit risk, etc.)—to better serve today’s customers.

How Security Plays a Role in the Widespread Adoption of Open Banking

Open banking allows banks to share customer data with third-party providers via APIs through a unified dashboard view of all interconnected banking services. By consolidating customer account and payment information across multiple banks, it enables users to make quick, secure payments and access financial services directly between service providers. This process is done with customer consent and should be highly secured with verification and authentication steps.

The challenge is that these security processes haven’t been ironed out and are a major concern for consumers. In fact, 47% of U.S. consumers are worried about losing control of financial data in an open banking framework.

Right now, there are different platforms associated with different services. There’s one platform for banking and another for insurance, but there’s no interoperability between these platforms. This leads to a higher risk of data loss and compromise because there’s no way to associate consumers across different platforms.

In order for it to be more widely adopted, banks and fintechs need to strengthen their identity management practices to better manage end-users’ identities and data across every platform.  

How to Make Identity Security Top of Mind

Creating an identity management framework—that is unified, customizable, and integrated—is key. By making this the foundation of open banking, banks and fintechs have access to a 360-degree view of each customer to unify and secure customer data.

A strong identity management platform allows for more control over customer data because it provides strong customer authentication and effectively secure APIs. With open banking, consent is important. Consumers have to opt-in and choose the data that third parties are allowed to access and for how long, and identity management allows this to happen.

Open Banking Gives Control Back to the Customer

Before open banking, banking was transaction-centric, benefitting banks and merchants primarily, which forced customers to manage different relationships. The open banking concept introduces a unified dashboard view of all interconnected financial services to give control back to the consumer.

Disruption is in our favor. But it’s only when identity security is interwoven throughout the concept that consumers will receive the customer experience they need to adopt open banking principles. This transition will lead to open finance, which could eventually lead to an open economy.

The post Open Banking: The Solution for Better Consumer Protection appeared first on PaymentsJournal.

The world of consumer banking received an innovation boost when the EU regulation PSD2 enforced the rails for Open Banking. This disruptive force offers new ways to streamline payments and is predicted by Juniper Research to handle more than $116 billion in global payment transactions by 2026. Where do variable recurring payments fit in?

Innovations such as Open Banking often have a domino effect, opening many opportunities: Open Banking, as a system, provides the underlying capability to create innovations. One disruptive force driven by Open Banking is Variable Recurring Payment (VRP). This new payment model looks to shake up the traditional recurring payments scene. But what is VRP, and can it make waves in the incumbent payments systems?

What is a Variable Recurring Payment?

Open Banking was originally part of the EU’s PSD2 regulations, which set out the frameworks required to access customer data via APIs. The original specification for the Open Banking API standard was released in 2017. Since then, Open Banking and similar initiatives have become popular worldwide. 

Opening access to banking data to third parties has encouraged new players into the financial space, namely fintech companies like Plaid and Truelayer act as a middle-layer TPP (third party provider), connecting the Open Banking rails. This offers eCommerce vendors a link to thousands of banks; this gives customers a way to pay for goods and even provide identity assurance using their KYC verified bank account.

Open Banking is behind the emergence of the Variable Recurring Payment or VRP. Under Open Banking, a Payment Initiation Service Provider (PISP) provides a service to facilitate access to a customer’s bank account that is then used to transfer funds on the customer’s behalf. A VRP uses a PISP to set up recurring payments under rules and constraints. This system differs from the traditional bank debit system that handles recurring payments: 

Under a direct debit system, the bank uses a ‘pull method’ where a business can request regular payments based on a pre-completed mandate set up by the bank customer.

A VRP uses a push-based model and differs in the mechanism used, i.e., Open Banking, with a centralized consent to pay mechanism. Importantly, this mechanism places the customer at the core of the transaction. 

‘Sweeping’ is the first use case for VRPs.

What is ‘sweeping?’

NatWest is the first UK bank to offer VRP support for ‘sweeping’. Many banks are expected to follow their lead. Sweeping facilitates automated account transfers, specifically between two accounts of the same name, e.g., from a savings account to a current account. This particular use case has been identified as a great application of VRP because the transfers are fast, cheap, and secure, compared to the expense of credit cards or direct debits.

However, currently, there is no consumer protection in place for Sweeping and fees are yet to be set. A report from the Competition and Markets Authority (CMA) looking into VRPs concluded:

“Respondents also raised points around the need for minimising and managing disputes over sweeping access going forward as well as points around consumer protection.”

VRPs offer a great choice payment model as they provide the level of transparency and customer control expected by customers today.

Are VRPs the death knell for fixed recurring payments?

VRPs look set to change how funds are transferred, certainly in consumer models. Customers want seamless, cost-effective, and fast payment systems: this will drive competition in the financial sector, as evidenced in a recent Thales ​​survey that found that 38% of consumers would move to another bank for better services or rates.

Financial analyst and renowned guru David Birch, quoting Mike Kelly on the potential of VRPs, says, “Mike Kelly, who was the product lead for VRP, says that they have “huge potential to revolutionise finance” and he is absolutely correct.”

VRP uses the Faster Payments service, so fund transfers are near-real time. This is great for retailers. In addition, VRPs are fully digital, so no paperwork is needed, unlike a direct debit mandate. This saves the customer time and potentially reduces fraud and manual error risks at this juncture in the user journey.

VRPs are customer-centric, placing the control of finances in the hand of the consumer. The VRP system allows granular control with customers setting maximum payment amounts, consenting to regular payments, and being able to cancel payments instantly.

In comparison, credit cards and debit systems are slow and costly. But they are incumbent, with 175 million American consumers owning a credit card with cumulative debts of $825 billion. Having a credit card is expensive for all involved, with the credit card companies pulling in vast sums of money. Customers and retailers actively want reduced costs and faster transfer speeds. VRPs offer a viable alternative to credit cards and debit payments that fulfil both needs.

Is the VRP system secure?

Open Banking uses a superset of OIDC that implements FAPI (Financial-grade API), which provides many extra security features compared to the standard OIDC flows. In addition, the Open Banking protocol includes several security features that help to secure transactions:

• Access control using digital signatures on any request made and on all tokens used in the system.
• mTLS (Mutual Transport Layer Security) is used to prove to the server where the request comes from.
• To ensure trust, the Open Banking directory issues certificates to any organization wishing to participate in an Open Banking-based service.

Are VRP payments open to fraud?

The CMA survey pulled out fraud as a possible issue in the VRP model of fund transfer: “One respondent said that sweeping to accounts which do not have the capability to sweep back in the event of fraud or error is problematic as there is a lack of suitable dispute resolution process should that occur.”

Another point in the paper was that “Others queried the benefit of FSCS protection on the basis it does not cover erroneous or fraudulent payments.”

Cybercriminals are already targeting the faster payments system that VRPs utilize. An FATF report, “Opportunities and Challenges of New Technologies for AML/CFT” points out that faster payments provide opportunities for faster cybercrime, with the short transfer windows allowing criminals to fly under the radar. The report recommends the use of intelligent technologies to catch fraud events in real-time.

A 2021 consultation from the Open Banking Implementation Entity (OBIE) exploring VRPs and Sweeping points out several notes on fraud in a VRP ecosystem:

• A TPP (third party provider) should use a mechanism, such as to assure the identity of the owner of the destination account. This will help reduce the risk of APP (authorized push payment) fraud and misdirection fraud.
• TPPs may not have mechanisms to check the link between a card and a specific account during a card-based Sweeping transaction.
• Confirmation of Payee (CoP) checks are lacking in current Sweeping systems making VRP susceptible to fraud.

Variable Recurring Payments have been called a gamechanger in banking and retail. The need for seamless, cost-effective, consented, and controllable payments is a no-brainer. But this cannot be at the cost of increased opportunities for fraudsters. The VRP ecosystem has several moving parts, each of which could add a vulnerability to the ecosystem.

Using faster payments also adds to the burden of anti-fraud checks by requiring that a VRP-based transaction is checked quickly and in real-time. Variable Recurring Payments offer innovation in banking that can help banks and FinTechs build new business models and better customer experiences. But it must have the same levels of anti-fraud checks and balances to ensure that this disruptive force is one for good and not bad actors.

The post Will Variable Recurring Payments Kill Direct Debits? appeared first on PaymentsJournal.

To learn more about how embedded finance is evolving and becoming intertwined with open banking, PaymentsJournal sat down with Betty DeVita, Chief Business Officer at FinConecta, Paul Chang, Payments Principal in Global Financial Services at Amazon Web Services, and Tim Sloane, VP of Payments Innovation at Mercator Advisory Group. Business and technology executives in banking, payments, and Fintech will benefit from their discussion.

Trends in Embedded Finance

Embedded finance is the integration of financial services, such as banking, insurance, or lending, into traditionally non-financial user experiences. It occurs when a non-financial provider integrates financial services into its offerings to enhance the customer’s experience and, ideally, retain them. According to Research and Markets, embedded finance revenues are forecasted to increase from $241B in 2022 to $776B by 2029.

Embedded finance is evolving, moving from a fixed system to a flexible one. Chang noted that, traditionally, payments worked on a four-party model. In the four-party model, four main entities are involved in transactions:(i) the customer (ii) the customer’s bank or issuing bank (iii) the merchant accepting the payment; (iv) and the merchant’s bank. In this system, you had to connect with just a handful of partners to make your use cases work. However, Chang emphasized, “What we’re seeing with open banking and embedded finance is the need to increase the number of parties involved two to three-fold, even potentially more, to create a holistic solution that works across different retail scenarios.”

Embedded finance requires the use of Application Programming Interfaces (APIs), which enable companies to open up their applications’ data and functionality to external third-party developers, business partners, and internal departments. They allow services and products to communicate with each other and leverage each other’s data. DeVita explained, “Whether you’re a retailer, telco, financial institution, or Fintech, whichever side of the game you’re on, all of these players are now able to easily connect with each other in the cloud, using API’s.”

Sloane explained how regulation around APIs has varied internationally, causing differences in uptake. He stated that in Europe, they came up with a standard (PSD2) for APIs. However, “they allowed every country to modify the standard the way they wanted. So there was little to no interoperability despite a standard.”

By contrast, Sloane highlights that “Brazil and other places are trying now to use API’s as a way to break through and connect merchants and financial institutions in new and interesting ways. They’re using some standards, picking and choosing what’s needed.” This contrasts with the U.S., which “has no regulatory mandate, but has a lot of technology chops and is just starting to figure out how this is all going to work. For example, the Financial Data Exchange is moving towards unifying the financial industry around a common standard that protects consumer and business financial data.  We’re only just now looking at early stage access, and Buy Now Pay Later (BNPL) and other financial services that can be offered to your businesses and other solutions. So, it’s fascinating times as we move forward, find new use cases, find things that really benefit consumers to grow this market, and to build out that infrastructure.”

Chang is observing that payment customers are expanding beyond payments with recent announcements to build embedded financial products for eCommerce platforms, or be the platform for merchants to create accounts, secure loans, and provide insurance on goods and services. AWS provides the infrastructure and tools to support these platforms, including a scalable API gateway and management platform, consent management, and identity management along with the capability to stream real-time data for risk, decision, and authorization engines leveraging AI and machine learning.  

Embedded finance is enabling merchants to differentiate themselves and can provide the following benefits to these merchants including:

1. Improved customer experience though enhanced personalized offers and rewards
2. Increased online conversion
3. Increased customer loyalty and customer lifetime value

Use Cases for Embedded Finance

FinConecta’s open banking platform, which runs on AWS, enables institutions (financial and non-financial) to leapfrog to API-enabled business models such as Banking as a Service (BaaS) and embedded finance, generating new revenue streams through the power of an interconnected ecosystem.

DeVita highlighted that one of the use cases for embedded finance is with retailers, who can partner with Fintechs to offer BNPL financing for large purchases. She said, “the retailer represents an interesting use case, as they have their consumer who’s looking to purchase a larger ticket item in multiple payments, and they want to facilitate that in a way that’s easy, frictionless and expected for the customer in their checkout experience.”

With embedded BNPL, the retailer’s checkout process is on par with other digital consumer experiences such as Netflix. And, of course, the consumer doesn’t know that it’s being facilitated in the back-end through this mobile wallet that is connected through some middleware. Furthermore, the retailer does not have to develop this financial setup in-house, but can instead rely on a third party like FinConecta who provides this as a turnkey solution.

DeVita describes FinConecta’s embedded finance capability as a middleware platform that connects financial institutions and Fintechs to retailers (and other industries such as telcos, etc.) and their customers, and enables several uses including BNPL, payments, insurance, and loyalty programs.

She said, “one of the really interesting components of embedded finance is how it’s bringing together players that didn’t necessarily play together in the past.”  This notion of strategic alliances is crucial in the API economy. It can be a game changer when interacting with your customer, saving them time and offering them more products and services that goes way beyond the retailers’ core business.

Supporting Financial Services Institutions with Embedded Finance

Typically, financial institutions deal directly with retailers to offer payment and other banking services to their customers.  This can be time consuming and expensive for both the financial institution and the retailer and limits options on both sides.

FinConecta offers a new model, supporting financial services institutions with open banking and embedded finance in multiple ways. These include turnkey solutions for standardized API technology, a sandbox environment, integration of core processors and multiple Fintech solutions, and a developer portal. In essence, FinConecta is a connectivity hub, providing an embedded finance environment which is customizable and flexible to the specific needs of financial institutions, retailers, telcos, etc., and their customers.

Fintech enablers have developed and provided cutting-edge products and services in the cloud for their customers.  The enablers are focused on key modules across embedded finance such as banking-as-a-service, data security, data connectivity, money movement, payments, verification, compliance and data insights.  FinConecta brings the fast growing “As-A-Service” Fintech providers together and provides their services as options in their platform. A common interface is provided for 3^rd-party developers and institutions along with a common set of practices and rules that govern the collaboration process across multiple parties. The result is simplified integration with best-in-class services and faster time to market.

DeVita elaborated that “this middleware platform allows for testing in a secure sandbox. Before you get to start working with this Fintech in production, you can actually ensure that these API transactions are flowing correctly, and that the front-end solution is working prior to rolling it out in production.” Also, FinConecta is unusual in the ability to manage multiple vendors at the same time — multiple Fintechs and core processors in an ecosystem. DeVita noted, “we can curate Fintechs for you, but you can also bring your own. We’re excited to be able to facilitate and accelerate all of this innovation in open banking and embedded finance with our cloud based interconnected ecosystem.”

The post Embedded Finance: Digital Innovation in the Cloud appeared first on PaymentsJournal.

Open banking usage has skyrocketed since its inception in 2018. Now, with more than five million active users, its rapid adoption speaks to consumer desire for better control over their financial preferences and an improved digital customer experience.

Open banking allows customers to easily evaluate competing banking services. Consumers can quickly compare credit cards based on interest rates or see what type of savings account offers the most interest. Conversely, financial service providers also have access to consumer financial data, so they can serve up the most appropriate solutions for an individual’s particular circumstances. Open banking facilitates new use cases for personal finance management, credit risk assessments, and customer onboarding, among others.

Open banking requires APIs to function

Application programming interfaces (APIs) enable the needed connectivity for the transfer of financial data inherent to open banking. Banks provide access to their proprietary APIs in open banking systems, so that third-party developers and fintech providers have access to financial data. This data can then be used to build additional applications and services, effectively creating partnerships rather than competition between stakeholders. 

To standardize these initiatives, all open banking APIs are designed and documented to support open banking regulations, including authentication and authorization protocols like OpenID Connect (OIDC) and OAuth 2.0. The result is a more collaborative and connected approach to the exchange of data between financial providers.

However, while these standards define how APIs should be structured to enable predictable integrations, they fall short in addressing key API security challenges. Because of their unique logic, APIs make it difficult to create regulations for how to secure them, which has been a driving factor in the lack of standardized security practices for open banking APIs. 

Increasing API attacks put open banking APIs at risk

Open banking’s reliance on APIs has made them prime targets for cyber attacks. API security threats have increased in frequency and complexity. The Salt Labs  State of API Security Report Q1 2022 found that API attack traffic has increased 681% in the past 12 month – more than double the amount of overall API traffic.. The potential value of banking, financial services, and fintech data makes these institutions particularly desirable prey for attackers.

With the safety of critical financial information at stake, these organizations need to be increasingly conscientious of API security best practices to directly address security needs until requirements can be standardized.

Legacy security tooling presents low barrier for open banking attacks

Most organizations within the global open banking ecosystem rely on basic security processes – authentication, authorization, and encryption – to keep sensitive and personally identifiable information (PII) safe. However, access control is only one facet of protecting APIs, which presents a low barrier for access by hackers that use brute force attacks and phishing to break authentication protocols. Once a hacker has access to an authenticated account, encryption does little to protect data since its primary function is to protect data from unauthenticated access. 

In this scenario, with authorization (or even multi-factor authentication) as the last line of defense, hackers can launch man-in-the-middle or Broken Object Level Authorization (BOLA) attacks to breach a system and obtain the valuable information they seek. Vulnerabilities found at this stage are often the result of the unique and complex logic of APIs, along with their frequent and shifting updates and functionalities, making API security challenging. 

Systems that rely on legacy security tooling, such as web application firewalls (WAFs) and API gateways, have also proven ineffective at protecting open banking APIs. These solutions use a proxy architecture that looks for known attacks and can only validate API transactions one at a time, limiting their ability to correlate reconnaissance activities over time. Bad actors tend to launch a number of subtle probing attacks in reconnaissance to learn the unique business logic of an API and propagate a successful API attack – making legacy tools incapable of providing comprehensive API security.

Open banking APIs need intelligent and automated security

Adopters of open banking can more effectively harden their security posture against future attacks with a holistic approach to API security that is better suited to protect modern architectures. By utilizing intelligent technologies, like artificial intelligence (AI) and machine learning (ML), APIs can be secured across their entire lifecycle. 

Intelligent capabilities for discovery can enable security teams to uncover and have visibility into all APIs, including shadow and zombie APIs that run without their knowledge and can be prone to overlooked vulnerabilities. For robust discovery of APIs, the incorporation of automation is key, as organizations (especially in the realm of SaaS) often create more APIs than they can manage and update manually. Once APIs are discovered, they can be understood, which can in turn support systems in defining each API’s intended functionality. This act brings everything full circle and alerts security teams to what is “normal” for their system. 

With AI and ML, this baseline can also be monitored automatically, with insights provided for activity that is outside of it (a potential attacker), even at the most granular level. When organizations can correctly identify attacks, they are also able to keep documentation up-to-date for reference with key stakeholders at any point in time – a critical component for open banking, which typically sees a decline of accurate documentation in this area. 

As a last piece of advice, there is no replacement for system testing. While developers do their best to code applications correctly and securely, they are human, and vulnerabilities can present themselves. This is why runtime protection is so vital, and coupled with real-world insights from AI and ML, a deep analysis and testing of system health should be conducted on an ongoing basis to eliminate found security gaps.

Defining a Secure Future for open banking

Targeting APIs now dominates today’s modern threat landscape, with bad actors propagating the attacks outlined in the OWASP API Security Top 10 list and other abuses. With the connective and personal nature that is tied to financial data usage in open banking, the hardening of APIs is essential for businesses and consumers alike. Utilizing best practices along with intelligent technologies can help prepare an organization to confidently meet security demands for API-based attacks, limit the vulnerabilities that attackers seek to find, and remediate security gaps with proactive API discovery and testing for a more protected approach to open banking.

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The Federal Reserve Bank of Atlanta published a blog regarding open banking in the U.S. titled, American Consumers May Soon Have Open Banking. I would contend that we already have open banking. Although I am not sure “open” is the right word to use, as it isn’t particularly open and available to all. Permissioned consumer data can only flow when the keeper of the data, often a financial institution, allows it to be shared. I would also contend that it isn’t “open” until the  regulatory requirements that are in the works also apply to non-bank fintechs that are holding substantial amounts of consumer and small business financial data. 

This blog signals that the regulatory bodies – primarily the CFPB – are ready to announce some new rules of the road for data sharing by year-end. Here’s an excerpt from the blog:

Over the last several years, a number of major banks have blocked third parties from screen scraping. The US banking industry has instead favored the use of application programming interfaces (API) because they allow customers to use third parties without giving up their logon credentials. API use is also the mandated process in the United Kingdom.

Congress mandated open banking through section 1033 of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, giving the Consumer Financial Protection Bureau (CFPB) the responsibility of developing rules around sharing consumer financial data. In October 2020, the CFPB issued a notice  of proposed rulemaking regarding consumer access to financial records. The CFPB, however, cannot act alone—it is required to consult with the federal regulatory agencies (Federal Reserve, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, and Federal Trade Commission) to ensure that its rules do not favor any particular technology.

As a final checkpoint, the Small Business Regulatory Enforcement Fairness Act requires the CFPB to get feedback from a panel of small business owners about how the proposed rule will affect them. It is likely that the formation of this panel and their final report will not be made before the end of 2022. The Retail Payments Risk Forum team will continue to follow developments on open banking coming to the United States.

Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group

The post On the Road to Open Banking appeared first on PaymentsJournal.

There have been a few questions about the future of open banking recently, with some commentators questioning its usefulness. This seems strange to me. Open banking is now mandatory across Europe, while the UK witnessed a 60% increase in active open banking users. Even Apple is getting in on the action. Open banking is here to stay.

The real question to ask is not how useful open banking is, but who will best utilise its undoubted usefulness? The obvious answer is banks. Yet traditional banks still seem woefully unprepared for this – it is reported that over 65% of banks do not even have an open banking strategy.

So again, it looks like it will fall to the challenger banks to innovate. But how do they do that? What does that really mean? Here, I will explain how the opportunities afforded by open banking are going to shape the future of the challenger banks.

Challenger banking will get hyper-personalised

The data opportunities afforded by open banking to challenger banks will be huge for innovation and personalisation.

Think how Google monetises searches and social media monetises relationships. Challenger banks will soon be doing the same thing but with our spending data. By using this data, challenger banks will be able to offer their customers hyper-personalised financial products. Plus, they don’t need to build these from scratch anymore. They can offer them by partnering with Banking-as-a-Service and embedded finance integrators.

These partners aggregate value-add financial services into an ecosystem of products and allow challenger banks to offer them to their customers with one simple integration. Plus, they can use the data to offer these at the point of need. Think short-term extreme sports insurance when you buy a ski pass. Or wealth management services triggered by high value purchases.

For many challenger banks, the end goal will be to aggregate all these services into one place, utilising AISP and PISPs – two key tenets of open banking.

AISPs and PISPs will be vital for challenger banks

AISP stands for Account Information Service Provider. It means a service provider that can access the information in a person’s bank account, but can’t do anything with it. Not in a physical sense anyway. What they can do is analyse it to offer products or financial advice, like the company Apple just bought, Credit Kudos. They use the data real-time data to assess someone’s suitability for a loan.

Or that short-term extreme sports insurance? That will be offered after an AISP sees a customer has bought a ski pass.

The possibilities go far beyond that, however. Just as Google can collate and analyse search data to predict future purchasing needs, challengers will be able to do something similar with spend data.

However, with an AISP, they’ll never be able to move money from one account. But a PISP could. PISP stands for Payment Initiation Service Provider. It means any business that is authorised to connect to a bank account and initiate payments on the customer’s behalf. This can be an online retailer remembering card details. Or a budgeting app being able to pull money from one bank account and dispersing it across other accounts and financial service apps.

Challenger banks can use open banking for better payments

One huge advantage of open banking for challengers is the options it provides with payments. Both in how PISPs allow different products within one bank’s ecosystem to move money around, but also the opening up of payment rails. These allow challengers to save huge amounts of time and money processing domestic and international payments.

This all goes towards possibly the biggest impact open banking will have on challengers: it can help make them profitable.

Challenger banks can finally become profitable

Despite there being around 250 challenger banks in the world, only 5% have broken even. Thanks to the embedded finance ecosystems I mentioned earlier, this is changing. Now challenger banks can turn a profit by making commission from the embedding of other financial services into their own products – or by embedding their products elsewhere.

All of this is only made possible by open banking. That’s why for many challengers, the end game has to be utilising open banking as an aggregator of the services and as a payments instructor.

Embedded finance is expected to be worth $6.3trillion by 2030. This industry will be open banking’s greatest legacy.

Challengers banks need to make sure it is theirs too.

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Open Finance is a huge opportunity that is predicted to unlock $230 billion in new revenue by 2025. It is the next stage in a journey that started just over four years ago when PSD2 came into force and created Open Banking, which is now an established part of the financial landscape. Adoption of Open Banking has been fast and impressive, with the UK recently celebrating the landmark of five million active users. If Open Finance is to surpass the successes of Open Banking, it must focus on building trust across the ecosystem.

Open Finance builds upon the foundations of Open Banking, which enables third parties to access end-user account data and funds to facilitate the provision of better and personalised products and services. With Open Finance, this access is extended to a wider range of financial services covering wealth management, insurance, pensions, and mortgages.

Entities involved in Open Finance will enable trusted third parties to access their APIs in order to build new services focused around customers’ needs. Some of the new players involved in this ecosystem will be regulated. Others will be unregulated. All must be trusted. If a Financial Services provider cannot ensure the legitimacy of its transactions, it will lose the trust of its customers.

Trust Issues

We don’t yet know what Open Finance will look like in Europe and beyond. Data exchange will certainly take place more frequently because there will be more players in the ecosystem. Draft legislation will be proposed in mid-2022 and is expected to be passed in 2024. This will make the landscape clearer. It is very likely there will be a larger number of players and a lot more complexity, bringing an inevitable increase in the misuse of data and opportunities for fraudsters to attack these new verticals. When increased numbers of financial and non-financial entities enter the market, the risk of unauthorised third parties gaining access to users’ funds or account data will increase dramatically.

High profile incidents will hurt individual companies by damaging their reputation and leaving them at risk of non-compliance fines. But negative headlines will also damage trust in the wider ecosystem, leading to lower adoption rates and hitting the bottom line of companies in the space.

Trust is therefore key to the successful implementation of Open Finance. Data providers need to know who is accessing their systems, and whether those parties are authorised to offer those services. Data providers need to be certain only legitimate and authorised third parties are granted access. At the same time, consumers and businesses must also be sure that their data is held securely and only accessed by entities to which they have provided consent. If end-users cannot trust the security and privacy of Open Finance services, they will not use them. This will result in a limited return on the infrastructure that will have already been built, hit adoption rates, and ultimately hinder the ecosystem’s growth.

The Lessons of Open Banking

The existing Open Banking ecosystem demonstrates the potential risks. In the EU, third-party providers (TPPs) that provide Open Banking services can change legal identity or regulatory status overnight. If this happens and a TPP is incorrectly granted customer account access, the Financial Institution responsible for granting access could face a fine or other regulatory action. Open Finance will see thousands of additional entities having the necessary permissions to access consumer financial data and funds, resulting in an anticipated increase in transactions. PSD2 was limited to banks. Open Finance will enable up to five times as many data providers to join the market.

Open Finance represents a significant commercial opportunity for banks. By offering API integration to all services, financial institutions can create a broader product range to attract new customers and improve retention. Banks could also introduce fees for APIs that enable access to premium services. An API architecture offers significant cost savings in operations and maintenance, as well as improved flexibility and ease of change. To participate and be successful in the ecosystem, Financial Institutions are increasingly looking to partner with tech suppliers to build the security and infrastructure they need to be successful.

Although we do not yet know exactly how Open Finance regulation will work, data exchanged under Open Finance could consist of Premium API data from banks, EU and UK regulatory data, and Open Finance Scheme data gathered by entities who are members of a “scheme” such as an open pensions scheme or open insurance scheme.

Having a holistic view of the permissions and levels of access that can be given will be extremely complex. When passporting is added into the equation, it will be even harder to understand which companies can “play in your market” and what data they can and can’t access.

Trust in an Open Ecosystem

If Open Finance players want consumers and businesses to trust them, they must be able to guarantee the identity and authorisation status of TPPs that interact with customers’ data at the time of the request. Realistically, this task is too difficult for most financial institutions to perform alone. Checking the authorisation status of TPPs involves drawing upon data from multiple databases and registers in real-time, as their permissions can be withdrawn or amended very quickly.

Financial Institutions will need to partner with solution providers to successfully participate in the open ecosystem and benefit from cost savings and reduced complexity. By outsourcing legal, regulatory and data complexities, banks can focus on what they do best. Partnerships between banks and providers will reduce risk, ease friction and streamline processes.

The framework has yet to be released but all discussions point to a much more complex ecosystem than Open Banking. Open Finance is already happening and players will need to keep abreast of market developments to ensure solutions are future-proofed and scalable to cope with the additional data sources and ecosystem members and different implementations.

If you are looking to become a player in Open Finance, you will need to trust the ecosystem members and have the correct tools and processes in place to enable the system to work seamlessly, without friction and with better financial outcomes for the end-user. If you are interested in innovating and succeeding, your efforts should be focused on these priorities. Outsourcing risks to specialised players enables Open Finance pioneers to focus on changing the world without worrying about trust.

The post Trust Will Make or Break Open Finance appeared first on PaymentsJournal.

Back in 1980, Deutsch Bundespost (German Federal Post Office) conducted an “online banking experiment” pilot experiment with 5 external computers and 2,000 connected users who could transfer money amongst themselves using a specific transaction code. With a touch of prescience, they called the initiative “My bank in the living room.” But it would take several decades for the concept to take root, only after regulations, such as PSD2 in Europe and Open Banking in the United Kingdom, enabled the conceptual foundations laid down by the German experiment to evolve into what we call the modern day, open, ecosystem-driven models of banking.

Open Banking – what, and so what

For banks, which have traditionally exercised full control over their customer data and relationships, open banking is nothing short of revolutionary. This model in effect breaks the industry’s monopoly over clients and their information by allowing third parties – financial and otherwise – to use banking data to build their own services to offer additional value to customers. Think travel booking, online shopping and so on.

But why should incumbent corporate banks adopt this trend?

Well, simply because they can see that it is the future of the business. Imagine all banks operating in a much broader ecosystem, breaking down the silos between themselves. They are empowered with an almost seamless flow for a wide variety of transactions. As an example – a purchase manager for a clothing store can buy a consignment online through a wholesaler’s site and seamlessly get connected to their local bank for a Letter of Credit application, with all relevant data transferred automatically. Or an AP office can get the latest balance and available credit limits for them to use. Next-gen digital players are taking advantage of open ecosystems model to offer innovative propositions in several traditional transaction banking areas from cash management to liquidity management, lending, customer onboarding to supply chain.  

In a recent corporate banking digital innovation survey, conducted jointly by Infosys Finacle, Strategic Treasurer and RedHat, 45 percent of respondents said that fintech firms would lead innovation in connectivity and related solutions. APIs (application programming interfaces), the main drivers behind the  open ecosystem model, are supporting real-time information flows in corporate transaction banking, thereby not only creating new revenue opportunities for banks but also deeper, stickier relationships. More than a third of the respondents said that re-imagined transaction lines of business such as cash management, payments, and trade and supply chain finance from the open banking lens, would power the business by posting robust double-digit growth (11-25 percent) in the next three years.

How it is changing corporate banking

Non-standard data formats, disparate processes, inconsistent information, across multiple intermediaries have been age-old challenges around transaction banking. The new model streamlines that to some extent, clients benefit from a clear, unified view of transactions, total cash resources, or other operational information across their business and intermediaries. This helps them make faster and well-informed business decisions based on real-time information. Operationally, this also helps drive down costs and improve the overall customer experience.  

The biggest impact of open banking is seen in innovation around payments and account related services; they have undergone tremendous changes, firstly due to due to the onset of the digitization wave about 5-6 years ago and then by disruptive innovations around Open APIs model. However, this is truly just the tip of the iceberg, and we expect to see this trend catch on in other areas around lending, microfinancing, and supply chain in the next 1-3 years.  

What banks are saying

In the above survey, a massive 84 percent of participants acknowledged the importance of APIs; the dampener however was that only 10 percent had achieved significant success with them. When it came to open banking business models, the study indicated that adoption was underway with universal banking players testing the waters of platform play and ecosystem orchestration. But again, the ground reality was more muted – while 40 percent of respondents had deployed their open finance strategies at scale, their success was largely restricted to meeting compliance requirements, in regions where it was made mandatory. When it came to the “real” objectives of open banking – product innovation, customer engagement and data monetization etc. – just about a fourth of respondents had managed to deploy it fully and produce results.

So, while the model is still in a nascent stage at an industry level, we expect a full embrace in the near future at a growing pace.

Where to?

For the most part, though some of the early use-cases around payments laid down the base foundation for the model and concept, the new mutations of the model are starting to emerge already. As banking-as-a-service model gains traction, some banks are fragmenting it into sub-variants such as transaction banking-as-a-service, risk-as-a-service, and payments-as-a-service. We are witnessing new-age entities in the market that offer banking services, but they look very different from the traditional brick and mortar banks and perform the same functions through open API rails. This is innovation at its best with the leading disruptive innovators transforming the industry. It is only a matter of time before the rest catch up.

The post The Window of Corporate Banking Opportunity Is Now Open appeared first on PaymentsJournal.

Technological advancements are transforming nearly every facet of the world. New organizations are emerging to meet the needs of an evolving consumer landscape, and old organizations are adapting to maintain relevancy and expand their reach. Nowhere are these changes more potent than in the financial services industry. Banks, credit unions, fintechs, and other businesses all want to remain competitive, and one of the best ways to do so is by partnering with a fintech that offers a strong Payments-as-a-Service (PaaS) platform.  

Jack Henry’s recently released whitepaper, Jack Henry’s Payments-as-a-Service Strategy, takes an in-depth look at how the PaaS platform from Jack Henry maximizes the potential of payments. 

What is Payments-as-a-Service (PaaS)? 

Payments-as-a-Service describes software that connects payment systems through application program interfaces (APIs). An API enables applications to communicate back and forth to execute complex business processes and are used for a wide variety of use cases. One of the most significant use cases for APIs is for open banking, wherein consumer banking information is transparently but securely provided to third-party financial service providers. Jack Henry’s API-rich PaaS strategy is a natural extension of its commitment to open banking. 

Virtual payments hub 

Jack Henry delivers money-moving solutions through a virtual payments hub that provides access to a suite of open APIs, portals, and processing engines. API-enabled payment solutions provided by Jack Henry through the hub include the use of faster payments via Zelle and RTP networks, digital bill payments, payment card issuance, P2P payments, and more.  

The virtual payments hub is supported by Jack Henry in several ways: 

• Hosting the Developer Experience Site 
• Optimizing APIs with developer resources 
• Documenting APIs and use cases 
• Utilizing software development kits (SDKs) 
• Providing the SmartSight business intelligence solution 
• Aggregating and analyzing payments data 
• Generating actionable insights 
• Helping FIs fully understand each payment channel 

Strategic partnerships for Payments-as-a-Service 

If payments feel like a complex problem, Jack Henry offers meaningful strategies to solve that problem. Jack Henry supports more than 6,400 diverse banks, credit unions, and businesses to process transactions totaling up to $2 trillion annually. Additionally, more than 60 fintechs (and counting) have embedded Jack Henry’s payments solutions into their digital platforms.  

Adding value with cutting-edge solutions 

Overall, Payments-as-a-Service can add new and powerful capabilities as well as improve legacy systems. Data security, core integration, third-party onboarding, regulatory reporting, strong consumer authentication, consent management, and all manner of safe and speedy payments are made possible and efficient with PaaS platforms. Jack Henry will help banks, credit unions, and businesses capitalize on banking-as-a-service (BaaS) and embedded finance, reduce account holders’ barriers to financial health, and aggressively reposition clients to the center of the payment experience. 

To learn more about Jack Henry’s Payments-as-a-Service strategy and how a partnership with Jack Henry helps generate mutually beneficial business opportunities, consider reading Jack Henry’s whitepaper.  

The post Seizing Opportunities with Payments-as-a-Service  appeared first on PaymentsJournal.

Working with three payment partners – TrueLayer, GoCardless and Crezco – NatWest has created a new breakthrough Open Banking service called Variable Recurring Payments (VRP). This goes well beyond the requirement that banks provide VRP to support ‘sweeping’ between two accounts belonging to the same person. VRP is an important addition, as it lets customers consent to paying a business on a regular basis without the need to consent to each individual payment:

“NatWest Group’s VRP offering will enable payment providers to give businesses a new option for managing customer payments for a range of services, including utility bills and subscriptions – complementing existing payment options such as Direct Debits and online card payments.

VRP will let businesses collect customer payments via the Faster Payments service, meaning payments can be received in near-real time.

As VRPs are set up digitally, there’s no paperwork to complete either – saving time, plus reducing the risk of fraud and manual error.

Customers will also benefit from more control over their finances as they’ll be able to set maximum payment amounts and make instant payment cancellations through VRP.

What’s more, in a change to the Open Banking status quo – where customers can consent to single immediate payments only – VRP will let customers consent to businesses taking payments from their account on a regular basis, without having to consent to each payment individually.

Daniel Globerson, Head of Bank of APIs at NatWest Group, commented: “VRP has huge potential for both consumers and businesses. As a relationship bank in a digital world, we’re proud to lead the industry by delivering a new payment option through VRP, which will make it easier for businesses and their customers to manage payments for a wide range of services.””

Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group

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Improving and innovating combinations of Open Banking and IoT technology could create additional benefits that expand the use cases of both in collaboration. Rolands Mesters comments in readwrite:

Both open banking and IoT are able to gather valuable data from customers and supply this information to relevant businesses. While the information obtained by open banking platforms is related to financial transactions which aid in creating a customer profile, IoT is able to provide additional insights in relation to lifestyle choices and day-to-day schedules. Using this data, businesses can adapt to clients’ needs and habits relying on new and always updating customer information.

While there are obvious use cases discussed, like IoT-enabled appliances linking to purchases of groceries, other intriguing use cases go beyond traditional consumer goods in areas such as insurance:

Insurance companies and lenders can also take advantage of the combined amounts of data gathered through both sources. For years, insurance firms and loan companies have made judgments and performed creditworthiness checks based on historical data and outdated information stored within credit bureau databases to manage uncertainty and risk, calculating risk by analyzing information on prior customers and their general behaviors.

However, the tremendous rise of the Internet of Things data, collected and stored in near real-time, has the potential to fully restructure this system. The sensors and software present in IoT devices can supply insurers and lenders with real-time data on nearly everything relating to their customers’ day-to-day lives, including daily schedules, driving habits, and fitness levels.

Moving into the future there are additional opportunities to improve security for both open banking and IoT through better use of biometrics, not only for individual consumer authentication, but also for banks to combat unauthorized access issues.

Overview by Jordan Hirschfield, Director of Research at Mercator Advisory Group

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Open banking is a term used to describe the use of application programming interfaces (APIs) to provide access to banking and financial services. In essence, it refers to the ability of third-party developers to build applications and services that work with banks and other financial institutions.

With Mastercard’s acquisition of Finicity, a major Open Banking participant, many questioned how Mastercard would implement solutions without impacting its own network solution. Now Mastercard has introduced a solution using Finicity’s capabilities. The solution provides pre-processing and routing against an Open Banking initiated payment. Permissioned by the consumer for a payment, the service utilizes Open Banking APIs to collect account data which is analyzed to determine the best routing for the transaction. A payment from a low balance account that is also a high transactor might be routed to a Real-Time Payment rail, while a high balance account might be routed to a slower and lower cost rail:

“Developed by Finicity, the open banking specialist acquired by Mastercard in 2020, the Payment Success Indicator and Payment Routing Optimizer use advanced data analytics and machine learning to make the payment experience safer and smarter.

Using real-time bank account information permissioned by the consumer, Payment Success Indicator lets the payment originator — a merchant, a bank, a digital wallet, or payment service providers — assess a consumer’s balance and historical behavioural risk patterns for each transaction.

The Payment Routing Optimizer interprets that score and recommends the optimal day and payment rail (such as Same Day ACH or Next Day ACH) taking into account cost, speed and risk.”

By giving merchants and other financial services providers access to customer financial data, open banking allows them to provide more tailored services and products that meet the specific needs of their customers. In addition, open banking gives customers more control over their financial data, allowing them to share it with only those merchants and financial services providers that they trust. Ultimately, it has the potential to make the entire financial system more efficient and effective by giving merchants and other financial services providers direct access to customer data.

Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group

The post Mastercard Rolls Out Open Banking Solution for Merchants appeared first on PaymentsJournal.

Green Dot and Plaid announced the integration of Plaid’s finance ecosystem into Green Dot’s GO2bank. The combination continues the development of open banking to meet customer needs. Tilly Kenyon with FinTech Magazine reported:

The partnership leverages Plaid’s innovative open finance API solution Plaid Exchange, which helps companies quickly and securely facilitate data connectivity on behalf of their customers.

“Plaid is working to ensure that inclusivity is the industry standard,” said Ginger Baker, Head of Financial Access for Plaid. “Our partnership with Green Dot helps GO2bank customers securely connect their accounts to the apps and services they choose. We are excited about the joint commitment to universal access and how it enables all populations to access the tools they need to lead healthier financial lives.””

The pairing provides GO2bank customers access to the full roster of apps powered by Plaid, enabling greater financial literacy especially for those in underserved communities, as Kenyon explains:

It also underscores how both companies are aligned in the mission to provide financial access and freedom for all, reaching consumers who may have been shut out of traditional banking services due to lower income levels or credit-thin histories.

Overview by Jordan Hirschfield, Director of Research at Mercator Advisory Group

The post Green Dot Partners with Plaid in a Move Towards Open Banking appeared first on PaymentsJournal.

This article in Forbes is informative and depressing. It shares surveys indicating three-quarters of banking APIs are for internal purposes and that number will double by 2025. Apparently budget is easier to get when the ROI is based on savings. That new product launch with a strategic partner has no similar proven ROI and so lingers until competition forces action.

The EU mandate for open banking eliminated that problem; banks had to build APIs to support access to the “partners” regulators identified and vetted. Unfortunately, the mandate failed to properly identify a full and well-thought-out API set and protocol that protected the data, provided pass-through authentication, or which the use case scenarios really required. As a result, implementation has been slow and exhibited severe reliability and manageability issues that are now mostly fixed.

It is sad so many U.S. banks appear to be ignoring the learnings from these EU implementations. U.S. Banks should know what EU use cases are gaining traction and which can be implemented in the US market that lacks an Open Banking mandate:

“Do all banks need to start building out their own APIs? Not necessarily. But there are things all financial institutions need to do regarding APIs:

• Assess the quality of third-party APIs. Many institutions claim to compete on their alleged superior “customer experience.” If that’s true, then they should be able to describe what makes their experience different and better. And if they can do that, then they should be able to evaluate whether a vendor’s API can help them support that superior experience.

• Fill in core vendors’ API shortcomings. If core vendors’ APIs don’t support an institution’s customer experience and product differentiation, then that institution needs internal capabilities to build, deploy, and support its own APIs. While some institutions develop private APIs for their internal use today, many will need to develop public APIs in the future to support their strategies and partnership efforts.

This isn’t easy—and shouldn’t be left to the IT department (or any one functional department) to do. Being able to do these two things will require many banks to establish new organizational roles and teams that span IT and the lines of business.

Developing an API strategy requires banks to have: 1) a business strategy that clearly defines the differentiated experiences and products the firm offers, and 2) an ongoing focus on the APIs that enable them to connect to their ecosystems to deliver on their differentiated experiences and products.”

Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group

The post U.S. Banks Focus on Internal Cost Reduction, Not Strategic Initiatives appeared first on PaymentsJournal.

Over the course of 2021, it became clear that Open Banking-enabled payments are here and here to stay. The payments landscape is now fundamentally changing as we enter a new year, and Open Banking is driving the shift.

Accenture estimates that account-to-account (A2A) payments already represent around 13% of all e-commerce payments across Europe. A good start, but the barrier of reaching over 35 national clearing systems across the continent has historically restricted greater scale.

However, Open Banking now provides much easier access to these clearing systems, enabling A2A payments to better integrate into the flow of commerce. A2A payments can reach anyone with a bank account across a significant geographic footprint. At the outset of 2022, providers like Token are offering full open payments coverage in 13 EU countries, representing 210 million potential end-users of Open Banking services.

Traditional payment methods are on the ropes

Merchants are ready for this shift, having raised the alarm about rising payment costs.

Amazon, most notably, will no longer accept UK-issued Visa credit cards, citing high fees. Others will follow. According to the British Retail Consortium, UK retailers hit by ‘anti-competitive card charges’ spent £1.3 billion to accept payments in 2020, an increase of 18% from 2019. ‘Peak card’ may be much closer than we thought.

I believe 2022 will see an early majority of merchants and direct billers incorporating A2A payments into their strategies. Firstly, they deliver significantly lower costs, typically between 2x and 20x lower than traditional payment methods and independent of payment values. As such, Wordline has flagged A2A payments as a ‘global payments megatrend’ for 2022.

They also deliver greater liquidity, offering instant settlement for merchants. But perhaps most importantly, they provide a seamless and secure customer experience – something that’s too often lacking.

Recently, I remember juggling my mobile phone and a card, trying to enter my card details to make a payment on a busy London train platform. “How’s this a good experience?” I thought. The answer is: it’s not. Being swiftly directed to my banking app to authenticate an A2A payment with my face or fingerprint? Well, that’s better than good.

Navigating those tricky headwinds

While there’s a lot of positivity in the Open Banking payments ecosystem, let’s be transparent: there are still several headwinds to navigate around network challenges and protection.

We must fight IBAN discrimination, an outdated (and not to mention illegal) practice where banks and merchants refuse to make or accept a payment from a non-domestic bank account.

Single Euro Payments Area (SEPA) regulation prohibits this, but it’s not fully enforced in member states. Nevertheless, recently there have been some encouraging developments in France, where authorities can now issue fines of up to €375,000 to those that discriminate against non-French IBANs. I hope to see other member states follow suit as the year progresses.

I don’t believe purchase protection should be a specific part of A2A payments, and regulation is already in place to mandate payment protection. But one key challenge is educating consumers about this fact. We also need a common dispute management mechanism. 

And the industry must go further with fraud protection. Open Banking can provide another avenue for authorized push payments fraud when online banking credentials are already compromised. I’d like to see Technical Service Providers (TSPs) and Third Party Providers (TPPs) step up and invest in fraud tools to help police this new ecosystem.

Encouraging tailwinds on the horizon

Despite these remaining challenges, there are also a number of forces propelling Open Banking payments adoption forward.

New Variable Recurring Payment (VRP) capabilities, for example, will unlock additional use cases for merchants and direct billers in the second half of 2022. Just as consumers programme rules for their smart homes and devices, VRPs will give them the ability to programme rules for their payments.

VRPs are likely to capture a significant share of subscription payments, such as streaming services and memberships. Less obvious but more exciting is their potential to enable consumers to replace their card on file with an ‘account on file’, putting A2A payments behind ‘Buy Now’ buttons.

The disaggregation of services from card payments will also pave the way for a re-bundling of services, like loyalty programmes and Buy Now, Pay Later, around A2A payments, which is good news for banks. Open Banking is an opportunity for them to go beyond data access and reclaim their position at the centre of the payments universe.

This year, I expect A2A payments to become the primary payment method for loading digital wallets, as well as a key part of the world of unified commerce, supporting omnichannel strategies in stores.

Through their Payment Service Provider (PSP), merchants can accept lower cost, faster A2A payments on their apps and websites. This year, Open Banking infrastructure will also mature to the point that consumers can scan a QR code to authenticate an A2A payment in a shop. This is not a theoretical use case, rather it’s a reality. For example, our partners (and first movers in open payments) at BNP Paribas now enable A2A payments in over 100 major home improvement stores in France.

Open Banking payments are fundamentally changing the payments landscape, and this is just the beginning. The threat they pose to cards is genuine. As PSPs and merchants look for the right open payments solution to get off the blocks this year, breadth of connectivity is key – as is working with the right partner at the cutting edge of Open Banking payments capabilities. 

The post Can Open Banking Payments Land a Knockout Blow in 2022? appeared first on PaymentsJournal.

London, 20 January 2022 – ECOMMPAY – a leading international payment service provider with its own fintech ecosystem for business growth – has today announced the expansion of its Open Banking capabilities to cover Romania, Spain, and Greece.

Launched in August 2021, ECOMMPAY’s Open Banking solution now covers 20 countries with users able to connect to 2,000 banks, allowing them to make instant account-to-account payments. The solution offers funds aggregation; deposit confirmation; automated reconciliation; plus payouts and refunds via the API/merchant dashboard. The reconciliation process is also easier and faster for the merchant, with confirmation that settlements are made according to the time schedule approved with each client individually.

ECOMMPAY will continue to expand the number of countries and banks covered as it strengthens its Open Banking solution throughout 2022. 

Paul Marcantonio – Executive Director UK & Western Europe at ECOMMPAY commented: “The expansion of ECOMMPAY’s Open Banking solution in Romania, Spain, and Greece means businesses and consumers of all types will now be able to take full advantage of Open Banking’s benefits across Europe. While Open Banking adoption has been gradual, extensive coverage is important to allow real flexibility and truly international coverage to users.”

Introduced in 2018, Open Banking makes it easier for consumers to view their finances, take out loans or pay for things online, while businesses also benefit from faster payments, more information and understanding of their customers, and greater opportunity to innovate by adding more revenue streams via apps and other financial products while paying less for services. Overall Open Banking has the potential to create an entirely new relationship between consumers, businesses, and banks by enabling secure and consented data sharing between banks and third parties.

However, in the UK research shows almost half (48%) of consumers have some level of confusion about Open Banking and its uses, whilst one in ten (10%) business leaders still don’t understand how Open Banking could help their business. The research came as part of ECOMMPAY’s latest whitepaper: ‘Beyond the pandemic: The outlook for Open Banking’, which provides an analytical overview of the current payment landscape, data on changing consumer and business behaviour, how Open Banking fits in and the key learnings for businesses. The data indicates further education is needed for Open Banking to realise its potential in the UK, across Europe, and around the world.

About ECOMMPAY
ECOMMPAY is an entire fintech ecosystem that allows you to make online payments and payouts globally. It is not just a payment service provider; it is your business partner that creates data-driven tailored payment technologies for your company and guides you through this fast-changing e-commerce environment. No irrational decisions or one-size-fits-all technologies. ECOMMPAY’s solutions are based on analysis, and the company constantly monitors the payment process, which allows it to find the synergy between conversion and security for every client. Go global being local with 100+ alternative payment methods and direct acquiring capabilities. Feel its experts’ support and enter a new era in the history of online payments with ECOMMPAY.

The post ECOMMPAY Expands Open Banking Coverage across Europe appeared first on PaymentsJournal.

Open Banking is the democratization of banking – allowing consumers to access and control their privacy, banking and financial data. These third-party apps require user consent to protect data that flows between Application Programming Interfaces (APIs), which enable users’ financial information to be securely shared between banking apps and accounts. Some examples of leading Open Banking apps include Intuit’s Mint app, Venmo and SoFi.

Open Banking brings a great deal of potential to the financial services industry with innovative, easy-to-use apps and digital services that help customers with managing personal finances and loans. As a result, many large financial services firms such as PayPal, Wells Fargo and Visa are joining the Open Banking initiatives to enhance the user experience with Open Banking apps.

Open Banking is fundamentally about sharing data between parties. However, with any kind of data exchange, there is the risk of exposure if it’s not done in a safe, secure way. The Open Banking industry won’t reach the expected $43.15 billion by 2026 without the appropriate security mechanism, as well as the trust of consumers and partners. To gain that trust, it’s critical that Open Banking apps comply with relevant regulations and enforce strict security standards at the API transaction. Below are four critical steps for implementing the proper security guardrails for Open Banking.

1) Secure APIs with proper authorization controls to prevent data leakage

According to data from the OWASP Foundation, seven out of the top ten security vulnerabilities for APIs are related to identity and more specifically, authorization. This shows that for the technology industry at large, the era of managing identity outside of cybersecurity is over. The risk is pervasive as we’ve seen dozens of API breaches monthly. If an API is poorly written, object-level or function-level authorization issues can lead to programmatic data leakage which can then be exploited by cybercriminals and personal information ends up on the dark web.

The recent Experian data leak is an example of an API vulnerability that caused a large-scale data breach, exposing the credit scores of tens of millions of Americans. This weakness allowed any third-party user to find someone else’s credit score by searching their name and address and without any authentication, authorization or consent controls in place. While Experian has since patched the flaw, researchers believe other lending websites using the same API may still be at risk. If organizations don’t take control of their API security to prevent these issues, we will see more large-scale data breaches that can be detrimental to organizations’ reputations and revenue. 

2) Adopt rigorous privacy consent control for API-centric services that share personal data

Open Data APIs are relied upon every day for seamless data-sharing and provide the ability to control who can view and edit certain files. That said, consumers today are much more concerned about the privacy of their personal data than when this capability became available – making them wary about how their information is being used by businesses. Due to this and security reasons, privacy consent management must be foundational for Open Data platforms, as authorization and consent are what ensures privacy is maintained. With today’s API-centric apps and services, consent has shifted the consumer mindset from “what data can I know about this app” to “what data can this app know about me,” and “what data can this app share about me?”

As a result of growing concerns about how tech companies use, store and share customer data, growing legislation continues to protect consumer privacy. To meet consumer privacy regulations such as the General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA), APIs must incorporate granular consent controls to prevent unauthorized exposure and sharing of consumer data. For example, Open Banking-enabled applications often communicate with numerous services and APIs that do not need access to a customers’ wide array of sensitive accounts and personal information, Consent must be granular allowing access for a given data element to be shared with a specific third-party application for a set period of time or number of uses.

Proper consent controls include automated authorization based on context coming from the user, the application, other entitlement data stores, fraud engines, etc. Discerning the “who, what, where when and why” and confirming that the person has consented to the sharing of that data becomes critical for regulatory and marketplace requirements. If the user sharing data to a third party application revokes their consent or reduces the data they are sharing, the third party must respect their choices. An instance where this went wrong is the Walgreens app error last year when a vulnerability in the Walgreens app’s API caused a data breach where customers could view the private medical messages of other customers. This could have been prevented if the right consent controls had been built into Walgreens’ API.

3) Abide by open banking data regulations at the API level

After the California Privacy Rights Act (CPRA) passed in November 2020, many other states and countries are following suit in implementing data and privacy laws to give consumers control of how their personal data is being used. In addition to those new laws and Payments Services Directive 2 (PSD2), the Open Banking industry already has stringent regulations in the UK, Australia and Brazil that must be followed to conduct business in those markets. PSD2 has been around for years and even provided the framework for data-sharing guidelines that spurred the development of Open Banking apps.

When it comes to managing consumer and employee identity, APIs should dictate how the app handles user data, identity governance, and who has access to privileged data. Therefore, it’s much simpler for companies to ensure they are compliant with these regulations if their APIs are updated accordingly or the management of that data is externalized into a third-party governance solution. Then, in the future, as regulations change or when federal officials start monitoring and enforcing these data laws at the API level, no-code changes are required to adhere to evolving security, regulatory and privacy demands.

4) Implement a zero trust framework – It’s no longer optional

COVID-19 and the shift to remote work greatly accelerated Zero Trust adoption in the enterprise. Zero Trust, sometimes known as “perimeterless,” is a model incorporating the key tenet of “never trust, always verify” to the design and implementation of IT systems. Implementing a Zero Trust approach has now become essential to protecting every enterprise, regardless of the industry. This is due to the increasing volume of cyber threats that organizations and individuals face on a regular basis, with the average data breach costing companies $8.64 million in 2020.

As a result of this growing issue, the Zero Trust Model must be the new security standard, in which all users, services and things, even those inside the organization’s enterprise network, must be authenticated and authorized before being able to access apps and data. With the shift to the cloud, there is no longer a traditional security perimeter around the data center, so the service identity is the new perimeter.

To implement Zero Trust architecture, you must authenticate all services, users and data separately and then authorize the data that flows between them. By placing access and data exchange enforcement as close to the service or API as possible, you can include Zero Trust controls for all decision points when signing and accessing Open Banking apps with sensitive personal information. This prevents Open Banking users from unauthorized access and data leakage risks.

Tapping into the potential of open banking

Open Banking adoption is quickly gaining traction, due to competitive market forces and purposeful legislation. One thing is clear: Open Banking is set to disrupt the financial marketplace. It will give rise to new types of services and tools to benefit the consumer and it will open new avenues and touchpoints for financial institutions to reach and serve their customers.

So, traditional financial institutions have a choice to either take a wait-and-see approach, meet bare minimum compliance requirements and risk being left behind or harness the power of Open Banking to better serve customers. By mitigating security and privacy risk and compliance exposures, financial services providers can streamline API-driven data exchange with confidence. With these security guardrails, industry innovators can focus on developing new apps and services that provide customers with insightful tools to boost financial well-being, while also keeping customer data safe.

The post Financial Services Providers: Checklist for Ensuring Open Banking Apps are Secured appeared first on PaymentsJournal.

A column in Bloomberg Law written by the CEO and co-founder of Petal, a New York-based credit card company, is bullish on the opportunity of open banking in the U.S. ‘Open banking’ as described here means financial institutions sharing data permissioned by their customers with fintechs, neobanks, and other players in the financial services marketplace. The author comments on the opportunities this offers to those individuals who struggle to access credit and other products.

Dodd-Frank Wall Street Reform and Consumer Protection Act, The White House, and the CFPB all play a role in how the rules around consumer data sharing begins to take shape. This includes what protections will be in place to assure privacy and safety of data in addition to defining which parties will bear liability when activity goes awry. Having this structure in place and defining the risks will help the concept of open banking to expand.

Over the past 12 months, the Consumer Financial Protection Bureau received nearly 100 public comments as it moved closer toward issuing rules to govern an open banking framework. President Biden included open banking as one of 72 policy initiatives advanced in a July 2021 Executive Order on competition, and Congress dedicated an entire hearing to “preserving the right of consumers to access personal financial data.” In December, the CFPB featured open banking as part of its upcoming rulemaking priorities for 2022.

These are welcome developments that lay the groundwork for 2022 to be the year that open banking finally becomes a reality in the U.S.

Open banking is the simple idea that consumers are the ultimate owners of their financial data, free to access and share that information however, and with whomever, they choose. The legal basis for open banking in the U.S. flows from Section 1033 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires that banks make available to their customers, upon request, data concerning “the consumer financial product or service that the consumer obtained from [the bank]…in an electronic format usable by consumers” and directs the CFPB to issue rules necessary to fulfill that promise.

Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group

The post Will 2022 Be a Pivotal Year for ‘Open Banking’? appeared first on PaymentsJournal.

E-commerce was already booming before COVID-19, but the pandemic spurred an unprecedented acceleration of growth. Much has been made of the fact that over the last twelve months, e-commerce saw the equivalent of five years of sales. The shift towards online shopping has forced retailers to fight for customer loyalty by offering better and more diverse incentives for consumers.  

Part of what customers expect from a seamless shopping experience is the easy facilitation of refunds and returns. Another effect of the pandemic was the mass cancellation of plans and events in the entertainment and travel industries. These cancellations revealed pinch points in business refund operations that led to negative customer experiences.  

Poor payout and refund practices cost customer loyalty, but open banking may offer a solution. To learn more about how open banking improves customer experience and enables merchants to offer faster refunds, PaymentsJournal sat down with Murtaza Bootwala, Head of Product at TrueLayer, and Tim Sloane, VP of Payments Innovation at Mercator Advisory Group. 

Customer experience transcends the initial purchase 

According to research with YouGov in 2020/2021, 1 in 3 merchants receive complaints about slow or lost refunds. “Shoppers have high expectations when it comes to refunds,” Bootwala said. “But those expectations are not always being met.” That same research showed 2 out of 3 shoppers said refund issuance time was an important factor in deciding whether to shop on a website, and 85% of surveyed merchants said offering instant refunds would make shoppers more likely to shop with them again. 

Refunds and payouts are a commonly bottlenecked element of business operations. Loop Returns, a return portal that automates the returns and refunds of products, calculates that two hours of labor goes into processing every return. An unexpected influx of return requests can lead to significant operational load, which in turn can lead to slowed or even lost refunds. In the case of flights, concerts, or other ticketed events, there is a gap between time-of-purchase and the event itself, and sometimes payment cards have expired by the time refunds need to be issued.  

For merchants, payouts to customers can involve managing multiple accounts, dealing with payment details, and manually tracking each payment. The entire process is costly, time-consuming, and error-prone, which leads to operational inefficiencies that snowball into poor customer experience and increased numbers of complaints. The worst-case scenario: a payment is never issued or is transferred to the wrong account. “This is a clear opportunity for businesses to improve customer experience and drive loyalty,” summarized Bootwala.   

The problem with payouts 

Industries such as AI gaming and digital wealth management have their own issues with sending payments to their customers, as payments take the form of payouts rather than refunds. AI gamers and gamblers pay money to play and then cash out their winnings, and digital wealth management users have investments and dividends that they may want to withdraw. However, these systems for sending outgoing payments are siloed and slow, often due to over-complicated compliance and regulations. 

“Customers might be able to pay-in or top-up their account instantaneously, but then they are left waiting for days to cash out their earnings and winnings via card transfer,” Bootwala noted. “It does not leave good loyalty or a good taste with your end customers.” 

It may sound counterintuitive for merchants to expedite the process by which their customers can take money away from them, but 2020 research from YouGov found that 55% of gaming players would switch to a different site if instant payouts were offered, and a significant number would deposit even more money if given assurances that they could access their winnings at will. 

“You have a battle going on between, say, the digital wallet players Apple and Google trying to implement incentives in their wallets that displace the merchant,” said Sloane. “The merchant needs to realize that getting instant rewards out – getting instant cash into the hands of their consumers in that incentives battle – is an important step for them.” 

Open banking can bring speed and security 

Open banking is technology which enables direct connection to customer bank accounts through secure APIs, used either to fetch data about the customer or to make payments on the customer’s behalf. “This is executed with extremely safe bank-level grade security, and with the complete transparency and consent of the customer,” Bootwala clarified.  

The technology of open banking has found footing in the U.K. and Europe due to PSD2 standards, regulations which were passed to increase payments innovation. Right now, though, those open- banking payment mechanisms are only available for pay-ins, not pay-outs. TrueLayer is changing all that. “What we at TrueLayer have done,” explained Bootwala, “is we have built on top of these open-banking rails that allow customers to send payments to merchants. We have added functionality to these rails to allow merchants to collect payments as well as pay out faster using the same bank payment rails.” 

By using direct bank account information to verify account details, the payout process is simplified. “We have eliminated failed or lost payments, reduced the strain on the customers – and customer support – and also simplified the compliance checks for the businesses,” Bootwala continued. “In return, it has also made the customer experience a lot better.”  

Additionally, open banking puts the customer front and center, and therefore makes the customer-to-merchant payments process safer. When the customer pays the merchant money through open banking, it is through a push payment, wherein the customer initiates the transaction (as opposed to a pull payment, where the merchant initiates it). “The issuing bank is involved in the identity of the individual,” said Sloane, and all with customer’s consent. “The bank is giving the merchant the information they need to be able to make the payment happen, and the consumer is directly involved.” This process can help the customer trust that the payment is secure, and that fraud will be reduced. 

Where open banking can make an impact 

There are many industries that have either already applied open banking to their payments processes or would find great benefits from doing so. “Some of the early industries that have been leaning in to adopt these open-banking payment methods include digital banks, wealthtech, travel, gaming, and very quickly it has also gained traction in e-commerce,” said Bootwala. Open banking has also become popular in any market where card fraud rate is high – as a means of counteracting fraudulent transactions.  

According to Bootwala, open banking payments has been growing 550% annually in the U.K., and TrueLayer hopes that by 2030, open banking will be the default way to pay and be paid online. “For merchants, it means a high-converting, low-fraud, and cost-effective payment solution for consumers,” Bootwala concluded. “It’s instant and provides a great user experience.” 

The post Open Banking: Enabling Instant Refunds and Driving Customer Loyalty appeared first on PaymentsJournal.

There has never been a more exciting time to be involved with open banking than now. Largely driven by their open banking, API-centric technologies, fintech startups like Plaid and Stripe have seen substantial interest from investors and record investments, including Visa’s canceled multibillion-dollar acquisition of Plaid, which contributed to a massive spike in Plaid’s valuation, tripling it up to $13.4 billion. In fact, while open banking has already made its mark globally, especially in the U.K. and Europe, here in America, companies are only on the cusp of embracing the full potential of open banking at this moment, meaning now is the perfect time to catch this wave of open banking’s popularity and subsequent profits.

What is open banking and why is it vital to success in today’s financial markets?

Open banking occurs when a bank or financial institution gives its consumers the option to release their financial information to third-party providers in order to gain access to that data as shown to them through application programming interfaces (APIs). In doing so, the bank’s customers become more informed about their finances and can take a more proactive approach toward management and planning.

Open banking simplifies banking for both the customer and the bank since some third-party APIs have other functions, including assisting with data management, processing, organization, reporting and analysis. In addition, open banking helps with automation, which can make understanding financial positions or performance of internal controls much more streamlined. Altogether, open banking APIs today provide secure, reliable, and accessible data transfer between banks and end-users in real-time.

As the economy rebounds from the pandemic and technology continues to shape our recovery, it is important to realize the vital role open banking now plays in meeting the daily needs of our frequent financial exchanges. More importantly, startups and other small businesses need to be at the forefront of this trend for many reasons as open banking plays an increasingly more critical role in the future of our connected economic and financial landscape, including the facts that:

• Rising generations are all right with it—Younger generations are especially enthusiastic about open banking and all its associated technologies. Banks or other financial institutions that offer third-party API integration to give them more freedom to manage their money more efficiently will capture their allegiance for years to come.
• The movers and shakers want in on it—Those who make more money are also quite excited about open banking. In fact, people who make at least $250,000 per year look forward to the control and comprehensive management that open banking can give them over their finances. With improved access and oversight over important financial data, more financial insights could lead to more financial gains.
• The future projections are off the charts—To put it frankly, open banking is the way of the future. It is the banking method of choice for 2021 and shows no signs of slowing. Per a recent MarketWatch market report, the “global open banking market is expected to grow with 24% CAGR through 2027.” As a startup or other small business, you should anticipate this major growth and be ready with solutions that will meet the market’s needs.

How emerging businesses and small enterprises can leverage open banking toward their success

Startups today are using open banking to their advantage—and attaining great success. To do so, a startup must consider the following tactics:

Mobilize the collaborative interplay of key partnerships

To correctly utilize key partnerships, startups must first acknowledge the importance of collaboration. Open banking cannot fulfill its full potential without emphasizing existing partnerships.

For example,“tie-ups” between banks, fintech companies, and other third-party providers are the lifeblood of the open banking movement. The interplay of these partners is a significant component of a successful open banking Ecosystem. The partners can work together to improve their client offerings. For third-party providers and other fintech companies, which means offering an innovative API or other IP that the customers of a bank want; for banks and other financial institutions, which means gaining more customers and customer satisfaction by enlisting the assistance of third-party providers through releasing personal financial information to them with open banking.

Implement vast technological advancements

Effectively utilizing new tools and technology to support scale and automation is critical to any successful business, especially from the start, but such innovations are particularly significant for the financial industry. Legacy fintechs and emerging businesses must be willing to either innovate and create something the world has never seen or adopt a technology that will improve their growth potential.

In such a data-driven world with analytics possessing their weight in gold, startups and small businesses should be eager to adopt or develop all-encompassing APIs that can “do it all—and do it better.” This means the APIs for open banking customers should aggregate data from a variety of disparate global accounts and display them in a digestible way, instantly in real-time, so that the client always knows their financial position.

Such APIs for the end-user must also integrate the accurate data from subsidiaries, financial institutions, short-term investment tools and even ERP systems that help the client better manage their financial planning and internal controls. APIs also offer additional clarity into an enterprises financial standing.  Over the last year, “income smoothing” through supplementation and cash advances has become prevalent and popular amongst many end-users, especially those who are “financially squeezed.”

Overall, open banking APIs must offer precise, and efficient data management solutions as well. Today’s open banking end-user wants their financial data and analysis, and they want it in real-time. To meet the need for instant access, the APIs offered by emerging companies, whether acquired or internally developed, must be completely secure and offer a level of rich transaction data that clients expect from an enterprise automation platform.

Assist with pandemic recovery

Open banking has seen a spike in part due to the pandemic, which has exposed the need for precise liquidity management. Inaccurate forecasting and poor cash liquidity lead to rash decisions during the pandemic. Many companies reduced expenses out of fear but didn’t have an accurate forecast to fall back on, which stunted financial growth. Emerging businesses now have the ability to utilize open banking to develop a more advanced system for cash forecasting and liquidity management. Open banking is an important step toward becoming an innovative and thriving company.

Embrace the new architecture of this economy

The pandemic has evolved our world’s financial situation, from the gig economy to work-from-home, the last few decades have seen a traditional system morph into something newer and bolder. Startups should prepare to use open banking as a tool to help them embrace the future.

The takeaway

If you are not adopting or developing open banking technology for your organization, you are not unlocking your full potential as a company, especially if you are in a financial management position. Open banking is the best way to excel in the post-pandemic economy and usher in the new architecture of an evolved economy. APIs are being built every day that expand the global capabilities of open banking. Driving growth is crucial to your organizations success and automating your cash management is the key to managing your cash with speed and precision. For emerging businesses, open banking is the key to driving financial growth.

So, if you want to drive your growth as a startup, open banking is a strong option.

The post Top Open Banking Trends Driving Startup Growth appeared first on PaymentsJournal.

This article is correct in stating the participants in the open banking value chain need to align to make Pay By Bank solutions more user friendly. Regulators and others in the value chain including card payment networks have promoted white lists and delegated authorization to minimize how often consumers are challenged to authorize a payment. However, maintaining white lists and relaying a delegated authority through the payments network to the bank has proven time-consuming to document and harder to implement than expected. That said, the time is now for all payment participants to work towards a common implementation. If they can do that, then Tom Greenwood’s vision for Variable Recurring Payments or VRP can evolve. Granted, there are very real benefits to card-on-file solutions that have yet to be duplicated in the account-on-file construct, so that conversion is likely to take longer than suggested here:

“Variable Recurring Payments (VRPs) are the most significant development in open banking to date. Why? Because they tackle one of its biggest challenges: the requirement for consent via Strong Customer Authentication (SCA) for every transaction.

VRP effectively delegates authentication to a third-party provider (TPP) like Volt, which then enables a single-click payment experience for trusted beneficiaries. This impact is expected to be seriously disruptive to the status quo.

VRP has thus far been mandated for Sweeping use-cases only – this means transactions between two accounts in the same name. Notably, though, in building VRP for that Sweeping use-case, the banks have created the infrastructure needed to support first party to third party transactions.

This will enable customers to use VRP for everything from subscriptions to in-app payments and for e-commerce more broadly. Card-on-file will be replaced by account-on-file; direct debits that are antiquated and with a problematic operating interface are at risk of being consigned to history.”

Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group

The post From Vision to Reality: Open Banking and Its Authentication Problems appeared first on PaymentsJournal.

The U.K’.s Financial Conduct Authority (FCA) currently requires any banking customer enrolled in a data sharing program under the umbrella of open banking to re-affirm their authorization (every 90 days) that they consent towards continued participation in the program. Multiple fintechs have identified that the 90-day period creates friction and places an extra burden on users that is avoidable.

“Emma Steeley, chief executive of Equifax’s AccountScore, said customers can revoke their consent at any point but are asked every 90 days if they want to simply withdraw it or reaffirm their consent through a long process of going through the consent screen, logging into their online banking and then coming back.”

The problem from both an institutional and customer perspective is that frequent re-authorization may not be convenient, and depending on individual circumstances, highly difficult to perform on a routine timeline. Research shows that every time the re-authorization window arrived, third party providers and fintechs both experienced high rates of attrition including drop-offs from open banking participation. This severely hinders the growth of the open banking sector, including limiting the ability for fintechs to organically grow a customer base.

Acknowledging these concerns, the FCA announced in Changes to the SCA-RTS and to the guidance in Payment Services and Electronic Money – Our Approach’ and the Perimeter Guidance Manual that the 90-day mark rule will no longer be required as of 26^th March 2022. This marks a major win for fintechs and TPPs across the U.K. and EU who are now able to offer customers an open banking pathway that is unencumbered by frequent reminders to re-link and authorize data sharing for their accounts. It remains to be seen how significantly this regulatory change will affect the attrition rates currently affecting open banking in the U.K., but the message is clear: open banking is on the rise, and establishing a pole position is key towards leveraging the explosive growth of this financial sector.

Overview by Shreyas Shaktikumar, Research Analyst at Mercator Advisory Group

The post Open Banking – FCA Acknowledges Industry Concerns appeared first on PaymentsJournal.

São Paulo, November 11, 2021 – Volt, the leading open payments gateway, today announces its expansion to Brazil following a period of rapid growth for the fintech company. Volt has now integrated Brazil’s domestic instant payments network Pix – and established its physical presence in São Paulo – as it builds upon its proposition as the global leader in real-time payments everywhere.

Already strongly established in Europe with over 5,000 bank connections on the PSD2 Open Banking network, the expansion sees Volt bring its real-time payments offering to the Brazilian market. Volt customers can now access Latin America’s largest and fastest growing markets, whilst cutting out the region’s lengthy settlement times (from 28 days to two seconds) and costly card infrastructure, whilst boosting payment conversion rates. For those without a domestic presence, Volt acts as the merchant of record in-country and manages currency export, FX and declarations to the Central Bank of Brazil.

Since its inception in November 2020, Pix now has over 90 million active accounts, with over 500 million BRL processed in October 2021, making it the digital payment method of choice for Brazilian consumers. This pace of growth only continues to rise, with over 17 million new users between September to October 2021 alone. Now, merchants and payment service providers (PSPs) in the region can unlock a faster and more secure way to pay for their customers by integrating Volt.

Following the company’s record-breaking $23.5m funding round – the largest Series A on record for the Open Banking industry – the announcement marks the latest step in Volt’s expansive growth plans in response to rising demand for real-time payments everywhere.

André Faria, Ex-Adyen VP and Volt founding director, LATAM, comments: “Brazil’s rapidly growing ecommerce market and traditionally underserved customer base has created a landscape ripe for payments innovation. A year since its inception, we have seen a stratospheric rise of the Pix platform with unrivalled consumer adoption. By building on this already well-established instant payments network, we are enabling both domestic and export payments for local and international businesses – whether they have an on-the-ground presence or not – at the speed of now.”

Tom Greenwood, Founder and CEO at Volt, comments: “Pix is a shining example of the power of instant payments, creating a huge opportunity for ambitious global merchants. From NPP in Australia to Singapore’s FAST network, real-time payment networks are developing at an unprecedented pace across the globe. Our decision to expand into Brazil aligns with our ambition to unite these disparate and often fragmented systems into a single and unified payments interface through which merchants can receive payments account-to-account and in real-time.

About Volt
Founded in 2019, Volt is building the infrastructure for global instant payments. Today, its open payments gateway allows merchants and PSPs to process transactions securely between accounts held at more than 5,000 banks in the UK and EU. Volt’s unique aggregation model provides unrivalled open payments reach and maximises the speed, security and resilience of transactions.

For further information, please visit: www.volt.io

The post Volt Launches in Brazil to Accelerate Global Open Banking Payments Revolution appeared first on PaymentsJournal.

The regulatory structure for Open Banking in Australia was discussed in our Report “Open Banking Goes Worldwide: U.S. Inroads are Keeping Pace with Global Efforts,” but the Australian Treasury has now amended the Consumer Data Right (CDR) rules so that those currently accredited by the Australian Competition & Consumer Commission (ACCC) can sponsor third parties to become accredited or enable them to operate as a representative. This rule, passed in October, quickly expanded the number of participants in Open Banking.

“Australian open banking provider Frollo’s yearly industry report, shows as data availability has accelerated, optimism for the future of open banking is rising.

According to the survey of 131 financial institutions, 70 banks started sharing consumer data and 14 businesses became Accredited Data Recipients in the first 10 months of 2021.

This is an increase from just fived data Holders and five data recipients in 2020.

In October, Treasury announced amendments to its Consumer Data Right (CDR) rules that allowed increased participation in open banking.

These new amendments allow for current CDR participants, accredited by the ACCC, to sponsor other parties to become accredited or allow them to operate as a representative, cutting much of the red tape that surrounded open banking legislation in Australia.

Chief Operating Officer of Australian Finance Group, John Sanger, said eased open banking restrictions could be a game changer.

‘We view Open Banking as a transformational enabler for future customer experiences and products that may change the way consumers borrow, save and manage their finances,’ Mr Sanger said.

New data from Frollo shows the most popular uses for open banking:

• Lending: Income & Expense verification (highly valued by 59% of respondents).

• Money management: Multibank aggregation (50%) and Personal Finance Management (50%)

• Verification: Customer onboarding (49%), Identity verification (38%), account verification (34%) and balance checks (30%)”

Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group

The post Australian Open Banking Picks up Speed as Regulations Are Eased appeared first on PaymentsJournal.

That’s the bold claim made by Rolands Mesters, CEO and co-founder of Nordigen, a company that specializes in Open Banking data access and analytics. The claim does have credibility however, in that we discovered seven alternative payment solutions in our February Viewpoint A Lesson for the U.S: How EU Open Banking APIs Have Stabilized to Support Alternative Networks, and new data aggregation and analytics suppliers seem to be announced every week. This is how Rolands breaks out where that 5% will come from:

“The potential value that could be created by open data for finance is huge. Not only will economies that adopt open data ecosystems see GDP growth of up to 5 percent by 2030, but all participants of such an ecosystem would reap the benefits. In Europe, 17% of this new value will be captured by individual participants through improved products and increased access to financial services, 45% of the value will be captured by financial institutions through increased operational efficiency and improved work allocation, and 37% of the value will be captured by SMEs through saved time and improved product offerings. SMEs happen to make up 99% of businesses in Europe, meaning that open financial data could completely transform how the European business market looks like today.”

Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group

The post Open Access to Financial Data Will Drive 5% Increase in GDP for Europe appeared first on PaymentsJournal.

There have been a number of postings during the past few days that reference quotes or topics from Sibos, which is typically the largest global corporate banking industry event and has been conducted remotely now for two years. As an aside, the 2022 version is scheduled for November in Amsterdam, and we would expect on-site will be back by then. Posted in bobsguide, this particular article’s topic has been gathering steam now for a couple of years, being largely driven by open banking tailwinds and API technology. We listened to the referenced session, featuring several top treasury management executives from both the banking and industrial sectors. So, the reality of instant treasury is in motion.

‘Instant treasury is poised not only to improve efficiency and help create a more strategic treasury function, but also provide monetary benefits and cut down financing costs… “A continuous real-time view [on] our cash position helps us to meet not just [our] daily but also our liquidity management demands,” said Sharon Wang, treasury director at Alibaba during a Sibos 2021 panel on Thursday… “Credit limits can be freed up more quickly […] enabling more business without adding risk.”…

She added that Alibaba earned an extra $29mil in interest income by keeping buffer balances to a minimum… “By using the cash received within the same day [corporates] can reduce overdrafts or bank loans – in other words, financing costs.”’

This would have seemed very ambitious just a couple of years ago, but obviously some firms (such as Alibaba) are executing against this vision and technology providers are helping them to get there. We would expect the continuation of the faster everything trend across the cash cycle with new fintech vendors approaching it from a platform perspective. The technology driven approach using AI and RPA only works if the company has undertaken a digitalization initiative across the enterprise since an end-to-end view is required if optimization is the goal. There is certainly a ways to go with standardization required in a multi-bank connectivity environment, but this is clearly the trend.

‘As an instant treasury function becomes more of a reality, standardisation of data inputs and outputs will be key in enabling real-time visibility for corporates with global footprints… “Standardisation is important. A body like Swift could really help [in developing] a single way of connecting with all the banks,” said Anita Mehra, corporate vice president of global treasury and financial services at Microsoft… Banks themselves have acknowledged it’s no longer feasible or desirable to tie corporates to one bank…

“The times of making it difficult to work with other banks – those times are over,” said Christof Hofmann, head of corporate and payments solutions at Deutsche Bank… “Clearly you must embrace multi banking, you must embrace joint standards and you must convince clients by the solutions you offer and not by how much you try to tie them to you.”… Banks therefore need to transition away from being merely a banking provider to being a banking partner, said Schwartz.’

Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group

The post Instant Treasury Set to Free up Liquidity, Cut Financing Costs appeared first on PaymentsJournal.

Visa expanded open banking services with the acquisition of Tink, which claims connectivity to 3,400 banks, while Mastercard announced the acquisition of Finicity for the US market in June 2020 and just announced the acquisition of AIIA that claims connectivity to 2,900 European banks on the 7^th. 

Both Visa and Mastercard initially developed solutions for banks that leveraged the existing global network connectivity. But these acquisitions shift the global networks’ focus to cloud service offerings for Fintechs and banks to enable access to data and Pay By Bank payment methods.

Mercator’s publication, “How EU Open Banking APIs Have Stabilized to Support Alternative Networks,” provided snapshots for several of these Pay By Bank alternative networks. These include Instanea, a partnership between BNP Paribas and Token.io, the FIS Open Banking Hub, Kevin that converts card transactions to Pay By Bank transactions on the fly, Mastercard, PayIt by NatWest, TrueLayer, and Trustly:    

“Today, Aiia’s open banking platform and expertise, including strong API connectivity and payment capabilities, has shown significant growth coupled with a relentless focus on quality. Aiia has brought to life a unique model for open banking in Europe, driven by data privacy, security, quality and access. Its customer-centric approach and ambition to create open banking that simply works complements Mastercard’s existing distribution channels, technology and data practices.

“For the past decade, we have worked to build Aiia into a leading and quality-driven open banking platform, which has onboarded hundreds of banks and fintechs onto safe and secure open banking rails. We have worked closely alongside banks, customers and local authorities to ensure that our APIs show the true effect of open banking. We’re excited to become a part of Mastercard and progress our journey of empowering people to bring their financial data and accounts into play – safely and transparently,” said Rune Mai, CEO & Founder, Aiia.”

Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group

The post Visa and Mastercard Compete for Open Banking Lead appeared first on PaymentsJournal.

The niche world of payments has been making headline news this year, particularly when it comes to open banking. First there was the widely-publicized collapse of Visa’s $5.3 billion bid to buy Plaid in January, followed by its subsequent $2.2 billion move to acquire Tink, announced this summer.

Then the Biden administration issued an executive order on July 9 encouraging the Consumer Financial Protection Bureau (CFPB) to create rules that make it easier for consumers to transfer bank account data across financial institutions. That data transfer — where competitive third-party providers, with customer consent, access bank account data through APIs — is fundamental to open banking’s widespread adoption. The APIs enable those providers to offer new financial services and products with fast, elegant user experiences.

Two things are abundantly clear from these developments: the American government strongly supports the competition that open banking is designed to spark, and it’s starting to take a more active role in fostering this. But, while it seems like the dream is coming into focus, reality is more complicated. The U.S. financial landscape is tangled, and the regulatory push that now seems hopeful may take years to achieve amid the nation’s intense economic and political divisions.

Open banking’s slow burn in the U.S. could become a transforming conflagration for the financial sector, but the superpower must first find a way through at least three major challenges.

A tangle of closed systems

American businesses and consumers currently use an unruly mix of legacy and emerging technologies to make payments and manage money, largely driven by diverse private sector interests. First, there are credit cards, ubiquitous with their high fee structures for merchants and consumers. Debit cards are tremendously popular, too, and like credit cards, carry merchant transaction fees, albeit cheaper ones.

For several years, fintechs have offered low- to no-fee, instant money transfer and management options but have mostly leveraged screen scraping to do it. That process, which forces customers to hand over log-in credentials to third-party providers, can make sensitive data more vulnerable to fraudsters if it’s poorly managed. In the last couple of years, banks and fintech providers have rolled out partner APIs, generally more secure than screen scraping but created in a closed way by myriad private agreements within the U.S. financial sector. ACH partner APIs are now abundant, but most are new, and they vary in quality.

And what about instant, no-fee bank-to-bank money transfer apps? Zelle, owned by seven American banking giants, reminds customers that different banks have different rules regarding protections and amounts and whether small businesses can even enroll.

These myriad, industry-led approaches all exist in a context of enormous scale. The mix and the sheer size of the U.S. banking and financial services sector — the number of bank ecosystems, range of business and technical processes, variety of payment and account instruments, and individualized rules crafted within complex partner contracts — slow U.S. open banking adoption.

A lack of potent federal regulation

While the Biden executive order is a start, there’s a long road ahead for the U.S. to reach the comprehensive regulatory protections of consumer data established by Europe’s GDPR and protection of open banking competition embedded in PSD2. Both laws have provided certainty for businesses operating in the European market, not to mention pressure to get things right with secure, widely available, standardized open APIs. Asia-Pacific banks, businesses and consumers, too, have benefited heavily from Singapore’s legislation and the taxonomy of bank API functionalities — largely considered the region’s ‘gold standard’ — published by its MSA.

Meanwhile, while starting to talk a good game around regulation, the U.S. has in recent years largely deferred to the private sector to negotiate conflicts over consumer data — without consumers in the equation. GDPR’s global popularity and the lack of a comparable U.S. federal law have helped reveal how little practical power Americans have over their own financial data. The faster the U.S. government can provide certainty for business around the rules for competition and data protection, the faster open banking will be adopted.

A need to educate consumers

A 2021 Financial Behavior Survey from GoCardless of 1,000 consumers revealed that 70% of Americans have never heard of “open banking” per se. But, when they understood its meaning, over half (54%) of Americans said they are willing to provide financial information if it means a faster, more seamless checkout experience, with Millennials especially willing at 73%. Like many technologies, the average Joe won’t care about how clever it is — the key is educating the public on which problems open banking can solve.

As consumers learn more, they also will demand better practices. Outside of the financial industry, few Americans know the difference between screen scraping technology and standardized open APIs. But the tide may be turning, and demand for APIs will likely increase as consumers hear about its benefits.

The U.S. government, fintechs and banks together should direct their energy to meet each of these challenges creatively. Those developing open banking are carrying the torch of global finance forward into a more connected, data-driven future.

The post What’s Behind Open Banking’s Slow Burn in the U.S.? appeared first on PaymentsJournal.

Disruption is an ever-present threat in the banking industry as cutting-edge fintechs and solutions providers offer technology that streamlines the customer experience. But this doesn’t mean banks are doomed to fall behind. By leveraging an open-platform approach, collaborating with other industry players, and harnessing data, banks can turn the tide on disruption and come out on top.

To learn more about how banks can go from disrupted to disruptor, PaymentsJournal sat down with Robert Mancini, Head of Payments for Americas at Finastra, and Steve Murphy, Director of Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group.

The pillars of banking success in the modern world

To provide some context on banking industry trends, Murphy referenced findings from a Mercator Advisory Group report from October 2020. The chart below shows that digitalization, platform banking, collaboration, and risk management are four major pillars of success for payments in 2021 and beyond:

“Digitalization of financial operations accelerated in 2020 and will continue, since corporate inertia around these types of investments has been greatly challenged by the pandemic,” explained Murphy.

Platform banking services are gaining traction as well, which is particularly important given the need to gain efficiencies for the coming shift to ISO 20022. Additionally, the move to the cloud will foster growing adoption of artificial intelligence, machine learning, and data usage. Meanwhile, risk management continues to be an ever-present priority for banks.

Industry collaboration, such as fintechs and banks working together, is another game changer. “[Banks] don’t have to reinvent customer tools and solutions, as they can integrate these proven solutions, these best-in-class products, to complete an end-to-end service for specific segments,” said Mancini. Through collaboration with other industry players, banks can elevate their value proposition by enhancing product offerings.

“In the end, banks can create an end-to-end digital experience for their customers and embed fintechs’ value proposition within that digital process. Eventually, this will lead to banking-as-a-service. I think that model will further proliferate the bank’s role across financial services in many industries. If you think about healthcare or insurance and countless others, I think this is an opportunity that banks will need to tackle promptly, as early adopters will have the most to gain here,” Mancini added. 

Open platforms enable banks to meet rising consumer demands

Asked whether open platforms are living up to the hype to enable banks to meet customer needs, Mancini responded with an overwhelming yes. Two examples of this are Amazon and Uber, which have each been successful in providing customers a seamless and automated transaction process. Banks, too, are using platforms for ease of integration into fraud, compliance, and other processes.

But this is just the tip of the iceberg. “As we look to the future of platforms and how [they] will be the key driver in revenue growth and deeper penetration into supporting financial services and other verticals… banks will be able to support transformations across any vertical by leveraging the platform to automate the process end-to-end and, in some cases, reimagining the customer experience,” said Mancini.

Soon, customers will expect a seamless buying experience across all products and services. For example, it is not unrealistic to expect grocery shopping to become more automated via technology such as smart fridges and a marketplace of suppliers.

“It’s really a self-feeding process. The more you elevate that bar, the more consumers’ expectations rise, and the more that the market responds to it and the technology adopters will start bringing that into play and outperforming their competitors. I think the key question for banks, what they should be asking themselves, is why [they] are not getting ahead of this versus waiting to be further disrupted,” he continued. 

Collaboration plays a key role in innovation strategy

The innovation efforts of any one player within the ecosystem of banking, fintech, big tech, and solution integration organizations simply cannot compare to the scale of innovation occurring in the space. As a result, it is unrealistic for any individual organization to expect to best serve their customers exclusively using the solutions within their four walls.

“The truth is that collaboration across the ecosystem can accelerate your value proposition and revenue growth while avoiding being disrupted. The added benefit to this model is that competition drives innovation and elevates the bar as your solutions can more easily… be interchanged via the platform,” said Mancini.

This is good news for banks looking to respond to market changes and better serve their customers. “To take it one step further,” he continued, “I think banks can collaborate with fintechs and partners to help drive their own revenue streams in a true balance of trade model.”

For example, banks can finance fintechs and enable them to monetize their services via a platform approach. This drives revenue for banks and fintechs alike, resulting in a win-win situation. While a few years ago, it was rare to hear about fintechs and banks working together, it is now becoming more commonplace as both parties see the advantage of doing so.

Data elevates the customer value proposition

The value of data is paramount for banks seeking to better serve their customers. However, it often goes under-leveraged, which is understandable given the traditionally siloed nature of data. However, it needs to change.

“I can understand that because it’s a difficult balance, as banks have the data often sitting in different silos. But the customers also trust that the banks protect that data and [do] not abuse it or share it in any way, so banks must take a cautious approach to achieve those objectives,” said Mancini. 

Banks should not overlook the benefits of starting small. For example, banks may be able to use existing data to identify that a customer is using checks for disbursement instead of a more secure and efficient channel that will reap better financial gains.

“Banks have plenty of data at their fingertips, and they can even pull up via their analysis statement and look from period to period at the behaviors to make better recommendations for their customers. And this all leads to the platform,” Mancini added. A platform approach makes it possible for banks to break down these data silos, harness existing data, and bring in external data to supplement what they already have.

Murphy agreed, adding that, “if you’re not actually utilizing the data that you have by driving it through the digital tools that are available… you’re actually at a disadvantage because your competitors that are better utilizing or transforming their data into digital uses are taking advantage of the latest generation technology.”

The takeaway

In a modern world, banks need to keep up with innovation, rather than scramble to catch up. In other words, they need to be the disruptors, not the disrupted. Leveraging an open platform, harnessing data, and collaborating with other industry players makes that possible.

“Banks have an opportunity by means of leveraging technology to counter that disruption and putting the bank in control to enable itself as the central point in the ecosystem of players, whether that be fintechs or others that drive innovation and an agile approach, would be one key item as we look to the future,” summarized Mancini.

The post From Disrupted to Disruptor: A Banker’s Guide to Turning the Tide on Disruption appeared first on PaymentsJournal.

It’s undeniable: open banking is coming to the United States. Ultimately, its arrival will revolutionize both consumer and business finance and improve the Software as a Service (SaaS) customer lifecycle from start to finish.

To learn more about how and why SaaS businesses should channel the power of open banking, PaymentsJournal sat down with Andrew Gilboy, General Manager, North America at GoCardless, and Tim Sloane, VP of Payments Innovation at Mercator Advisory Group.

What is open banking?

Understanding the importance of leveraging open banking starts with knowing what open banking is. According to Gilboy, “open banking allows customers to actually give their permission to an application or company to look at their financial information and payment transactions.” This enables that company or application to take payments directly from a customer’s bank account.

Customers are willing to grant this permission because doing so is beneficial to them. When companies or applications can see their financial information, they can simplify tasks from identity verification to assessing a consumer’s creditworthiness for a loan.

One of the most basic capabilities of open banking is the ability of the company or application to see account balances. “They actually know what impact that transaction is going to have on their balance, and it would be possible for the third party or the bank to then offer credit or let [the consumer] select the account or even select another bank. With open banking, that’s all possible. With existing rails, it is not,” said Sloane.

Using open banking, companies can take payments directly from their customers’ bank accounts in real time and without the middlemen, saving them considerable cost and churn. This is particularly true for business models that rely on recurring payments, which tend to have high levels of churn.

The global open banking landscape

It is also important to understand that the global rollout of open banking has been inconsistent. Regulators, rather than the financial services industry, were at the heart of open banking in Europe. This began when the EU rolled out an open banking regulation called PSD2 that defined several functions that banks must make available to registered service providers. These functions include the need for banks to have application programming interfaces (APIs) that can be used to make payments and access accounts to look at customer data.

“The EU vision is that this is going to enable a pay-by-bank capability that targets both retail and commercial users,” said Sloane. But this top-to-bottom approach has had a rocky start, as individual countries within the EU have followed their own roadmaps and PSD2 failed to clearly define API standards. 

Meanwhile, the United States is taking a bottom-to-top approach. “It’s every bank looking at what benefits them relative to opening up their APIs and executing their plan,” added Sloane. “But none of this is directed to consumer payments for merchants, which is an open need and exactly what was targeted in the EU, and we haven’t seen that yet in the U.S.” 

There is still reason to be optimistic about the U.S. catching up to Europe, as a majority of global merchants that would benefit greatly from open banking are based in the United States. As these merchants recognize this value, they may drive the open banking market nationally.

Open banking improves the SaaS customer lifecycle

Broadly speaking, companies running on a recurring subscription business model will benefit the most from the implementation of open banking capabilities. Open banking lowers churn, costs, and fraud related to recurring payments while reducing receivables. For example, GoCardless has already integrated with over 250 billing platforms to add functionality to their payment flow and make recurring payments possible. When the company DocuSign integrated with open banking, its total conversion rate increased by 11%.

“In terms of use cases, there are new [open banking] use cases that are a massive improvement both in the B2B world and in the B2C world. We’re not going to replace [other payment options], it’s just going to be another option,” explained Gilboy.

That said, recurring models are not the only beneficiaries of open banking. In fact, open banking improves the SaaS customer lifecycle from onboarding and signup through the completion of a transaction by offering additional insights and personalization opportunities. For example, a company might see that a consumer has insufficient funds to complete a payment and suggest they use another account to do so. If the customer hadn’t granted access to their account balance, the company would be unable to make that suggestion.

Challenges exist, but the future is bright

Despite the promising nature of open banking, there are some obstacles preventing it from further saturation in the U.S. market. One obstacle is the fact that checks are still widely used—over 40% of B2B transactions are still paid with checks.

Consumer preferences also stand in the way. In the U.S. specifically, consumers have a heavy preference toward credit cards. Until they see a reason to change their ways, that dominance is unlikely to be threatened by open banking.

That said, open banking will become more popular over time. As younger consumers and global merchants become accustomed to and recognize the benefits of open banking options, adoption will grow. Eventually, open banking could threaten credit cards’ dominance as the preferred payment method. “Banks have got to come up to speed and be able to manage this, because it’s coming like a freight train,” said Sloane.

So, while it’s impossible to predict exactly what’s to come, the future for open banking is bright. “I can see in five years’ time it being a common alternative. You’ll have your credit card, you’ll have your paper, and you’ll have your open banking, and you’ll make the choice,” concluded Gilboy.

The post Now Is the Time for SaaS Businesses to Channel the Power of Open Banking appeared first on PaymentsJournal.

Interesting opinion piece posted at TechCrunch and something that we have been increasingly covering in member research as well, although there are many aspects of the subject and approaches to understanding the implications of open banking. The author is experienced as a project manager at several fintechs and provides a perspective around the impact that open banking fintech initiatives are already having and likely to increasingly impact the SME space globally going forward. 

Readers will likely know that there has been a record number of early-stage funding rounds for startup fintechs across NA and Europe, even during the pandemic. Part of this can be attributed to legislation such as PSD2 but an even more propelling factor is likely market pressure through the advancement of API usage, driven by client demands.

“The fintech sector has been hugely successful (and hugely profitable) for much of the last decade, and even more so during the pandemic. But it might come as a surprise to learn that many in the industry believe that the story is just beginning and the sector is poised to achieve much more, with fintech’s next decade expected to be radically different from the last 10 years….Long before the pandemic, the way in which banks were regulated was changing. Initiatives like Open Banking and the Revised Payment Services Directive (PSD2) were being proposed as a way to promote competition in the banking industry — allowing smaller challenger firms to break into a market that has long been dominated by corporate titans….Now that these initiatives are in place, however, we’re seeing that their effect goes way beyond opening up a gap for challenger banks. Since open banking requires that banks make valuable data available via APIs, it is leading to a revolution in the way that small and mid-size enterprises (SMEs) are funded — one in which data, and not hard capital, is the most important factor driving fintech success.“

The gist of the piece is hard to argue with because SMEs (especially the <$50 million annualized revenue groupings) have always found themselves at the short end of the stick when it comes to compelling and customized products for their use since traditionally bank product development and profitability models skew towards lower risk and higher transaction volume clients. So the author goes on to discuss the legacy of open banking and the opportunities created by data.  As that legacy model moves from consumers (who seemingly trust their data to most anyone) into the corporate world, most significantly those businesses that have been historically underserved.  Makes some good points and is worth the 5 minutes to review for those interested.

“If the U.S. banking industry can be convinced of the utility of open banking, or if it is forced to do so via legislation, several groups are likely to benefit:

• Consumers will be offered novel banking and investment products based on far more detailed data analysis than exists at present.
• The fintech companies who design and build these products will also see the use of their products increase, and their profit margins alongside this.
• Arguably, even banks will benefit, because even in the most open models it is banks who still act as the gatekeepers, deciding which third parties have access to consumer data, and what they need to do to access.“

Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group

The post With Open Banking On the Horizon, The Fintech-SME Love Story Is Just Beginning appeared first on PaymentsJournal.

Tomato Pay is a free app to consumers that charges merchants far less than cards for payment transactions. The article provides almost no information beyond pricing, but it can be assumed this solution utilizes the Open Banking Pay by Bank methodology.

This approach is also used by Instanea, TrueLayer, PayIt, and other alternative payment processors, banks, and global card networks. This methodology and these solutions, as well as an explanation of the issues associated with deploying production level API platforms, are discussed in Mercator’s upcoming report “A Lesson for the US: How EU Open Banking APIs Have Stabilized to Support Alternative Networks:”

“The free-to-download app charges firms a penny on transactions of up to £10, 10 pence for payments of up to £100 and 0.1% for payments over £100.

There are no card minimum fees, or chargebacks, alongside easy refunds and confirmation of all transactions for both customer and business.

In a survey of 2007 Brits commissioned by tomato pay, 35% say they now decide where they shop based on whether or not the place accepts non-cash payments and one in five would be put off from using a small business if they could only pay in cash.

Nicholas Heller, CEO, tomato pay, says: ‘tomato pay is an app designed specifically to support small business owners and remove the headache of finances – starting by ensuring that more of a payment goes to the business and not their payment providers.'”     

Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group

The post QR Code-Based Alternative Payment Network Launches in UK, Details Are Scarce appeared first on PaymentsJournal.

Last year, Visa had planned to buy U.S. firm Plaid for $5.3 Billion to acquire technology that would give the card network a foothold in open banking services. The Department of Justice scuttled those plans and accused Visa of wanting to purchase Plaid not for its capabilities but to shut it down to help protect its lucrative existing card business. In a move perhaps to prove its intentions to support open banking, Visa has announced the purchase of Tink, a Swedish start-up that plays a roll to connect fintechs and banks for financial services in Europe in and the UK. And this acquisition is priced at a mere $2.0 Billion.

Here’s what the Wall Street Journal reported about the deal:

Visa Inc., agreed to pay more than $2 billion for Tink, a Swedish startup whose digital services connect more than 3,400 banks and financial institutions in Europe.

The largest U.S. card network is buying the financial-technology company to establish itself in Europe’s fast-growing open banking market. Open banking regulation in the European Union and U.K. enables financial companies to access customers and their data at competing institutions, if the customers have granted consent.

Banks and consumer-facing financial startups use Tink’s services to create apps and other tools that let customers manage accounts at different institutions in one place.

The banks and financial institutions that Tink connects have more than 250 million customers in Europe. Through Tink, banks can access aggregated financial data, initiate payments, verify account ownership and build personal-finance management tools. Tink, founded in 2012, has 400 employees.

Overview Provided by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group

The post Visa Finds Another Way to Enter the Open Banking Business Through the Acquisition of Tink appeared first on PaymentsJournal.

The open banking space is widely considered to be primarily in the domain of consumer-related products and services, which at this stage is generally true.  Just as with other fintech developments over time, the path of least resistance (or perhaps fastest way to get users) is through consumer apps. PSD2 however, pertains to all uses and there is a gradual uptick in the goodies that are being marketed for businesses. This piece in Tech Crunch by one of the staff writers talks about a very recent Germany-based startup (like starting up now) called Airbank. The firm is described as a cash management SaaS for bank account management, real-time cash flow monitoring, cash forecasting and payments and received seed round funding to pursue the model. 

‘Airbank just raised a $3 million (€2.5 million) seed round led by Pia d’Iribarne and Jean de la Rochebrochard at New Wave, with Speedinvest and Tiny VC also participating. A handful of business angels are also joining the round, such as Cris Conde (executive in residence at Accel), Luca Ascani (Accel scout) and Marc McCabe (Sequoia scout)….The startup’s value proposition is quite simple and can be easily explained in one screenshot. With Airbank, you can enter your login information for all the bank accounts and related accounts that you use. After that, you can view everything from your Airbank account:

Again, as we have been advising members through research and other readers through various postings, Europe is a bit ahead of the game, along with a few other markets that have pushed for open banking regulatory initiatives. Banks in the U.S. are approaching it from a client demand standpoint, since there is no regulatory zeal around it (on the contrary, privacy matters are more often highlighted), but more activity is building, so be on the lookout for B2B open banking innovations.

‘Other startups have been working on cash flow management, such as Agicap, and B2B payments, such as Libeo and Upflow. Airbank is starting with account aggregation and wants to tackle B2B finance in a holistic manner….Vertical SaaS products have been booming lately. And there’s a reason why the space is quite competitive: There’s still a ton of stuff to do around B2B fintech and specialized software-as-a-service products.’

Overview provided by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group

The post Airbank Centralizes All Your Business Bank Accounts and Financial Data appeared first on PaymentsJournal.

Between the demand for personalized services from customers and the rise of fintech service providers, banks have a lot of work to do. The movement toward APIs happened seemingly overnight, and there’s no signs of turning back. In the not-so-distant future, open banking will be the new norm.

In a recent report by Finastra, Powering the Future of Payments With Open Banking, experts discuss how banks can hop on the API train for a journey toward payment modernization.

A gateway to new kinds of payments

Open banking is a gateway to new kinds of payments, but it is still a relatively new concept. Open banking began with the Second Payments Directive (PSD2) and account aggregation. Now banks are working to further innovate beyond the basic requirements and expand into the fintech ecosystem.

At first, many banks limited themselves by only offering APIs within the mandatory scope, seeing the regulations as mere requirements rather than an opportunity to use new technology to innovate and grow. However, with the acceleration of digitization brought on by the global pandemic, banks have been forced to look at open banking with fresh eyes.

If banks want to remain relevant in a sea full of fintechs, they need to rethink how they deliver financial services. When working on a new channel or service, it is important to consider how the same thing can be accomplished with an API. This is something big techs have been doing for decades, and now banks too can positively impact the market through data sharing.

Ecosystem requirements for successful open banking

In order for open banking to operate successfully, there are four ecosystem requirements that must be met:

• APIs thatcan leverage and authorize third-party developers to give them access to data and banking systems.
• Enabling assets thatallow open access to data.
• Use cases thatare a driving force for payment innovation.
• Partnerships with fintechs that will help to accelerate innovation and provide financial institutions with the technology, expertise, and vision needed to drive open banking value creation.

Models that are executed successfully achieve continued demand and supply from the ecosystem, which creates a “network” effect. Finastra offers access to their payment APIs through its FusionFabric.cloud platform, and their solution guarantees fine grain entitlement management.

A roadmap to open API enablement

Let’s face it: some degree of back office reinvention is necessary to take full advantage of front-office, open APIs. But how are banks supposed to get there?

APIs are a challenge to the traditional structural approach, so banks need to carefully consider their courses of action before making any decisions. There is always the risk of putting extra strain on an already complex payment silo landscape.

There are two questions banks should ask themselves before implementing any new technologies:

1. Can they adapt their current channel, middleware, and back-office systems to the demands of open API access?
2. Do they need a completely new approach?

The answers to these questions will help banks determine their goals, challenges, and advantages.

Takeaway

Banks are facing, and will continue to face, some serious competition from fintechs and other banks. To remain relevant during a time of technological revolution, they must position themselves for open banking in a way that holds rank with their competitors.

The approach to innovation will be unique to each institution, and banks must decide where their strengths are in the broader ecosystem. If they fail to do this, they face the risk of harming their profitability as traditional revenue streams decline. With open banking, financial institutions can offer a variety of alternative sources of revenue to both retailers and SMEs.

Working with partners is crucial to the success of banks in this new environment. Together, they can build offerings that they were previously incapable of bringing to market.

Interested in learning more about how banks can properly implement open banking technology and prepare for the future? Read the full report by Finastra here.

The post Open Banking Opens Doors to the Future of Payments appeared first on PaymentsJournal.

In today’s world, digital banking is the new normal. Customers expect seamless journeys from start to finish that includes access to as many services as possible. This leaves banks tasked with maintaining the delicate balance of meeting customer demands and establishing trust through a high level of data security and regulatory compliance.

To learn more about the challenge of establishing trust, PaymentsJournal sat down with Jose Caldera, Chief Product Officer at Acuant, and Tim Sloane, VP of Payments Innovation at Mercator Advisory Group.

The rise of digital banking

Digital adoption in finance has been fast and furious with more options than ever before, and for good reason. Digital banking offers plenty of value to consumers, serving as a one-stop shop for money management and payments. It also boasts more options than ever before. Neobanks, challenger banks, and open banks have flourished in the digital realm, and COVID-19 will make that shift more permanent.

“Everything has become more digital and everything has become more online, especially after a year of going through this pandemic. There is certainly a need to service clients that are looking for a different experience,” said Caldera.

Additionally, the younger generations of adults are digital natives, meaning they have higher expectations for digital services. “I think [the adoption of digital banking] has been a combination of the evolution of technology and also the expectations of users and [the] user experiences they want to have,” he added.

Data security is paramount when it comes to digital banking. “It goes without saying that whatever [data a] digital-native user has given to the company or the financial institution, their expectation is that it’s safely stored and properly protected against hackers,” said Sloane.

Keeping customer data safe through open banking

Consumer expectations surrounding their customer experience are not the only things that have evolved. A new pattern of consumer trust is also emerging. According to Forrester, consumers are past wanting piecemeal privacy management tools. Instead, they are flocking to companies that integrate trust as a corporate strategy.

Open Banking is a system in which users’ personal and business data can be shared securely between banks and applications and keeping customer data secure is crucial to establishing and maintaining trust. “There [is] a combination of strategies that you’re seeing better adopted [by] digital banks when compared to traditional financial institutions,” said Caldera.

Onboarding customers digitally is now the norm. By adopting trusted technology, such as identity verification and know your customer (KYC) tools, open banks can ensure that their customers’ data is safe during onboarding and beyond.

“There is a whole set of new technologies that have put the owner more in control of the data, as to what data can be shared. And I think that digital banks have taken a better approach than traditional financial institutions, where data exists in so many places,” Caldera added.

Challenges of onboarding customers online

The biggest challenge when onboarding customers online is maintaining the balance between a seamless customer experience while remaining secure and compliant. Even though consumers want access to as many services as possible, they can be hesitant to share their personally identifiable information (PII).

“From the financial institution perspective, you have on the one side the requirements from user experience, ready-to-access services and then in the back end of that you have the regulatory and security requirements,” Caldera said.

Financial institutions need to capture personal data in order to grant consumers access to the services they are looking for. At the same time, FIs must comply with a growing list of regulations, including anti-money laundering (AML), GDPR (the EU’s General Data Protection Regulation) and other privacy laws. Solutions that manage security through features such as transaction monitoring, KYC, and risk screening can help FIs remain compliant. 

“From a broad brush perspective, it’s the compliance officer’s job to primarily say ‘no’ if there’s any risk associated, but it’s obviously the management’s challenge to be able to remain competitive in the market,” explained Sloane.

How Acuant establishes customer trust

According to Caldera, Acuant enables a risk-based approach favored by regulators to assess customer onboarding and behavior. “We’ve embedded our belief of trust into what we do, and that’s our DNA. How do we make sure that when you are doing business with someone, you can actually trust that you’re doing business with the right person?”

With that belief in mind, Acuant created a framework that assesses customer identities by asking the most important questions to establish and maintain trust:

• Is this a real person?
• Is this person who they claim to be?
• Can I do business with this person?
• Should I do business with this person?

The idea behind this framework is that banks are going beyond simple identity verification to truly understand whether they should do business with someone. Acuant’s platform answers these questions during onboarding, while allowing banks to continuously see user behavior, monitor that user, and re-verify that user’s identity in other instances.

“It’s a much more comprehensive view of what those identities and [who] those users are,” said Caldera. “We’re thinking about a comprehensive framework that allows us to measure trust at the beginning, the middle, and the end of that relationship.”

Conclusion

Establishing customer trust in the era of digital and open banking can be challenging, but it is nonetheless crucial for banks to remain competitive. By deploying the right security tools, financial institutions can rise to the challenge.

The post The Challenge of Establishing Trust in Open Banking appeared first on PaymentsJournal.

• Instant Bank Pay leverages the unique combination of the GoCardless global bank debit network and open banking technology
• The feature provides merchants a low-cost, seamless and convenient way to collect instant payments from new and existing customers through a single platform
• Although half of Americans have “no clue” what open banking is, the introduction of open banking payments helps address their day-to-day annoyances, such as updating their payment details every time they get a new credit or debit card

NEW YORK – April 26, 2021 – GoCardless, a leading fintech for bank-to-bank payments, today launched Instant Bank Pay, a new open banking feature directly integrated into its global payment platform. With Instant Bank Pay, merchants can take instant, one-off bank-to-bank payments from new and existing customers while still reaping the benefits of bank debit for their recurring payments.

The announcement marks the first milestone in GoCardless’ journey to accelerate its open banking strategy, for which it received $95 million in funding at the end of 2020. By combining open banking technology with its existing global bank debit network, GoCardless can offer its more than 60,000 merchants a new low-cost, seamless and convenient way to collect instant payments that works for any revenue model.

“We’ve specialized in bank-to-bank payments for over 10 years, with bank debit being the primary payment method. And, while it provides many advantages to consumers and businesses, speed of payment authorization is a drawback,” said Hiroki Takeuchi, co-founder and CEO of GoCardless. “Instant Bank Pay addresses this pain point by giving merchants the best of both worlds: open banking will provide instant confirmation of payment authorization, enabling them to have immediate visibility of their one-off payments, and bank debit will continue to offer the cash flow, cost and retention benefits business owners have come to expect.”

With the introduction of Instant Bank Pay, GoCardless will expand its offering into the adjacent e-commerce market, where it can take on both one-off and card-on-file payments.

Takeuchi added, “By enabling businesses to take any kind of payment through GoCardless, we can challenge the dominance of cards and move beyond collecting subscriptions, invoices and installments. The launch of this open banking feature means we can now serve any merchant, regardless of whether they have an ongoing or one-off relationship with their customers.”

Benefits for businesses

While it can be used in many scenarios, Instant Bank Pay addresses an issue that is particularly acute for recurring revenue businesses. According to research from GoCardless, 85% of merchants with this business model have a need for collecting additional one-off payments. Examples include collecting a payment upfront at the start of a subscription, purchasing additional goods or services, or adding money to an account outside of a customer’s regular payment schedule. 

Bank debit is not suitable for some one-off payments because it doesn’t provide instant visibility of payment authorization. This has forced many merchants to turn to card payments, often with high fees attached, or time-consuming manual bank transfers. Instant Bank Pay is a fast and easy way for customers to make a one-off account-to-account payment. Instant confirmation provides better visibility of payments, eliminates costly credit card fees, and reduces late payments, thanks to a seamless payer journey.

Merchants can build the Instant Bank Pay option straight into their checkout flow or simply send a payment request with a link to pay. Similar to a mobile wallet payment, payers are seamlessly connected to their bank and can authorize a payment directly from their bank account in just a few taps.

Benefits for consumers

According to research from GoCardless, open banking is still a nascent concept in the US. Half of Americans (52%) say they have “no clue” what open banking is, and, of those who have heard of it, over a third (37%) reveal they “think of it like 5G – I know it’ll benefit me but don’t know what it is.”

Regardless of whether open banking is well known, the technology will solve problems that consumers currently face.

Seven in 10 Americans (70%) indicate they would be annoyed if they had to pay for goods or services using multiple payment methods. One example is paying with a card for on-the-spot access when they join a new gym, then needing to fill out forms to set up another payment type for ongoing transactions. Instant Bank Pay would eliminate this extra step by offering a single payment sign-up process, delivering a seamless customer experience.

Furthermore, 61% of Americans believe it’s a hassle to update the payment details for all of their regular expenses, such as streaming subscriptions, when they get a new credit or debit card. Using open banking payments means they won’t have to – their payment details stay the same unless they switch bank accounts.

The post GoCardless Launches Open Banking Payments, Offering Businesses a New Alternative to Taking One-off Payments appeared first on PaymentsJournal.

An increasing number of Fintechs are creating alternative payment rails utilizing the Open Banking infrastructure mandated in the EU. With interchange capped in the EU financial institutions seem less resistant to this approach as we identified earlier with BNP Paribas and Token deploying a new payment method called Instanea built on the Open Banking infrastructure. Now comes Trustly.

Will the US market be able to resist:

“STOCKHOLM, April 12 (Reuters) – Swedish payments firm Trustly said on Monday it intends to list its shares on the Nasdaq Stockholm exchange, the latest in a line of major European tech unicorns seeking a stock market listing.

The deal could see the company valued at around 9 billion euros ($10.70 billion), based on the middle of a range of analyst views on the company seen by Reuters and confirming a Reuters report https://www.reuters.com/article/us-trustly-ipo-idUSKBN29R0YY from earlier this year.

That would be around 60 times Trustly’s expected core 2022 earnings, a discount to peer Adyen which trades at 72.5 times but a premium to Nuvei, which trades at 30.5 times.”

The article continues:

“Other European fintech firms such as Wise and Klarna are also planning for stock market listings.

“This is sort of a process that we have been working on for a year now to prepare the company and make it ready for the public markets,” Trustly Chairman Johan Tjärnberg said.

Trustly had also assessed a listing in the United States and might look at a dual listing in the future, he said.

Founded in 2008, the company counts PayPal, Wise and Facebook among its customers. Its platform allows users to pay for purchases directly through their bank accounts, bypassing the need for a debit card or a mobile wallet.”

Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group

The post Alternative Payments Network Trustly Targets $10B IPO on Nasdaq Stockholm, Also Eyeing US Nasdaq appeared first on PaymentsJournal.

Brexit has created a number of issues for the payments sector. As of January 2021, the UK no longer falls under the remit of regulatory limits on cross border transactions. As such, UK-EU commerce is left in an ambiguous no man’s land.

Businesses have been left to devise their own mitigating measures in order to maintain international operations. For instance, Mastercard has increased its fees fivefold for UK online purchases from the EU.

Due to these regulatory changes, some UK businesses have lost their ‘passporting’ rights to carry out cross-border operations throughout the EU. Reciprocally, certain EU businesses are coming up against barriers with regard to their UK operations.

In order to minimise disruption, many companies have set up bases in the EU and EU businesses have established firms in the UK to maintain the seamless digital experience the modern consumer seeks. Certain payment providers who do not need the additional licence for cross-border operations have even chosen to opt for one to safeguard their business operations.

Third-party providers (TPPs) are also able to use an alternative to eIDAS certifications to access customer information from account providers, or to initiate payments according to the FCA, since eIDAS certifications of UK TPPs have been revoked. This provides TPPs with a compliant way to access customer information.

There are many types of payment providers and many ways they can respond to Brexit regulations. Ultimately, companies will need to weigh up the best choice for their particular corporate structure and business strategy.

An opportunity to innovate

However, cross-border European payment methods are not irretrievably bound to becoming a jarred process. In fact, Brexit has created an important opportunity for the sector.

The increased costs associated with Brexit, as exemplified by the case of Mastercard, will incentivise businesses and consumers alike to seek out and adopt alternative payment methods. It is imperative that payment providers capitalise on this chance to disrupt and innovate.

A number of solutions already exist to help facilitate seamless cross-border transactions. For instance, ECOMMPAY’s Gate2Europe payment solution enables transfers between businesses across Europe, supporting trusted household names such as PayPal and Mastercard.

Open Banking also will allow fintechs to offer new products and services based on direct access to consumers’ bank account data. PSD2 is set to be key for the UK’s financial services industry, with the UK expected to comply with EU regulations to ensure its position as a leader in the sector. As such, Open Banking technology will continue to drive forward innovation and give consumers new payment options without the need for debit or credit card transactions, making it a key tool for efficient domestic and cross-border payments, customised by localised requirements.

Digital wallets will also become more popular as consumers seek efficiency and convenience, and providers just need an e-money licence instead of a banking license for this. Consumers can link their bank accounts directly, making it a convenient option for all. Likewise to this, cryptocurrencies and buy-now-pay-later products will also become more popular.

Because transactions, for the most part, will be cheaper if processed locally, merchants should also be looking to offer a local payment method to remain competitive. Using a local acquirer means benefitting from local regulations and incentivised fees, and will also better cater to the consumer, who may be more likely to complete their checkout purchase if they can select their preferred payment method.

The post-transition outlook for payment providers

In keeping the post-Brexit transition smooth, businesses must first and foremost ensure they continue to comply with both UK and EU regulations. Businesses must be aligned with all new barriers, and being both  proactive and reactive to changing regulation will guarantee resilience.

The FCA has repeatedly warned that customers must be treated fairly, so transparency of costs, and choice for consumers will be essential. Laying out all their payment options clearly will promote consumer confidence during this period of adjustment and uncertainty.

Importantly, Brexit doesn’t need to lead to the UK’s isolation. Payment providers have been given a significant opportunity to bridge the UK and the EU by implementing compliant and connected solutions.

These measures will be essential to bolstering London, and the rest of the UK, as a global Fintech hub. And, with Rishi Sunak’s recent budget announcement, which unveiled a series of measures to boost tech firms, the sector is better supported than ever before to deliver on this responsibility.

The post How Payment Providers Can Ensure a Seamless Transition in the Face of Brexit appeared first on PaymentsJournal.

Open Banking has dramatically changed the way people and businesses manage their money, leading the democratization of the financial services market. Traditionally, a select group of major banks have controlled all the financial data of their customers, making it difficult for new, innovative fintech and financial services providers to break into the market. Now, Open Banking is putting the power of financial data back into users’ hands, transforming the financial services industry as we know it. Popular apps like Venmo, Mint and SoFi show the value Open Banking can bring to consumers when they can more easily manage and transfer funds.

Due to the opportunities that Open Banking offers today, there is an influx of software startups founded with the purpose of creating new digital banking apps. Traditional banks are also developing easy-to-use banking solutions to keep up with consumer demand. However, companies in the financial services industry must adhere to complex security standards and strict regulatory compliance requirements in order to be successful at providing Open Banking enabled apps and services. To meet these regulations, one of the most critical requirements of secure Open Banking is customer consent. 

Open Banking: How It Works

Open Banking is a system where users’ personal and business data can be shared between applications and banks at their request, giving easy access to financial products that save time and money. The Open Banking revolution started when new regulations, such as Open Banking Europe (OBE), were formed in 2017 with the goal of fostering innovation, competition, and efficiency to increase consumer choice and enhance security for online payments. Following that, the Financial Data Exchange (FDX) in the U.S. created a consortium of providers around a common standard for secure access to financial data.

With Open Banking platforms, users can have a holistic view of their financials across different banks, move those funds around at-will, make payments and find deals on loans, term deposits, lines of credit and more. None of this would be possible without Application Programming Interfaces (APIs), which allow data to flow between users, applications, and service providers in a safe, secure way. Open APIs allow developers and service providers to aggregate all this information and present it in a simple and easy-to-navigate user interface. For example, imagine an “Expedia of Finance” that lists all the best loan deals based on a user’s credit score. The big challenge for Open Banking is that the security of this information is much more sensitive than Expedia’s flight details.

To ensure that consumer data remains secure in these data-sharing Open Banking systems, the API must meet strict standards for authentication and consent management. Before someone logs into their Open Banking apps, it is important that apps confirm the identity of the user and the context for accessing the data. Secure, context-driven authorization includes: Who are they? Where are they located? What time are they requesting access? What data are they authorized to access? What kind of device are they operating from? The answers to these questions determine the type of services that are available at that point in the transaction. That context…changes everything!

Consent Management is Key

Since Open Banking provides third-party service providers open access to consumer personally identifiable information (PII), transactions and other sensitive data, one of the most critical requirements of Open Banking is customer consent management. Customer consent is the bedrock of building trust between a user and an organization. To build this trust, Open Banking APIs must allow customers to decide what data is being shared and with whom. For instance, your entire user profile might be shared with their main bank, but only your UID (unique identifier) and one specific transaction are shared for a singular usage with a credit review agency. This keeps personal data from being unnecessarily shared with third parties or across geographies.

Open Banking apps must rigorously support the ability for customers to manage their consent, starting at the API level. APIs with strong consent guardrails and authentication give consumers the highest level of security and builds trust across the whole Open Banking ecosystem. Consumers need to be able to trust that the app is treating their privacy and data with the utmost respect and providing real-time logs of how, when, where and why certain data was shared.

Secure, Accessible Financial Services for All

Before Open Banking, third-party service providers such as Mint from Intuit required customer credentials for each account and built a custom integration with each institution. This typically involved some sort of screen-scraping of the website’s HTML code. Open Banking solves this problem by providing developers with API-based integrations that will not break with webpage redesign and uses consent to ensure that customer data and other information shared with third-party companies remains private and secure. With Open Banking, financial services apps are now available to a wider userbase and provides these essential services to people that would not normally have access to a bank.

The post Open Banking Paves the Way for the Democratization of Financial Services appeared first on PaymentsJournal.

Amazon is selling the Amazon One palm reader function for use at other venues, including merchants, stadiums and office buildings. This indicates Amazon is thinking big and plans Amazon One will be used for a number of different use cases, some far afield from simple payments. Here is some idle conjecture. Amazon One may be used to identify an individual.

• It might become a person’s digital identity.
• It could be used as an access control device.
• It will certainly be used as a payment mechanism that connects to a payment network.
• Amazon could even tear a page from Kevi, that intercepts card transactions and instead routes them over a EU Open Banking infrastructure.

Those worried about privacy are already concerned regarding Amazon One, but these new potential use cases will likely increase those concerns:

“Amazon this week began expanding Amazon One to more stores beyond the two demo locations at Amazon Go locations in Seattle. The technology is still at an early stage, but is positioned as a means to do more than just shop at a single store. Amazon has invited third parties such as other merchants, stadiums and office buildings to add Amazon One. That would make the feature both an enrollment and check-in option at an almost limitless number of facilities.

Amazon One is part of a stack of technology the e-commerce giant is building to cover different options for shopping, security, marketing, payment and fulfillment. The past few years have seen Amazon add shopping cart sensors, robot delivery, automated home access and voice-directed gas payments.

If successful, Amazon One would serve as an additional enrollment method to build its base, giving Amazon more control over data, marketing and upselling. It would also allow Amazon to control check-in at multiple stores in new markets such as India, where Amazon is applying for a license to process payments domestically.”    

Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group

The post Amazon’s Ambitions: Replace NFC, Build a Payment Network, Create Digital IDs and Enable Access Control appeared first on PaymentsJournal.

BNP Paribas has announced that it will deploy a new payment method called Instanea that is constructed on top of the Open Banking infrastructure instantiated by Token. It has long been recognized that Open Banking enables access to a bank’s payment infrastructure and that by integrating across a sufficient number of banks an alternative payment infrastructure could be developed.

While merchants would like to get off the traditional payment rails to lower their costs, this is difficult without standardization and brand safety.  Token has been integrating to a large number of banks, but lacked brand safety and isn’t a standard. With the backing of BNP Paribas Token Pay may gain the status of defacto standard and gains the brand safety of BNP Paribas.  

“Leading open banking payments platform, Token, and BNP Paribas, today announced the launch of the first online payments service to combine the power of SEPA Instant and PSD2 APIs, two major initiatives from the European Payments Council. Developed with Token, BNP Paribas Instanea is a turnkey instant payments initiation solution. It delivers account-to-account (A2A) payment capabilities to dramatically enhance the speed and increase the security of transactions for merchants across Europe.

Token’s open payments platform is driving the shift from traditional payment methods to A2A payments. It provides pan-European connectivity to banks, and rich functionality to enable existing Payment Service Providers (PSPs) to benefit from open banking capabilities.

BNP Paribas Instanea will easily integrate with popular shopping carts and payment gateways to deliver immediate payment settlement and enhance security. Risks like chargeback, are also eliminated as payments are authenticated by the customer in their banking portal.

“SEPA Instant has provided a foundation for additional fast and secure payment solutions for our eCommerce clients,” comments Carlo Bovero, Global Head of Cards and Innovative Payments at BNP Paribas. “The advent of open banking APIs presents a unique opportunity to innovate and deliver instant payments at scale. Token’s technology has equipped us with an unrivaled breadth of API connectivity. BNP Paribas Instanea empowers merchants to leverage open banking APIs to manage cash-flow in real-time and deliver better checkout experiences.”

Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group

The post An Alternative Payment Network Emerges Thanks to Open Banking, Token and BNP Paribas appeared first on PaymentsJournal.

Open Banking Europe and the European Third Party Providers Association announced today that they had signed a Mutual Cooperation Agreement to promote collaboration, improve industry understanding, and create a mechanism for exchanging knowledge.

The Mutual Cooperation Agreement, which focuses on providing feedback and clarity on the operational aspects of PSD2 in Europe, formalizes and enhances the engagement and established relationship between OBE and the ETPPA at a strategic level.

Both parties will collaborate on TPP-related activities as part of PSD2 Open Banking. This includes analysis, speeches, papers, and webinars, as well as outreach to other Open Banking ecosystem organizations.

“This agreement builds on the extraordinary work we have done with the ETPPA in recognizing the needs and concerns of TPPs and bringing them to the attention of regulators and banks so that the effective introduction of Open Banking in Europe can continue,” said John Broxis, Managing Director, Open Banking Europe.

Ralf Ohlhausen, Chairman, ETPPA, commented, “Our cooperation with OBE over the past few years has been very fruitful already and we would like to strengthen this further given the many outstanding issues around Open Banking and the need for applying the lessons learned to Open Finance”.

The agreement also calls for the OBE and the ETPPA to work together in the future to achieve mutual objectives that will improve stability and speed up the Open Finance transition.

The post European Open Banking Gets Mutual Cooperation Agreement from Open Banking Europe and Third-Party Providers Association appeared first on PaymentsJournal.

This provocative headline leads a post in Tearsheet about the new API-based service called Stripe Treasury, about which we commented a few days back. The author goes on to discuss the implications for the embedded finance and BaaS space, which is gaining usage as the open banking era unfolds.

Indeed versus regulated mandates in Europe and other selected global markets, in the U.S., open banking is a growing market reality. This is due to the increasing recognition by company resources that their work experiences can and should be closer in nature to other things available to them on a smartphone.  

‘  “Everything about running an online business has been transformed by technology, but business banking has largely been left behind,” said Karim Temsamani, head of banking and financial products at Stripe. “But we’re changing this, just like we set out to change payments a decade ago. Offering a user-centric banking experience should be as easy as spinning up a virtual server — that’s what we’re starting to accomplish at Stripe with our bank partner network”…..The move is emblematic of a larger trend of embedded finance that is layering in banking capabilities within companies in any industry and integrating financial services within platforms already used by customers. Goldman Sachs, one of Stripe’s banking partners, recently launched its own banking as a service offering for transaction banking, TxB.’

Of course the answer to the headline question is no, which the author goes on to explore through a few quotes from industry participants. We also covered these dynamics in our CEP Outlook for 2021, under the theme of collaboration. 

This service is a nice functional improvement on the payments experiences for e-commerce merchants and vendors, and we would expect continued advancement of convergent services across the cash cycle process landscape. Working into financial operations and full treasury requirements is yet another thing, but one would expect continuing demand for easier platform integrations during the next 5-10 years.

‘“Overall, if you look under the hood, Stripe Treasury lacks features that are really needed to build powerful financial products for companies outside the retail space, such as neobanks or fintechs,” said Sankaet Pathak, CEO of Synapse Financial Technologies, a banking as a service platform….Stripe Treasury, disruptive as it appears, may be limited in its applicability to real life use cases.  “It doesn’t make it any easier to develop products for lending or credit, the KYC framework shows room for improvement, and there’s no real bill-pay product – just ACH transfer. There’s also some questions about ATM ubiquity. While most competitors allow more customization, Stripe seems to be going after a very specific use-case of embedding deposit accounts in a modular way,” said Pathak.’

Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group

The post Is Stripe Treasury ‘Game Over’ for Banking as a Service? appeared first on PaymentsJournal.

Fintechs and any other authorized organization in Singapore can connect to that country’s real time payment network, FAST.  Finextra reported that those who meet the criteria defined in the Payment Services Act published in 2019 can have access to Fast and the PayNow overlay service.  Here’s the overview from the article:

Available from February 2021. NFIs that are licensed as major payment institutions under the Payment Services Act will be allowed to connect directly to Fast and Secure Transfers (Fast) and the PayNow overlay central addressing service.

The shift to direct access will enable users of NFI e-wallets to make real-time funds transfers between bank accounts and e-wallets as well as across different e-wallets. Currently, most e-wallets require the use of debit or credit cards to top-up funds, and funds transfers between e-wallets are not possible.

NFIs will be able to connect directly through a new Application Programming Interface (API) payment gateway developed by the Direct Fast Working Group (DFWG).

The idea behind opening up access to Non-Financial Institutions (NFIs) is to support more innovative solutions and competition.  This includes the ability for end users with multiple mobile wallets will be able to move funds between these wallets.  Singaporeans have options for several domestic mobile wallet solution and also can use the Chinese mega-wallets AliPay and WeChat Pay:

Ravi Menon, managing director of MAS says: “Direct access by NFIs to FAST and PayNow closes the last-mile gap in Singapore’s e-payments journey. Consumers who may not have ready access to debit or credit cards to fund their e-wallets will now have the option to do so directly through their bank accounts. Our vision to enable complete real-time payments interoperability will now become a reality.”

Overview by Sarah Grotta, Director, Merchant Services at Mercator Advisory Group

The post Non-Banks Can Now Ride the Faster Payments Rails in Singapore appeared first on PaymentsJournal.

Seamless. That is the mantra in the digital world when it comes to banking and payments. Whether it’s buying a product from Amazon to depositing checks to opening new accounts, customers want a simple, safe, and speedy transaction with their financial institutions. This has required many FIs to change their processes to enable the “seamlessness” in all customer interactions. Unfortunately, that is a lot easier said than done.

FICO has released a new survey of banks and consumers in the U.K. that points to the difficulty in providing a seamless account opening. The lack of integration between different parts of the bank and different servicing channels have made the account opening process difficult particularly in the area of identity verification:

According to the FICO-commissioned study, whilst 72 percent of UK banks use digital methods to capture identity for personal bank accounts, they are not integrated into a seamless experience. Only 36 percent of banks said they capture customer identities and verify them in the same channel. A lack of integration means that only 29 percent of document capture is integrated into the same channel, leaving clients much more likely to abandon an application, for example after being forced to download another app or scan and email documents.

Indeed, the FICO consumer study found that nearly one in three UK consumers (32 percent) said they would abandon an application process if forced to take action through a non-digital channel. Yet only about 7 percent of banks surveyed have adopted a streamlined approach with capture and verification methods fully integrated, in real time, into the digital application process.

The move to digital has created a perception among consumers that the banks are fully integrated and can easily call upon their data when they are opening a new account. Based on this survey, however, there appears to be a major disconnect between banks and consumers regarding this matter and it has complicated the application process and created an abandonment problem for the banks.

It would be very easy for me and others to criticize the banks for not making this data available across channels and departments, but I understand it is much easier said than done. The banks are hindered by legacy computer systems, regulatory issues, and a whole host of other. That said, they are leaving money on the table. Not only in the acquisition of new accounts but the jeopardizing of current and future relationships.

Overview by Peter Reville, Director, Primary Research Services at Mercator Advisory Group

The post Seamless or See Ya: The Struggle to Simplify Account Opening appeared first on PaymentsJournal.

One of the biggest challenges faced by small businesses amid COVID-19 has been accessing capital to support cash flow. This was especially evident in the early months of the pandemic. An April survey of U.S. small businesses found that those with less than $10,000 in monthly bills had enough cash on hand to cover only one month of expenses.

But what many stakeholders may be unaware of is that small businesses, governments and lenders in various regions around the world have been experiencing different realities when it comes to keeping working capital flowing. While governments offered various grants and state-backed loans, some business owners were slowed by the daunting task of compiling and submitting documentation about their finances and business conditions. COVID-19 shone a light on the importance of accurate and up-to-date financial information – and the ability to share it digitally.

Across three large economies—U.K., Australia and the U.S.—some businesses and financial institutions were able to respond with greater agility than others. In particular, businesses running their accounting systems on the cloud, with seamless connections to their banks, were able to access simpler and quicker application processes than those using desktop-based software or none at all. Given that the financial technology within these three markets is at different stages of development, it’s important that we compare how businesses and financial institutions reacted to continue to improve small businesses’ access to capital.

Open Banking U.K.

In the U.K., Open Banking had already been mandated for two years when COVID-19 emerged. Small businesses were becoming accustomed to sharing their financial data with third parties such as lenders, budgeting apps and accounting software. This meant that the financial documentation needed to access grants and loans was more readily available. Banks could share it at the customer’s request or customers could choose to share it themselves from their cloud-based accounting software, confident that it offered a real-time picture. Meggie Palmer, the founder of corporate consulting company PepTalkHer, said her cloud-based accounting platform was “a lifesaver” when it came to applying for government grants.

U.K. alternative lender iwoca already had a rich cloud accounting integration in place when COVID-19 hit. Iwoca offered a five-minute application process for loans of up to £250,000, with a promise of funding delivered within 24 hours. More traditional banks, such as NatWest, offered similarly fast decisions on an invoice finance product called Rapid Cash. By connecting their accounting platform, small businesses could access a credit line of £25,000 to £500,000 within 48 hours of approval.

Down Under

In Australia, open banking had yet to launch when COVID-19 appeared. But the nation’s businesses already had some of the world’s most robust direct feeds of transaction data or ‘bank feeds’, thanks to a decade of integration with cloud-based accounting platforms. Businesses were able to apply for unsecured loans of up to A$500,000 from a variety of bank and non-bank lenders by sharing their accounting-platform data, receive a decision within minutes and get funding in as quickly as a day.

Australian accounting platforms, meanwhile, pivoted to develop software that would help customers apply for government relief. One is a tool that helps small employers identify workers eligible for a wage subsidy program called JobKeeper – and to report those payments to the tax office every month. Another solution is a cash-flow forecast tool, which projects cash flow a month in the future, assuming all bills are paid on time.

Because these tools are built on a cloud-based accounting platform, software updates can be pushed to subscribers seamlessly with no need for any downloads or action on the user’s end; the new functions simply appear in the software.

And while data from Xero Small Business Insights for July showed for the second month in a row that small businesses continued to add jobs and saw levels of revenue recovery, varied state restrictions translated into different levels of economic activity. In July, New South Wales and Victoria outperformed other states; however Victoria’s resumption of lockdownserves as a reminder of current volatility and the continued importance of cloud-based services.

The United States

In the U.S., meanwhile, open banking has yet to arrive, and few banks offer direct feeds of transaction data into a customer’s accounting software. Perhaps these are two of the reasons many small businesses and financial institutions were frustrated with the federal government’s $669 billion Paycheck Protection Program. Of course, one-fifth of the available PPP fund was unallocated.

The good news is that we have seen cloud-based applications and accounting platforms help fill the gap. For example, in the U.S., the cloud-based payroll app Gusto moved quickly to help small business employers access federal relief. Gusto integrates with cloud-based accounting software. It built features to help automate the process of applying for the PPP.

By drawing on tax, accounting and payroll data stored in the cloud, the app was able to expedite the application process, saving hours of work and reducing manual errors.

In Wisconsin, certified public accountant Mike Jesowshek used Gusto to help secure PPP loans for just over half of his small-business clients, which are mostly attorneys, fitness studios and professional services firms.

“All of our clients use cloud-based accounting software, which made the process much easier,” says Jesowshek, founder of Brookfield-based JetroTax. “We didn’t have to worry about sending files back and forth to the client, or wondering whether we had the most up-to-date one. We were able to access everything we needed without having to bother the client. It made the rough, stressful, and bumpy rollout of PPP much easier to bear.”

Once small businesses emerge from the pandemic, they may have to be prepared financially and technologically to survive the next one. The last six months have underscored the need for U.S. small businesses to move beyond spreadsheet accounting, embrace the cloud and eventually open banking. Those that do can more quickly evaluate their cash position, improve their chances of success, and be better prepared to share data with their financial institutions when help is needed.

The pandemic also shone a light on the role of financial institutions in enabling fast and efficient access to capital. And we may see the acceleration of new services, such as those offered through the likes of cloud based lending platform Waddle, which enables banks and fintechs to more easily lend to small businesses by leveraging their accounting data. Financial institutions that are able to seamlessly connect to these customers through the cloud and reduce friction in processes such as loan applications will also be well-positioned as we navigate the economic repercussions of this crisis and other unexpected challenges ahead.

The post COVID-19 and Accessing Capital: Lessons from Abroad appeared first on PaymentsJournal.

Many of us take it for granted, but accessing basic financial services is fundamental to our economic and social development. It is hard to ‘get on’ if you are forced to hide life savings under the mattress, or rely on predatory loan sharks for credit.

Yet an estimated 1.5 billion adults around the world do not have a bank account or access to formal finance systems – making 40 percent of the global population ‘unbanked’. This limits opportunity and stifles potential. Indeed, research by EY has shown that financial inclusion could improve some countries’ GDP by up to 30 percent.

Given the transformative benefits (and yes, revenue opportunities), promoting financial inclusion has been a key priority for banks and fintechs over recent years and as a result, significant progress has been made. But with COVID-19 plunging the world into a period of unprecedented uncertainty, it is imperative that these gains are protected.

Banking on financial inclusion through technology

Undoubtedly, enabling financial inclusion has become significantly easier in the wake of technology-led innovation. Take increasing smartphone penetration, which has allowed banks, fintechs and telecom operators to offer highly accessible, low-cost digital financial services to previously underserved populations.

These initiatives have had a huge impact. Sub-Saharan Africa, for example, has become the global leader in mobile money, with competition between different providers driving rapid innovation and promoting financial inclusion at scale. This success provides a blueprint for the power of technology. But despite the huge long-term potential, we must be realistic about the current limitations. Although mobile connectivity is increasing, over half the world’s population remains unconnected. To rely solely on digital interventions is to leave billions of people behind.

Many of us take it for granted, but accessing basic financial services is fundamental to our economic and social development. It is hard to ‘get on’ if you are forced to hide life savings under the mattress, or rely on predatory loan sharks for credit.

Yet an estimated 1.5 billion adults around the world do not have a bank account or access to formal finance systems – making 40 percent of the global population ‘unbanked’. This limits opportunity and stifles potential. Indeed, research by EY has shown that financial inclusion could improve some countries’ GDP by up to 30 percent.

Given the transformative benefits (and yes, revenue opportunities), promoting financial inclusion has been a key priority for banks and fintechs over recent years and as a result, significant progress has been made. But with COVID-19 plunging the world into a period of unprecedented uncertainty, it is imperative that these gains are protected.

Banking on financial inclusion through technology

Undoubtedly, enabling financial inclusion has become significantly easier in the wake of technology-led innovation. Take increasing smartphone penetration, which has allowed banks, fintechs and telecom operators to offer highly accessible, low-cost digital financial services to previously underserved populations.

These initiatives have had a huge impact. Sub-Saharan Africa, for example, has become the global leader in mobile money, with competition between different providers driving rapid innovation and promoting financial inclusion at scale. This success provides a blueprint for the power of technology. But despite the huge long-term potential, we must be realistic about the current limitations. Although mobile connectivity is increasing, over half the world’s population remains unconnected. To rely solely on digital interventions is to leave billions of people behind.

Beyond digital: Establishing community banking systems

Where there is no digital infrastructure, establishing safer financial systems is the first critical step to transitioning out of poverty. This is where organisations such as WeSeeHope, a charity committed to creating community-led change for vulnerable children in Southern and Eastern Africa, play a crucial role in laying the foundations for a sustainable future.

WeSeeHope’s Village Investors Programme (VIP), for example, has established a community banking system enabling parents and guardians of vulnerable children to access savings and loans. By providing training and tools, communities have been able to establish self-funded and self-regulated savings and loans groups, helping members to start and expand small businesses.

It may not be complicated, but this simple, sustainable and scalable approach delivers tangible benefits and supports a range of positive outcomes. Since the start of the programme, nearly 24,000 members have been trained as part of the VIP.

As a result, 67,000 children have directly benefitted from access to financial services, as their parents and guardians can afford school fees, improve their homes and invest in naturally reproducing assets to secure future income. This creates a virtuous circle, with economic prosperity driving better infrastructure to enable the delivery of more advanced financial services.

In 2018, I was fortunate enough to see these benefits first-hand in Malawi where, on average, members of VIP see their income rise from $1 to $3 a day. As you drive through this beautiful country, it is easy to spot a community where WeSeeHope has made a difference simply by counting how many homes have upgraded their traditional straw roofs with tin sheeting.  Literally a shining example of improved financial prosperity!

A call for global financial inclusion

Unfortunately, we are at risk of taking a significant step back. We have all been impacted by COVID-19 in some way, but the crisis is set to extend and exacerbate extreme poverty and financial insecurity for some of the world’s most vulnerable people.

As part of a global financial community, we must consider the long-term impact and see financial inclusion as a fundamental priority as we look to re-build a fairer, more sustainable world.

Technology will undoubtedly be integral to this effort, but as the International Monetary Fund notes, “to tap the high potential of digital financial services in the post-COVID era, many factors need to fall into place.” This will take time.

We must therefore take a holistic view and ensure that organisations like WeSeeHope, which are playing a crucial and immediate role in promoting basic financial literacy and service availability, do not slip through the cracks themselves. Immediate short-term funding and long-term income projections across the entire third sector have been decimated, putting vital initiatives at risk.

These are challenging times for everyone, but we must trust that in acting now the rewards will be worth it.

The Icon Foundation fund is a non-profit entity entirely funded by Icon Solutions and used for donations to good causes. Through the Icon Foundation, we are supporting WeSeeHope in their continued effort to lift the world’s most vulnerable out of poverty through sustainable education, child rights and economic empowerment programmes. For more information on how you can donate, please visit weeseehope.org.uk.

The post Unbanked and Unconnected: Supporting Financial Inclusion Beyond Digital appeared first on PaymentsJournal.

This release was in GlobeNewswire and announces a new service called Pay Direct from Bottomline Technologies, the New Hampshire-based payments technology company. The release’s title and some content seems to indicate that the product is being positioned as a receivables tool, however both buyers and suppliers can benefit. The solution is available in the U.K. at present.

Here’s more from article:

‘As an Open Banking payment initiation service, Pay Direct enables online businesses to receive funds directly from the payer’s bank account via Faster Payments. Using Pay Direct, the payer initiates the payment from their trusted bank application whilst remaining in the business’s online journey, ensuring a consistent brand and user experience. This way of processing an online payment offers an attractive alternative for merchants looking to reduce card fees, benefit from quicker settlement and improve reconciliation.’

Mercator Advisory Group has not received a briefing on this particular solution, but through the open banking initiative across Europe, third parties can initiate payments while remaining in the buyer workflow using APIs for a seamless execution. In this case, Pay Direct accesses Faster Payments, the U.K. real-time rails, and settles immediately with an online merchant/supplier. It is another option versus direct debits and card-based payment tools. The release does emphasize the cash collections side of things so we assume that is where major adoption efforts will be targeted.

“This is a great example of Open Banking giving merchants the ability to receive instant payments from their customers,” said David Beardmore, Ecosystem Development Director, Open Banking Implementation Entity (OBIE). “It is encouraging to see that despite these challenging times, we have companies like Bottomline in our thriving ecosystem who are leveraging Open Banking technology to deliver greater value and improved choice.”

We also assume further geographical expansion since real-time payment systems and open banking initiatives are fairly widespread at this time across the globe.

Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group

The post Bottomline’s New Solution Helps Online Businesses Collect Payments More Effectively appeared first on PaymentsJournal.

COVID-19 has disrupted lives and markets around the world over the past several months. Surviving the challenges ahead as we enter a new era will not be easy for many business owners—but it can be done.

New Research shows that over 60% of companies have business continuity plans in place, while 85% said that automation technology will be helpful for their business continuity needs. It has become even more clear that businesses of all sizes must use technology to automate their day-to-day operations. And what’s more critical is streamlining financial operations. This includes driving more efficient ways of facilitating cross-border payments—increasing overall business efficiency, consistency, and risk management compared to manual payment processes.

So why are APIs and open banking beneficial in times of COVID-19?

Currently, 2.4 billion consumers use digital banking services, according to a recent study published by Juniper research. This number is expected to reach 3.6 billion by 2024, which would be a significant 54% increase from the current market scenario. The need for automation, especially while making cross-border and high volume payments, has increased considerably for businesses who are now struggling to offer a host of services to their customers. Working remotely has been a growing trend for gig economy and tech-driven companies for many years now. Due to the ongoing pandemic, many businesses have been hit with no other option but to manage finances and transactions online and remotely.

Here’s where APIs and open banking come into play. Transparent foreign exchange rates, risk management tools, and easy and secure transactions offered by this technology add certainty to planning, reporting, and overall analysis for businesses. APIs and open banking also help businesses offer a value proposition to their clients that is unique and competitive in today’s business landscape. One must remember that there is more to offer to clients than just processing transactions. Identifying the strength of your business value proposition compared to your competition should be top of mind–now more than ever.

How is automation of financial operations going to help businesses?

There is no doubt that technology adds efficiency and effectiveness to businesses. Automating manual financial processes can add operational efficiency and help boost your team’s productivity—and as a result, your revenues. Here are top 3 reasons why businesses must streamline their financial operations, especially during this challenging time:

1. Customized reporting and automated reconciliation can simplify your bookkeeping, freeing you and your team for more high-value client work.
2. Global payments solution partners can offer encryption and security techniques to ensure all internal and online systems are impenetrable, thereby reducing risk of sensitive information being leaked.
3. Offering overseas customers a facility for paying in their local currency can open opportunities for your business and allow entry to new markets.

Businesses today, especially in industries such as travel, real-estate, education, insurance, and others , both domestic and international, are aiming to become a “one-stop-shop” partner for their customers. Therefore, it is vital for businesses to choose a solution that fits seamlessly into their existing business model and adds merit to the existing value proposition. A potential client or customer may be looking for help in one specific area, but with a diverse toolkit, the overall value proposition of a particular business becomes much larger than what the partner initially imagined, creating a better end result than a simple one-sided solution.

What is the ‘new normal’ for businesses streamlining their financial operations?

Businesses are already seeking solutions that can help them maximize their wealth creation opportunities. As the veil starts to lift, the new ‘normal’ for businesses would be to analyze any existing cost disadvantage which impacts their bottom line and can lead to potential security risks. More and more business owners will now prioritize the ‘Financial Health’ of the organization and seek to capture pockets of profitable growth. Digital transformation–especially in financial operations–will be the core as businesses gear up to re-invest in recovery.

Challenging times have often proven to be the greatest growth opportunity and time for innovation. In a globalized economy, where borders dissolve and even a micro-business can build an international footprint, a global payments offering is the magical key. With competition from digital-first challengers, businesses must enhance their product offerings to flourish in today’s growing marketplace. Automating financial operations with advanced technology solution can help to not just differentiate your business, but also capture market share in today’s economy.

The post APIs and Open Banking—Unlocking Opportunities for the New Economy appeared first on PaymentsJournal.

REDWOOD CITY, Calif. – June 18, 2020 – i2c Inc., a leading provider of digital payment and open banking technology today announced an expansion of its business in both North and South America as demand continued to accelerate for its innovative solutions. i2c has signed 17 new clients across the Americas since the beginning of the year representing both commercial banks and FinTechs who are serving the needs of consumers and businesses with credit and debit programs that meet the needs of an increasingly on-demand, digital world.

Clients are turning to i2c to help them provide fully integrated digital payments and banking experiences that they can quickly bring to market and organically evolve to serve other customer experiences and geographic regions.

To support the strong demand, i2c has appointed Kevin Fox to the new position of EVP Americas Sales, responsible for leading i2c’s business development initiatives and building strategic ecosystem alliances across the Americas. Prior to joining i2c, Kevin served as EVP for NovoPayment where he was responsible for crafting and executing the company’s Banking-as-a-Service (BaaS) delivery model across 11 markets. Fox reports to i2c President Jim McCarthy.

“i2c’s single global platform and reliable service delivery is resonating with clients across the world. I am excited about Kevin joining the team to help manage the strong growth we are experiencing,” said Jim McCarthy, President of i2c Inc. “His expertise in BaaS will continue to strengthen what is becoming a deep bench of global payment professionals. He will accelerate our activity in helping FIs modernize their legacy systems while also engaging FinTech clients which are creating the next generation of payments experiences.”

“I’m delighted to be joining i2c during this time in the company’s history,” said Kevin Fox. “As i2c clients envision the next generation of payment and banking products, we can help them make it happen – reliably, securely and quickly while giving them the power to address their clients’ individual needs in real time.”

About i2c Inc.

i2c is a global provider of highly-configurable payment and open banking solutions. Using i2c’s proprietary “building block” technology, clients can easily create and manage a comprehensive set of solutions for credit, debit, prepaid, lending and more, quickly and cost-effectively. i2c delivers unparalleled flexibility, agility, security and reliability from a single global SaaS platform. Founded in 2001, and headquartered in Silicon Valley, i2c’s next-generation technology supports millions of users in more than 200 countries/territories and across all time zones. For more information, visit www.i2cinc.com and follow us at @i2cinc.

The post Strong Adoption of i2c Solutions Drives Expansion across Americas appeared first on PaymentsJournal.

Ask the average person on the street if they know what an API is and you’re likely to be met with a blank stare. Tell them that they use and benefit from APIs dozens of times a day? Probably still nothing. It’s an understandable response. APIs aren’t a subject that gets the heart racing – even for many people working within the financial services industry. But all that’s starting to change. APIs underpin nearly all modern technology and are the bedrock on which a new generation of financial technology is being built. The recent multi-billion dollar acquisition of Plaid by Visa, the rapid growth of infrastructure companies, and the dominance of IaaS topics at major tech events are all testaments to that fact.

Financial services in the US and Europe has largely avoided the wholesale disruption other industries such as travel, retail and communications have undergone over the past decade. Yes, the growth of fintech companies has been exceptional, especially in hubs such as London and New York. But fintechs have still found it difficult to break the dominance traditional institutions have over the financial lives of consumers and businesses. The advantage these organisations enjoy is largely to do with the monopoly they have over financial data. However, the tide is beginning to turn with attitudes around financial data rapidly changing.

In the UK, Open Banking legislation has liberalised financial data with the aim of increasing competition. Similar EU legislation (PSD2) does this and more. It enables Payment Initiation, a new mechanism for paying for goods and services directly via online banking. Both sets of regulations are underpinned by APIs. Banks have had to develop and release APIs which fintechs, or indeed any relevant organisation, can use to access customer data if the customer provides explicit consent. The result has been steady growth of scores of new apps and services covering everything from account aggregation to AI-driven money managers.

So why are APIs playing such a critical role? Well, the person on the street may not appreciate APIs, but they certainly love the raft of features and services they enable. Everything from knowing where their Uber is to getting the latest prices on their holidays or hotels is fuelled by access to real-time data. It’s the APIs that enable that access. In financial services, instant access to detailed financial data, be that card or account information, is arguably even more important. APIs are the weapon of choice because they save developers from needing to make complex integrations with a myriad of different sources, often using legacy technology stacks. In the absence of APIs, developers have to resort to less accurate techniques like screen scraping. Compared to that APIs are a game-changer.

Of course, this is assuming the API has been built correctly. The UK is currently leading the way in Open Banking, however, its rollout hasn’t been perfect – especially in relation to the rules governing APIs. When the US gets round to embracing Open Banking, it is in this area that legislators can learn some great lessons. Regulators mandated that each bank built their own APIs and released them ahead of Open Banking coming into force. However, Open Banking presents a real threat to ‘business as usual’ for traditional financial institutions. Yes, more progressive organisations could (and should) see it as an opportunity. But the reality is, regulators essentially asked banks to create and expose APIs to their most cherished data vaults without clear specifications and with no consideration for commercial alignments or economic incentive for doing so. The fully predictable result was a slow release of APIs that aren’t the easiest to use or as functional as they could be. Undoubtedly, this has inhibited the growth of Open Banking-based services in the UK. This problem has been mirrored in Australia, where financial institutions there have dragged their feet to the point where the ‘launch date’ for Open Banking has twice been delayed.

These issues speak to the truth that not all APIs are created equal. The delays and missteps we have seen in their use in financial services are, in part, due to how the legislation that underpins their creation has been drafted and enforced. In the case of the UK’s Open Banking regulations, banks were tasked with their development but given absolutely no incentive to ensure they functioned well. As APIs have the capacity to impart such fundamental change, it is critical that regulators, innovators and financial institutions play a part in their creation. By pulling together the views and expertise of all stakeholders, and ensuring they are incentivised to play their part, APIs will rapidly enhance customer experiences and fulfil the promise of initiatives such as Open Banking.

The post Why the Humble API Is the Future of Finance — If it’s Used Correctly appeared first on PaymentsJournal.

This article indicates that Plaid is introducing Plaid Exchange, a bank product that will enable banks to expose APIs to a range of trusted fintech developers. Banks that utilize Plaid Exchange will also gain visibility into which 3^rd parties have access to customer accounts and be able to communicate that to the customer and turn connectivity on and off.  Other API suppliers to banks might want to consider a similar network implementation both for a central point to apply fraud management solutions but also to identify and control access from fintechs. The article does not identify how Plaid Exchange helps those banks that are only accessible via screen scraping.

Also not mentioned in this article is the role Plaid might take in vetting 3^rd party fintechs that want access to bank accounts. A potential roadmap for Plaid might be Mastercard’s multiple Open Banking API offerings Open Banking Connect, Open Banking Protect, and Open Banking Resolve. Mercator looked at Open Banking solutions in our report “The Emergence of API Platforms: Open Banking and Payments Drive New Business Models.”  

“With Plaid Exchange, Plaid can help banks when it comes to implementing an API. It should be more secure and reduce load on the servers.

Banks that choose to work with Plaid to build their API would then have a modern token-based system for their customers. For instance, just like on a social network, customers would be able to see if they have connected their bank account with a third-party service and disable those connections.

Financial institutions could also leverage Plaid Exchange to build new services that connect directly with your main bank account through the API. Companies would be able to see if connections are working fine, which would make it much easier to identify issues with the infrastructure.”

Overview provided by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group.

The post Visa Acquisition Prospect Plaid Intros Open Banking API Strategy That Mimics Mastercard’s appeared first on PaymentsJournal.

In terms of technology adoption, it is widely acknowledged that the mortgage market lags behind the consumer credit sector. The COVID-19 pandemic in particular has highlighted the need for lenders to boost their automation capabilities to enable better digital services for customers, enhance their risk management capabilities and streamline their operations to aid recovery.

As the impact of COVID-19 has been felt across the country, mortgage providers deserve recognition. They have acted quickly to assist their customers in this time of crisis, granting payment holidays to a staggering one in nine mortgage holders since the UK’s lockdown began. But such unique and (almost) overnight demand pressure-tested lenders’ operations, with some customers complaining about being put on hold for hours, as staff grapple to support as many callers as possible. Official advice from UK Finance[i] has warned consumers that ‘telephone lines remain extremely busy’ and advises them instead to turn to their lender’s website as a first port of call.

Those mortgage providers that have already set out on the road to digital transformation have been able to perform better, communicating more effectively and offering their customers a level of autonomy through automated self-service facilities. As with any service sector, customers remember the experience just as much, or sometimes more, than ultimate benefit gained. Although no-one can yet say for sure what the post-pandemic world will look like, it is fair to anticipate higher demand for seamless digital services.

The mortgage market, therefore, needs to up its automation game to prepare for what lies ahead.

Encumbered by their legacy systems, mortgage providers need to think strategically about how they can bridge between their existing infrastructure and the ability to deliver new, consumer-centric service offerings, all while reducing costs to recover lost income. In this instance, finding the right technology partner can unlock a number of significant benefits throughout the entire lifecycle of the mortgage management process.

Servicing existing customers

As households begin to get back on track, those who took mortgage holidays will need to have clear sight of how their payments terms that have changed. Others may be looking at how they can release equity from their existing mortgages to support family or secure themselves against any future financial crises, some may want to switch products entirely to secure more stable interest rates. All these scenarios will create additional administration for mortgage providers already contending with outdated internal processes or outsourced servicing platforms. Integrating API-led technology into their existing systems will enable mortgage providers to simplify these complexities and reduce the operating costs associated with mortgage management through increased process automation.

With social distancing measures likely to impact human interactions for months, perhaps years, after lockdown has been lifted, we are also likely to see an increased demand for remote access and self-service environments from existing customers. Mortgage providers have been traditionally been slow to adapt to consumers’ demand for fast, online access to their accounts, which is the norm across other areas of the credit industry. Granting access to digital self-service environments, where customers can manage their own accounts and make payments will create both internal efficiencies for lenders and give customers added reassurance that they are in control.

By integrating API-led platforms now, lenders can also ready themselves to launch new, consumer-centric services enabled by artificial intelligence (AI) and open banking data. Consumer research[1] conducted by Equiniti Credit Services pre-pandemic, found that just 40% of those surveyed said they would be unwilling to give a lender temporary access to their bank transaction history if it could lead to a better, more personalised mortgage rate. With only 12% saying they would seek the advice of a broker when their mortgage deal comes to an end, open banking data not only opens up the chance to keep customers once their current period has ended but also creates an opportunity for lenders to deliver, more flexible and tailored products. Imagine a mortgage product that could flex according to life circumstances offering holidays and flexible payment terms to suit different life stages.

Creating an end-to-end process

Such technologies can also support efficiencies in the mortgage application process. Currently dominated by intermediaries, who require lengthy face-to-face appointments to support applications, social distancing may see a move to increased remote application processes either as a result of extended measures or through consumer cautiousness. Open banking data, integrated via API-led platforms, could create opportunities for real-time affordability assessments, derived from bank account data, transforming the current admin and paper heavy process. Only 26% of those questioned in our research study said they would not trust AI tools to determine their credit worthiness, showing that consumer willingness to accept such services already exists.

Planning and remaining complaint

Any event on the scale of COVID-19 offers a chance to integrate learnings into future scenario planning. Having a contingency and risk assessment for pandemics and other incidents will certainly be on the agenda, both for internal stakeholders and regulators alike. We expect to see stricter regulations on lenders’ reporting practices. Choosing a technology platform that provides access to real-time data monitoring tools, as well as FCA-regulated personnel, can help lenders to quickly identify and responsibly manage risk and remain compliant the throughout the mortgage life cycle.

Finding the right partner

While supporting customers must remain the key focus, mortgage providers need also to prepare for what’s to come. With this in mind, the mortgage market can no longer afford to be behind the curve. Finding a partner that can integrate an open platform which is adaptable and flexible to accommodate in-house origination systems will be a key factor in post-lockdown preparation. This will arm mortgage providers with the tools they need to adapt to the new market dynamics, and launch competitive new services while remaining compliant with the sector’s regulation.

To find out more visit: https://equiniti.com/uk/services/eq-digital/credit-services/

1. https://www.ukfinance.org.uk/press/press-releases/one-point-two-million-mortgage-customers-given-payment-holidays-lenders

The post The mortgage market needs to up its automation game, now more than ever appeared first on PaymentsJournal.

The featured article appears in PaymentsSource and discusses one of the realities of recent life created by the pandemic, and that is the daily adaptations required in order to do some relatively mundane things, like shopping for food.  One of two UK-based startups mentioned is called Ordo, which has a billing app, and the other is Yapily, which facilitate’s faster payments.  Ordo is launching something called ‘Neighbor2Neighbor’, which allows a relative, friend, neighbor or other to send a ‘request to pay’ to someone else for whom they helped out by shopping for stuff.  Sort of a non-profit Instacart type of thing we suppose. 

‘For the duration of the U.K.’s social distancing and self-isolation period, people can send up to 50 Ordo Neighbour2Neighbour P2P smart requests free of charge per month. The service is also marketed to essential workers such as nurses who lack time for shopping…”While there’s a big effort in local communities to get their shopping for them, paying helpers back isn’t easy,” Tillotson said. “There’s a reluctance to hand over cash — and checks, in hygiene terms, aren’t safer than cash. Also, giving someone your card and your PIN so they can buy food for you is highly inadvisable.” ‘

The Yapily app comes in via APIs with Ordo and the bank for whomever is the grateful beneficiary of the service.   The shopper sends a request to pay via the Ordo app (along with a picture of the invoice) and once the beneficiary approves, Yapily executes a real-time payment request back to the shopper.  We happened to be attending one of the Nacha remote Smarter, Faster Payments conference webinar sessions yesterday and a representative from the U.S. real-time payments network Zelle indicated that this is also a recently growing use case as well (although not the same purpose-built experience). So this is an open banking initiative, with Ordo also marketing to commercial billers given the changing attitudes of consumers.

“We use open banking software to ensure the receiving bank account title is the official KYC’d customer name provided by the biller’s bank, and not a title made up by the biller,” said Tillotson. With its partner CGI, Ordo is marketing its service to corporate billers and small businesses as an alternative to direct debit payments for recurring bills…“The personal economic impact of the COVID-19 shutdown is driving reasonably large numbers of consumers to cancel some direct debit arrangements,” said Tillotson. “These cancellations aren’t necessarily to completely stop paying for services, but are driven by consumers’ desire to take control of their financial outgoings when their income is less certain. The businesses we’re working with, want to provide their customers with alternative secure and simple ways to pay when direct debits aren’t acceptable.”

For the times, they are a-changin’ all over again.

Overview provided by Steve Murphy, Director, Commercial & Enterprise Payments Advisory Group at Mercator Advisory Group.

The post Ordo Launches ‘Neighbor2Neighbor’ for P2P Reimbursements appeared first on PaymentsJournal.

i2c Inc., a leading provider of payment and open banking technology, today announced the appointment of banking veteran Tracy Seng as EVP, Head of Global Client Success at i2c, responsible for leading account management, program management and advisory services to help clients grow their business and deliver bottom-line revenue and profitability. Seng joins i2c from Wells Fargo, where she and her account management team won Stevie awards in 2018 and 2019, as well as the 2020 People’s Choice Stevie Award for Customer Service Department of the Year. Seng reports to i2c President Jim McCarthy and is based at i2c headquarters in Silicon Valley.

A 20+ year payments and client services veteran with senior leadership roles in account management, industry relations and merchant acquiring, Seng served 15 years at Wells Fargo as SVP, Segment Business Leader Account Management and Industry Relations. Seng helped grow ecommerce payments volume, created differentiated customer solutions and consistently received best in class customer satisfaction scores.

“i2c identifies our success with that of our clients,” said Jim McCarthy, President, i2c Inc. “We are delighted to welcome such a recognized client advocate to i2c as we continue our global expansion. Tracy is that rare individual who becomes a trusted advisor to her clients by delivering value to help them grow their business while she drives revenue through top- performing account management strategies.”

Seng and her team will partner with clients to optimize portfolios, identify new revenue opportunities and, working with i2c management and operations, spearhead the development of creative solutions that meet and exceed expectations. The client success team will also ensure speed to market for their client’s innovative programs and services.

“i2c is focused on partnering with clients to deliver innovative credit, debit, prepaid, lending and multicurrency programs that provide an individualized and superior customer experience,” said Tracy Seng, EVP, Head of Global Client Success at i2c Inc. “I’m thrilled to be joining i2c and to be working in concert with all groups across the company to continue delivering innovation that aligns with and advances our clients’ goals.”

About i2c Inc.

i2c is a global provider of highly-configurable payment and open banking solutions. Using i2c’s proprietary “building block” technology, clients can easily create and manage a comprehensive set of solutions for credit, debit, prepaid, lending and more, quickly and cost-effectively. i2c delivers unparalleled flexibility, agility, security and reliability from a single global SaaS platform. Founded in 2001, and headquartered in Silicon Valley, i2c’s next-generation technology supports millions of users in more than 200 countries/territories and across all time zones. For more information, visit www.i2cinc.com and follow us at @i2cinc.

The post i2c Appoints Banking Executive Tracy Seng to Lead Client Success appeared first on PaymentsJournal.

This is a relatively long posting in bobsguide, the subject matter being connectivity between corporate treasury systems and their all-important bank accounts. The author is a senior at Gresham, a London-based fintech dealing in software for data control in multi-bank scenarios. How does open banking affect connectivity? 

So prior to readers pre-judging any piece as a sales pitch, we’ll just say it is a fairly detailed and logical argument from someone who lives and breathes the space. The article title is the outline, so to speak: the connectivity conundrum: why build, who builds and who pays?

We don’t spend a lot of time directly in this technology space, but are quite familiar with the issues faced by financial professionals in terms of outsized expectations versus undersized resources.  Two of the themes in our CEP
Outlook for 2020 are both applicable here; one being ‘globalization’ and the other ‘resourcefulness’.

The ‘why’ part is interesting because, as the author points out, many think that the onset of open banking (PSD2 in the Euro area) translates into immediate ability for standard API access to whatever one needs from whichever bank.  As we pointed out in a member research
piece last month, more banks than not are still unable to meet the API requirements for PSD2. 

‘At first glance this question seems superfluous: to deliver the visibility and control needed by treasuries, consolidated connectivity is obviously needed. But some argue that simply by doing nothing this will all arrive free of charge by magic, courtesy of open banking, PSD2 or APIs…Sadly not. The first two are (at least initially) primarily applicable to retail banking and so don’t provide an immediate solution. APIs simply provide an interface, they do not in themselves integrate or standardise the data passing through them. For instance, receiving proprietary bank format payment status files via an API rather than via FTP adds zero value from a visibility and control perspective

As for the ‘who builds’ question, the more global a corporate happens to be, the more accounts it will be managing.  Getting resources assigned to bank connectivity is a challenge. This underscores what should be a bank’s (especially a primary bank) incentive to make interactions easier for its corporates.  But the author makes a good point.

‘Getting the corporate’s internal technology resources to undertake the project is also an unlikely prospect. The tendency in many corporations even today is for treasury to be perceived as a cost rather than profit centre, which usually means that it is at the back of the queue when internal tech resources are being distributed…The case for the banks to undertake the task isn’t much more compelling, although the issue here isn’t so much lack of resources as the appropriateness of using them. Some 80% of banks’ annual technology spending goes on keeping their existing systems running, which doesn’t leave much for the future innovation that will generate adequate return on capital. It therefore makes little sense to divert bank technology resources away from that sort of innovation to deal with a task that would be better handled by a connectivity specialist. While banks obviously have experience in the sort of connectivity project that could deliver corporate treasuries the consolidated multibank platform they desire, it’s not what they do all day every day. They will have less total experience of the various corporate systems to which they will have to connect than a dedicated specialist that has done multiple corporate to bank connectivity projects.’

We’ll let you read through the ‘who pays’ part for the punchline, but this is certainly a good piece to spend a few minutes contemplating, especially if CFP is facing the conundrum.

Overview by Steve
Murphy, Director, Commercial and
Enterprise Payments Advisory Service at Mercator Advisory Group

The post Open Banking: Connectivity Between Corporate Treasury Systems and Bank Accounts appeared first on PaymentsJournal.

With the payments industry increasingly going digital, fintechs and traditional financial institutions alike are exploring ways to harness technology to streamline many aspects of the payments industry. Underlying this digital transformation is open banking, the use of open APIs to build a range of products and services around financial institutions.

One area where open banking is driving innovation is  payment hubs—integrated multiple payment systems that enable institutions to handle all aspects of the payment journey from a central point. Payment hubs leveraging open banking can make business easier, reduce friction, and drive more revenue.

To understand the open banking landscape, payment hubs, and what the future has in store, PaymentsJournal sat down with Lance Homer, Global Head of Digital Payments and Banking Ecosystem at Equinix, and Tim Sloane, VP of Payments Innovation at Mercator Advisory Group.

The Three Waves of Digital Transformation in Banking

The open banking revolution that the payments industry is in the midst of can be viewed as the third major digital transformation in banking, explained Homer. The first was during the 1990s, when the internet first penetrated consumers’ homes. This enabled banks to create websites where customers could check their balances and download transaction files, allowing them to utilize personal finance software such as Intuit.

Then in the 2000s, there was another breakthrough. As smartphones became ubiquitous, “banks began to develop their own banking apps or even wallets, and rather than having to visit a branch or ATM to deposit checks, consumers could take a picture of a check with their phone and use their phone to send and receive money through a banking app,” said Homer.

The 2010s marked a new transformation, albeit one that is still unfolding, as open banking began to take off. “We are very much still in the early days of this digital transformation,” said Homer. Unlike the previous transformations, which happened without prodding from the government, open banking has need a bit of a push from regulators, at least in Europe.

“Open banking in Europe is driven by PSD2,” explained Sloane, regulations which, in part, require banks to create access to consumer data via open APIs. But while the involvement of regulators makes this digital transformation different from previous ones, it’s not what makes open banking so transformational.

“What makes this wave so much more transformational is that consumers will be doing banking services beyond the typical bank-controlled channels, such as a branch, bank website or a bank app,” noted Homer. “It’s going to create competition in the market space for new innovation that in the end will give all the end users better experiences.”

The challenges of scaling open banking

Since open banking is still in its relative infancy, it is hard say with certainty what it will look like in a few years. However, there are some points worth considering. Homer explained that the current (and mandated) use cases of payments initiation and account access are just the beginning. Even now, companies are starting to develop premium APIs that “go above and beyond what is mandated,” said Homer. Some premium APIs, for example, have been designed to help with real-time credit decisioning.

With so much potential for open banking, it is worth considering what challenges exist as this promising transformation scales; some issues have already starting to surface. Sloane offered one example of how Wells Fargo reported that its middleware system was almost overwhelmed by the amount of calls its API received after being launched.

Homer noted that the metrics he has seen indicate that there is still work to be done to improve availability and uptime, especially in the U.K. There are also issues with unpredictable latency, which can lead to transaction timeouts or declines.

Controlling the data is essential

Another area of concern is with the control and security of the data itself. When using the public internet, companies run the risk of cyber threats such as distributed denial of service attacks, explained Homer. “You have created a very large attack surface by making your API to all of the customer data available on the public internet, and bad actors are going to try every way possible to figure out how to hack into that.”

Because of this, some companies have embraced private networks. Homer outlined how current rail providers—including SWIFT, Visa, and The Clearing House—have not built their connectivity to key participants over the public internet, instead electing to use private networks. This affords them granular controls of who is accessing what data and when.

Equinix is helping interconnect the open banking ecosystem

Since problems are arising as open banking scales, companies such as Equinix, with years of experience scaling complex infrastructure, are setting their sights on facilitating the rise of open banking.

“Equinix has been focused on helping interconnect the open banking ecosystem partners so that open baking can scale overcoming the challenges of public internet,” said Homer. He described how Equinix is working to create a hybrid multi cloud world with a complex set of participants.

At the center of this ecosystem are the banks, which in turn are connected to third-party providers, including fintechs, other banks, and traditional scheme providers. Some of these parties are collocated within the Equinix infrastructure, while others exist in public clouds but have private on-ramps in Equinix. Then there is an outer ring where Equinix expects corporates and retailers to connect into the ecosystem.

“We protect, connect, and empower the mission critical assets that run today’s digital economy”

Equinix built a product called Equinix Cloud Exchange Fabric™ to facilitate such an ecosystem. The product is a private software defined network that will allow participants to exchange data such as open banking with each other in a secure fashion.

“This provides users with a secure network that they can meet the latency and availability requirements needed for open banking to scale,” said Homer.

As Homer succinctly summarized it: “What Equinix does is we protect, connect, and empower the mission critical assets that run today’s digital economy and open banking is part of that digital economy.”

What is the end state of open banking?

Homer predicted that one likely end state of open banking involves payment hubs. He explained that Equinix is witnessing the emergence of payment hubs within its ecosystem. Creating a central point where a company can communicate with other parties and handle all aspects of the payments lifecycle enables companies to achieve a digital edge, explained Homer.

Many traditional service providers are now offering these payment hubs as a service within the Equinix ecosystem. Similarly, many fintechs are deploying payment hubs as well, having realized that in order to strike a deal with a large bank, the bank’s security department will require private connectivity.

Want to take a deeper dive into the key trends in digital payments? Download the white paper.

The post Unpacking the Third Major Digital Transformation: Equinix on Open Banking, Payment Hubs, and the Future of Banking appeared first on PaymentsJournal.

Elavon, a global payments leader, has announced a collaboration with Nuapay, the London-based subsidiary of payments pioneer Sentenial, to provide selected open banking solutions to Elavon customers.

Under PSD2 regulation in Europe, open banking enables consumers to securely share their data and make instant payments from their bank through licensed and accredited providers. Recently released figures by the Open Banking Implementation Entity (OBIE) in the UK reported that customer use of open banking in the UK has doubled in the past six months, surpassing the one million customer mark for the first time. Consumers benefit from open banking by having access to a wider range of financial services, money management tools and a personalised customer experience when making purchases, made possible through the sharing of data that’s only previously been seen and used by their bank.

As well as providing the ability for businesses to offer more tailored solutions to their consumers through open banking journeys, the Nuapay agreement will also enable consumers to make secure online payments to merchants without needing a card. Elavon’s merchants will benefit from faster receipt of funds and be able to provide their consumers with more choice and flexibility in how they pay.

“Open banking is rapidly growing in adoption across the payments and financial services industries so we’re pleased to offer these capabilities to our customers,” said Hannah Fitzsimons, Executive Vice President and General Manager of Elavon Europe. “Our relationship with Nuapay will allow merchants to provide customised, fast and secure payments seamlessly to customers.”

“Merchants can use new Open Banking solutions to transform the way they engage with and accept payments from their customers. With it, businesses have the potential to gain cost savings, speed improvements as well as security benefits.” said Sean Fitzgerald, CEO of Sentenial. “We’re delighted that the Nuapay agreement with Elavon will bring the benefits of open banking to their significant customer base across the UK and Europe.”

Nuapay is an industry-leading Account-2-Account payment solution provider. Together with its parent company, Sentenial, they securely process over €40bn every year as a payment processor for many of the world’s leading banks, PSPs and merchants.

The post Elavon and Nuapay Collaborate to Provide Open Banking in Europe appeared first on PaymentsJournal.

Payments are humming across a variety of rails to countless businesses and consumers at any given moment in the U.S. With so many available payment methods, end users, and use cases, the payments landscape can be a tangled web of rules and regulations.

It also can be a challenge for industry stakeholders to navigate the often complicated payments world, prompting calls for a simplified and automated process for exchanging payment-related information. Financial institutions of all sizes and specialties, as well as payment processors, emerging fintechs, and many others would benefit from such a process.

With a large cross-section of the payments world in need of a solution, Nacha has responded with Phixius, an online platform that brings together technology, rules, and participants to streamline and modernize how payment information is exchanged. Nacha plans to make Phixius available to early adopter organizations in May 2020.

To learn more about Phixius, PaymentsJournal sat down with George Throckmorton, Nacha’s managing director of Strategic Initiatives & Network Development.

During the conversation, Throckmorton spoke about the current issues with exchanging payment information, how Phixius addresses these pain points, and why Nacha is well positioned to lead these modernization efforts.

A solution to a problem 10 years in the making

The payments industry has contended with an inefficient means of exchanging payment-related information for at least a decade. Yet, the problems do not lie in “making” the payments.

“It’s not just about the routing of payments. I think that’s a misconception,” said Throckmorton. “When we talk about payment-related information, it’s about the authenticity and richness of that information.” Bundled into the authenticity of the data is a range of important aspects of making a payment, including invoicing, compliance data, and payment remittance.

One central issue connecting all of these aspects is a lack of automation. “When payment information is exchanged today, it’s very manually intensive,” said Throckmorton. Companies often rely on phone calls, emails, and even the U.S. Postal Service to exchange the relevant information. These methods are slow, prone to human error, and costly.

The lack of standardization is another problem that organizations encounter while attempting to exchange payment information. “How I get that information, the formatting, and which channel it comes in also add complexity to the process,” explained Throckmorton.

A related issue is also the lack of interoperability. Over the past decade, different players in the industry have set up proprietary directories that are very effective in supporting the exchange of payment-related data. However, these directories often do not connect with each other.

“So if I want to exchange information with others that are not in my particular network or solution, that’s where it becomes more difficult,” said Throckmorton. Small to medium-sized organizations are particularly affected by interoperability issues because they often can’t participate in multiple networks or solutions.

The last issue identified by Throckmorton was fraud protection. Ensuring that the information is reliable and accurate is of crucial importance for all of the parties to a transaction. One common fraud vector is to send a business a request to change information to later defraud the business. To validate that the request is indeed authentic, companies often rely on manual checks, such as a phone call or email, to verify the user’s identity.

Phixius solves pain points by utilizing emerging technologies, rules, and industry participants

After surveying all of these problems, Nacha began developing a solution. The company hired technology partner Ernst & Young LLP (EY) to help develop a product that could be brought to market. In 2019, Nacha developed and demonstrated a proof of concept to the industry, and after reviewing and incorporating industry feedback, Nacha developed Phixius.

“It’s a platform for the secure exchange of payment-related information,” said Throckmorton.

He stressed that Phixius is not a directory. Instead it is platform to enable interoperability that utilizes emerging technologies – including distributed ledger, RESTful APIs, and cloud-based environments – to allow its users to more easily and securely exchange information without centralizing data.

Phixius also supports real-time alerts and messaging, allowing payment information to be securely changed.  For example, a business can change payment instructions and every organization that has previously received information will immediately be notified of the change, said Throckmorton, noting this reduces fraud such as business email compromise. 

“There is no directory or database in the sky that everyone is going to, and creating risk,” said Throckmorton.

Phixius also supports real-time alerts and messaging, allowing payment information to be securely changed when needed. For example, “people can change bank accounts and they can change their preferences on what they want for remittance,” said Throckmorton, noting that these changes can occur in real time.

Underlying Phixius’ effectiveness is a set of participant rules. “We all have to agree that we’re going to act the same way, we understand the transactions we’re going to exchange, and what those mean,” explained Throckmorton. To this end, Nacha developed and now oversees a set of operating rules that govern the platform, covering issues ranging from liabilities to warranties. These rules provide confidence and certainty to everyone connected to the platform.

The last aspect of Phixius worth noting is its network of participants. Social media platforms become more effective when more people are a part of the network, and Phixius is no exception.

However, the platform is designed such that only financial institutions and service providers are directly connected. In turn, these businesses provide products and services to their clients, meaning that Phixius “requires a smaller number of endpoints to create value for all the businesses,” noted Throckmorton.

Why Nacha?

After determining the viability of Phixius as a solution to problems surrounding the exchange of payment-related information, Nacha did consider whether it was best suited to develop and govern such a platform.

The feedback Nacha received from the industry was a resounding yes. Besides serving as the steward of the ACH Network and being responsible for writing its rules, Nacha also has decades of experience successfully navigating broader payments issues.

Nacha regularly convenes diverse organizations to enhance and enable electronic payments and financial data exchange within the U.S. and around the globe. Through the development of rules, standards, governance, education, advocacy and thought leadership, Nacha works with industry stakeholders to advance the modern ACH Network and drive innovation by pursuing new ways to connect people, businesses and payments.

“Nacha also has been heavily involved in industry-wide API standardization efforts with organizations around the globe, including those in Europe and in Asia Pacific and with support from the industry launched Afinis, a membership organization whose goal is to further API standardization in the U.S. and participate in global collaboration.” explained Throckmorton.

Afinis is a membership organization with the singular goal of creating API standard products. For the past two years, Afinis has been successfully working with the industry to develop and test APIs and understand what steps are needed for their widespread adoption.

Throckmorton put it simply: “We have brought the industry together many, many times.” With Phixius, Nacha is planning on bringing the industry together yet again to modernize and provide much needed interoperability for payment information exchange.”

The post With Phixius, Nacha Sets Its Sights on Modernizing and Streamlining the Payments Process appeared first on PaymentsJournal.

One of the themes in the 2020 Outlook for commercial & enterprise payments is “globalization”, with subtexts around digital everything and cross-border payments.  Another theme is “collaboration” that speaks to the era of open banking, which in some markets is mandated and in others is becoming a requirement. 

Financial services companies will need to adapt.  In this article, which is posted at FXcompared, the writer provides an overview of the Mastercard earnings call for Q4 and FY 2019.  One of the highlighter achievements cited by Mastercard is the increase in cross-border payments activity, which is in part driven by open banking realities. 

According to the article, CEO Ajay Banga offered some commentary along these lines:

“PayPal will utilize Mastercard Send in 10 new markets across Asia Pacific..to enable users to transfer funds from their PayPal wallets to their eligible accounts”, he said…“And also leveraging our capabilities to help facilitate more efficient cross border payments”, he added…He also commented on relevant international money transfer issues, including that of open banking…“We see open banking is an important global trend and a significant opportunity and believe that our leadership in data privacy as well as our scale in real time and cross-border payments are very good…key to optimizing open banking solutions for banks, for fintechs, for merchants and for consumers globally”, he said.

We have also been advising on and observing the strategic shift in recent years for card networks to better utilize their rails for B2B and B2C types of use cases, an ongoing key growth opportunity as a global digital payments transition continues. 

There are certainly robust domestic B2B flows to capture as markets move away from paper.  But when one considers the $30 trillion+ in international B2B funds movement, it also seems fairly logical for cards to capture a fair portion of that given the existing global networks.  So, the concentration of resources via network buildouts, acquisitions, and collaborations seem to be paying off. 

He emphasized the way in which cross border payments are expected to take priority over the course of 2020.“…our corporate purchasing cards, our fleet cards, our SME cards, our virtual account numbers, our cross-border travel payment systems, those are all relatively well developed and are well factored into the way we think about 2020”, he said…Elsewhere in the earnings call, MasterCard said that it had seen rises in other areas of business…It pointed in particular to switched transactions, which had risen by almost a fifth to a figure of nearly 24bn.

Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group

The post Cross Border Payments Will Take Priority in 2020 appeared first on PaymentsJournal.

Don’t miss another episode of Truth In Data! Click on the red bell in the lower-left corner of your screen to receive notifications as soon as the episode publishes.

Data for today’s episode is provided by Mercator Advisory Group’s report – The Emergence of API Platforms: Open Banking and Payments Drive New Business Models.

5 API standards PSD2 still hasn’t refined:

• Because PSD2’s requirements aren’t specific & interfaces not-standardized, open banking needs refining:

1. Inconsistent security models across banks; some limit sessions to just their bank
2. Inconsistent functionality; many are read-only
3. Inconsistent interface and data models require bank-specific coding
4. Ineffectual sandboxes for testing; currenct security model has no “guest” function
5. Inconsistent documentation, few are multilingual and few work across banks

About Report

Mercator Advisory Group has released a report describing the technical and regulatory challenges delaying the implementation of the European Union’s PSD2 Open Banking mandate and contrasts that with the rapid growth in new application programming interface (API) driven platforms that operate in the cloud. There has been a surge in platform-as-a-service (PaaS) solutions utilizing APIs.

The report, The Emergence of API Platforms: Open Banking Drives New Business Models, identifies the technical and regulatory issues that continue to be challenges to lift-off for the European Union’s open banking vision and contrasts that situation with the structures that have driven a surge in the availability of cloud platforms that utilize APIs to enable similar services, such as payments.

“In a past report we identified the game-changing value proposition associated with internet-based application programming interfaces. This report identifies why the implementation of APIs has failed to help the EU Open Banking initiative gain liftoff even as these APIs have created a surge in the number of cloud-based platforms recently announced,” commented the author of the report, Tim Sloane, VP, Payments Innovation, and Director, Emerging Technologies Advisory Service at Mercator Advisory Group.

This research report has 20 pages and 10 exhibits.

Companies and other organizations mentioned in this report include: Bank of America, The Berlin Group, Citibank, Citizens Bank, European Banking Authority, Fidor, Financial Conduct Authority, Mastercard, Railsbank, solarisBank, Visa, Vyze, and Wells Fargo.

The post 5 API Standards PSD2 Still Hasn’t Refined: appeared first on PaymentsJournal.

Don’t miss another episode of Truth In Data! Click on the red bell in the lower-left corner of your screen to receive notifications as soon as the episode publishes.

Data for today’s episode is provided by Mercator Advisory Group’s report – The Emergence of API Platforms: Open Banking and Payments Drive New Business Models.

10 characteristics of comprehensive Payment as a Service (PaaS) platform:

• Characteristics of PasS:

1. Open APIs
2. Data Security
3. Core Integration
4. Consent Management
5. Anomaly Detection
6. 3rd Party Onboarding
7. Regulatory Reporting
8. 3rd Party Lifecycle Mgmt
9. Strong Customer Authentication
10. Developer Portal

• In addition, card networks (for example) bundle numerous support services along with core services:
• Card networks integrate suppliers to APIs and billing systems then layer on their own value added services
• Lastly, card networks meter, bill, and support ID Intelligence at partner banks
• Other bundled services might include: centralized enquiry and dispute resolution & open banking
• Even point of payment credit origination is part of card network’s bundled services

About Report

Mercator Advisory Group has released a report describing the technical and regulatory challenges delaying the implementation of the European Union’s PSD2 Open Banking mandate and contrasts that with the rapid growth in new application programming interface (API) driven platforms that operate in the cloud. There has been a surge in platform-as-a-service (PaaS) solutions utilizing APIs.

The report, The Emergence of API Platforms: Open Banking Drives New Business Models, identifies the technical and regulatory issues that continue to be challenges to lift-off for the European Union’s open banking vision and contrasts that situation with the structures that have driven a surge in the availability of cloud platforms that utilize APIs to enable similar services, such as payments.

“In a past report we identified the game-changing value proposition associated with internet-based application programming interfaces. This report identifies why the implementation of APIs has failed to help the EU Open Banking initiative gain liftoff even as these APIs have created a surge in the number of cloud-based platforms recently announced,” commented the author of the report, Tim Sloane, VP, Payments Innovation, and Director, Emerging Technologies Advisory Service at Mercator Advisory Group.

This research report has 20 pages and 10 exhibits.

Companies and other organizations mentioned in this report include: Bank of America, The Berlin Group, Citibank, Citizens Bank, European Banking Authority, Fidor, Financial Conduct Authority, Mastercard, Railsbank, solarisBank, Visa, Vyze, and Wells Fargo.

The post 10 Characteristics of Comprehensive Payment as a Service Platform: appeared first on PaymentsJournal.

Bankify, a Finnish fintech company, and Nets, a leader in the payments industry, have entered into a strategic partnership that enables Bankify’s customers to consume Bankify’s services through Nets’ Open Banking platform. Under the terms of the partnership, Nets customers will also have easy access to Bankify’s portfolio of microservices via the platform. 

Bankify enriches the user experience of existing financial applications to align it with the needs of digital native customers. The services are developed by focusing on customer-centric use-cases using gamification, education, personalisation and social interaction.

Georg Olav Ramstad, Head of Open Banking Sales and Business Development at Nets says: “Bankify is an expert in keeping up with the demands of digital customers. Together, our combined offerings will accelerate the digital transformation of financial institutions. We are really looking forward to an exciting partnership with Bankify.”

The Open Banking Access from Nets provides PSD2-enabled account access to banks with a single-point-of-integration, instead of several integrations to multiple banks. With the solution from Nets, third parties can connect once and then refocus on delivering business value. Nets powers customers’ businesses by delivering an efficient access infrastructure for open API-based services.

Building blocks for future financial applications

Bankify has already launched eight microservices, each of which utilises a simple open API connection to improve the user experience of existing financial applications, and enable a variety of new use-cases, including social finances, gamified savings and group payments combined with a virtual card solution.

Antti Tarakkamäki, Co-Founder at Bankify, says: “With the Open Banking Access from Nets we can connect our offerings via a single integration, providing our customers access to multiple banks in the Nordics. This makes our microservice offering even more relevant, easier to implement, faster and more cost-efficient for our customers.”

Bankify has conducted extensive user research during the last two years with the Millennial and Gen-Z users, globally. These segments require more personalised and engaging features, which represents Bankify’s core area of specialism.

The post Nets Teams Up with Bankify in Open Banking Partnership appeared first on PaymentsJournal.

Don’t miss another episode of Truth In Data! Click on the red bell in the lower-left corner of your screen to receive notifications as soon as the episode publishes.

Data for today’s episode is provided by Mercator Advisory Group’s report – The Emergence of API Platforms: Open Banking and Payments Drive New Business Models.

There are four broad categories of the payment as a platform (PaaS) business models:

1. Open banking compliance provides mandated connectivity between banks & partners
2. Open banking as a platform provides banking account operations via APIs and also allows licensed banks to white label products
3. PaaS has numerous use cases like: merchant focuses, payout use cases, mobile wallet, international remittance, crypto, blockchain & internet payments
4. Emerging payments opportunities include: Debit Push, P2P, Faster Payments

About Report

Mercator Advisory Group has released a report describing the technical and regulatory challenges delaying the implementation of the European Union’s PSD2 Open Banking mandate and contrasts that with the rapid growth in new application programming interface (API) driven platforms that operate in the cloud. There has been a surge in platform-as-a-service (PaaS) solutions utilizing APIs.

The report, The Emergence of API Platforms: Open Banking Drives New Business Models, identifies the technical and regulatory issues that continue to be challenges to lift-off for the European Union’s open banking vision and contrasts that situation with the structures that have driven a surge in the availability of cloud platforms that utilize APIs to enable similar services, such as payments.

“In a past report we identified the game-changing value proposition associated with internet-based application programming interfaces. This report identifies why the implementation of APIs has failed to help the EU Open Banking initiative gain liftoff even as these APIs have created a surge in the number of cloud-based platforms recently announced,” commented the author of the report, Tim Sloane, VP, Payments Innovation, and Director, Emerging Technologies Advisory Service at Mercator Advisory Group.

This research report has 20 pages and 10 exhibits.

Companies and other organizations mentioned in this report include: Bank of America, The Berlin Group, Citibank, Citizens Bank, European Banking Authority, Fidor, Financial Conduct Authority, Mastercard, Railsbank, solarisBank, Visa, Vyze, and Wells Fargo.

The post There Are Four Broad Categories of the Payment as a Platform (Paas) Business Models: appeared first on PaymentsJournal.

Don’t miss another episode of Truth In Data! Click on the red bell in the lower-left corner of your screen to receive notifications as soon as the episode publishes.

Data for today’s episode is provided by Mercator Advisory Group’s report – The Emergence of API Platforms: Open Banking and Payments Drive New Business Models.

Open Banking has two negative characteristics:

• A contrarian view of Open Banking would mention its regulatory and technical complexity
• A contrarian would also mention Open Banking’s dearth of proven revenue opportunities
• PSD2 & CMA are designed to accomplish the following:

1. Encourage new competitors including banks & fintechs
2. Apply pressure to existing pricing and bank account revenue
3. Increase expenses for existing banks vs. venture backed start ups
4. Improve account holder data access, aggregation, PFM, and account switching

About Report

Mercator Advisory Group has released a report describing the technical and regulatory challenges delaying the implementation of the European Union’s PSD2 Open Banking mandate and contrasts that with the rapid growth in new application programming interface (API) driven platforms that operate in the cloud. There has been a surge in platform-as-a-service (PaaS) solutions utilizing APIs.

The report, The Emergence of API Platforms: Open Banking Drives New Business Models, identifies the technical and regulatory issues that continue to be challenges to lift-off for the European Union’s open banking vision and contrasts that situation with the structures that have driven a surge in the availability of cloud platforms that utilize APIs to enable similar services, such as payments.

“In a past report we identified the game-changing value proposition associated with internet-based application programming interfaces. This report identifies why the implementation of APIs has failed to help the EU Open Banking initiative gain liftoff even as these APIs have created a surge in the number of cloud-based platforms recently announced,” commented the author of the report, Tim Sloane, VP, Payments Innovation, and Director, Emerging Technologies Advisory Service at Mercator Advisory Group.

This research report has 20 pages and 10 exhibits.

Companies and other organizations mentioned in this report include: Bank of America, The Berlin Group, Citibank, Citizens Bank, European Banking Authority, Fidor, Financial Conduct Authority, Mastercard, Railsbank, solarisBank, Visa, Vyze, and Wells Fargo.

The post Open Banking Has Two Negative Characteristics: appeared first on PaymentsJournal.

This posting in Finextra is a recap of major themes from the 2019 Sibos conference, the annual SWIFT event, which was held in London.  The conference rotates into one of several continents each year, with the 2020 version in Boston during early October. We’ll be there, as are typically 10,000+ others from the corporate banking and payments industry, with a large international presence, given the nature of the event.

‘While a banking conference should focus only on banking, but Sibos is much more. Sibos is an experience. Organized by Swift, the global event connects thousands of business leaders, decision makers and thought leaders from financial institutions, market infrastructures, and technology partners. The agenda covers a wide variety of topics ranging from the global economy to monitory policy, payments to trade, APIs to Open banking, data to innovation, and so much more.’

We have done detailed summaries of trade group events in the past for our members, and will likely do similar things in the future.  This piece discusses a number of focus areas, none of which should be a surprise, especially to our readers, since we have covered all in some detail during the normal research year and various postings on the PaymentsJournal site.

• Global Economy and Macro Headwinds
• All roads lead to Data
• Payments and all thing Real time
• Trade Finance- Interoperability and Standards
• APIs and Open Banking
• Compliance and Fraud
• Swift GPI and Standards

Looking forward, the expectations are in line with the way we are seeing things unfold during 2020 and 2021, reflected in the 18 month rolling agenda across the advisory services. 

‘The final message from Sibos was loud and clear. The next phase of winners and losers in the banking space would be decided by who is ready to address the fundamental issues around trust, liability and risk while keeping a razor sharp focus on data and everything digital. Banks must be effective in their selection and management of people, processes and technology so they can create a safe and resilient connected ecosystem.’

Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group

The post Sibos Conference Recapped Major Banking Themes of 2019 appeared first on PaymentsJournal.

While the EU has regulated Open Banking, banks in the US market have taken a more strategic approach to partnering. BBVA has also followed this US model, but has done so on the retail side rather than with corporate, as we discussed here. 

The issues associated with a mandate for Open Banking versus strategic partnering is discussed in the Mercator report “The Emergence of API Platforms: Open Banking Drives New Business Models.” More recently in the US market, Capital One, PNC, and JPMorgan Chase have all announced restrictions on 3^rd party access to consumer accounts.

As identified in Banking Dive, this is said to be associated with new privacy laws and new security protocols:

“Several large U.S. banks have recently revamped and tightened their third-party data sharing practices, affecting the way some fintechs conduct business with their customers, and several industry experts say the trend is expected to grow in 2020.

A recent security upgrade at Pittsburgh-based PNC Financial Services Group kept data aggregators from gaining access to customers’ account numbers and routing numbers last fall, and last week JPMorgan Chase announced it will ban third-party apps from accessing customer passwords. The U.S.’s largest bank said it plans to issue tokens for access to a limited amount of data in a secure form.

‘As more banks begin to announce improved security practices, we can expect to see a snowball effect,’ Ray Walsh, a digital privacy expert at ProPrivacy.com, told Banking Dive. ‘Competing services that exploit account numbers and other sensitive customer data have created a new understanding among banks that the unmanaged dissemination of customer data may actually pose a risk to their bottom line.’

More banks follow suit with their own heightened levels of security, Walsh said.

‘Due to the evolving nature of privacy legislation and increasing fines for data mismanagement, the banking industry is beginning to take data privacy much more seriously,’ he said. ‘This will improve privacy and security levels for consumers, which is highly positive. However, it may also be exploited by banks to restrict the number of services consumers can freely attach their account to, perhaps forcing consumers to use similar native services provided by their bank instead.’ ”

Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group

The post EU Goes Open Banking While US Banks Increasingly Restrict 3rd Party Access appeared first on PaymentsJournal.

In our recent report “The Emergence of API Platforms: Open Banking and Payments Drive New Business Models,” we identified the challenges associated with using simple API specifications as a method of creating open banking and why that approach is likely to delay innovation rather than speed it up.

In fact, we argue that the Open Banking initiative drives banks to build a solution that meets EU requirements at great expense, while also being unlikely to deliver any short term revenue. It may even put smaller institutions at risk.

This blog suggests that the banking giant BBVA gets it. BBVA has taken the strategic approach and is looking to leverage API technology to deliver an integration that expands its reach and changes the way consumers think about banking. Because the U.S. doesn’t force banks to build a minimum set of APIs, banks here tend to gravitate towards the easiest strategic relationships, which we document in the report to be existing corporate relationships.

U.S. banks integrate their banking system to existing corporate clients to improve efficiency and deliver higher levels of service. This blog shows that BBVA has shifted its focus to Retail Banking. This is a real, regulated bank focused on slowly integrating to the largest online merchant platform to initially sell and then deliver banking products to consumers. That’s innovation and it isn’t accomplished using the APIs defined by the EU:

“The bank’s intention is to move into offering banking products on the platform — an idea still to be fully explored. Amazon has not yet moved into selling financial services directly, and BBVA recognizes that financial institutions must adapt to this way of selling...

…BBVA has a double-pronged objective in using El Celler’s products to kick of its journey into Amazon. First, the bank wants to share its digital expertise with the Roca brothers so they can benefit in selling their exclusive products online. This approach also provides BBVA with a pilot project where it can trial the functionality of the world’s largest e-commerce portal, paving the way for the bank to offer other types of financial products in the future. Currently BBVA already sells close to 60 percent of its products over digital channels. Selling through Amazon would extend online sales opportunities, complementing the bank’s proprietary digital channels.”

Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group

The post BBVA Will Sell through Amazon. This Isn’t Open Banking. appeared first on PaymentsJournal.

In the U.S., where open banking is not mandated as it is in the European Union and other countries, fintechs offering solutions like financial planning apps, person-to-person  (P2P) payment apps, and retailer payment wallets are running into problems getting banks to allow access to consumers’ data.  The Wall Street Journal reported that consumers who want to open a Venmo account and connect it to their bank account at PNC need to do so the old fashioned way, by entering their routing and transit number and their bank account number rather than their digital banking credentials.  PNC has blocked account verification access offered through Plaid and used by many fintechs who are looking to gain access to consumers’ banking transactions and current balance.  PNC is not the only one.

From the article:

Many PNC client are having trouble connecting their bank accounts to their Venmo aps, cutting off their access to the popular mobile-payment system, owned by PayPal Holding, Inc.  When they have sought help, they have found the two companies blaming each other for disruption.

PNC Financial Services Group suggested I tweets that customers switch to Zelle, a payment app that it and other big banks operate jointly and that competes with Venmo.

From PNC’s perspective:

• They and other banks that offer P2P services are interested in creating more Zelle users not just for P2P transactions, but also as a means to support business-to-consumer (B2C) distributions and payments to small businesses.
• Also, banks are not assured of the security used by fintechs to keep consumers’ data safe.  If something were to go wrong, banks have a lot more to lose in reputation and expenses from fraud losses than the fintech firms offering these services

The flip side, however, is that consumers often prefer financial apps offered by organizations other than their bank.  If their bank cuts them off, will consumers leave their bank for another that does provide access?  It’s a gamble.

Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group

The post What Obligation Does an FI Have to Provide Third Parties Access to Consumers’ Banking Accounts? appeared first on PaymentsJournal.

’Tis the season to be knowledgeable! With almost 40 years in the industry, the collective payments expertise of the Ingenico team is unparalleled. So, as 2019 comes to an end, Simon Fairbairn, Director of Solution Development at Ingenico Banks & Acquiring, considers 12 key payment predictions for 202

1. Fraudsters Innovate Too

In 2019, Authorised Push Payment Fraud (APP Fraud) rose by 40%, costing the UK £616 million.

Thanks to PSD2 and Open Banking, we will continue to see more new players in fintech. This is brilliant, but it means fraudsters will inevitably innovate their techniques, too. As a result, in 2020 we will see banks enhance their security and implement measures to protect customers, such as payment delays, SCA, 2FA and Confirmation of Payee.

2. Digital Payment Rewards

Alongside enhanced security, monetary savings and ease of use, digital payment rewards will increasingly become embedded in payments as a value-added service. These types of loyalty initiatives provide opportunities to engage directly with customers and are useful to increase customer allegiance with brands.

With innovative payment terminals on the rise, such as Android, that offer enhanced applications and collect more consumer data, customers will expect more personalised offers. Organisations will deliver them in 2020.

3. More Data, More Powerful AI

Often thought of as just for use with fraud prevention, Artificial Intelligence has enormous potential to improve the payment ecosystem for banks, processors, merchants and, ultimately, consumers. Together with companies using AI to analyse certain patterns and algorithms in data to detect fraudulent activity, retail payments will also use this technology to enhance digital interactions in voice commerce and mobile banking.

4. New Smart City Payment Options

For the last few years we have seen the beginnings of frictionless towns and cities across the globe. The TfL tube system and contactless buses are a prime example of an effective cashless system – since its inception over 1.7 billion frictionless journeys have been enabled.

In 2020, cities will implement new smart payment options by joining forces with the right partners and platforms to counteract new challenges, including ease and speed of implementation, disruption and data security.

5. Smarter Purchase Suggestions

This year, Amazon generated 35% of its revenue from its recommendation model, which utilises customer data to deliver smarter purchase suggestions. By using data to personalise suggestions, retailers are truly listening to customers and continuously pushing the boundaries of shopping experiences. In 2020, we’re going to see more retailers following in Amazon’s footsteps, either in store or online.

6. Generation X Demand Payment Security

A lot of the fintech revolution has been driven by millennials, for millennials. As this demographic seeks and demands new ways to pay, Open Banking continues to enable new players in the payment ecosystem for millennials as well as Gen Z, a third of whom are estimated to have opened at least two new accounts with a challenger bank within the past five years.

While the focus has predominantly been on these young demographics, their older counterparts, such as Gen X, are being left behind. As such, in 2020 we will likely see Gen X demanding that the basics of their financial services, such as security, are prioritised over anything else which might cause a generational divide.

7. The Rise of Social Commerce

Social commerce is indisputably going to be the breakout trend for ecommerce in 2020. The line between social media and ecommerce is increasingly becoming blurred, driven by the sheer amount of time spent on social media apps.

The rise is down to popular platforms, like Instagram and Snapchat, enabling short form video content, which 91% of consumers prefer over conventional static media. What once consisted of a static online shopping experience is becoming a much more fluid ecosystem defined by multiple threads of content media.

8. Digital ID Becomes King

At its core, identity verification has always underpinned financial services in order to protect users and meet compliance demands. Efforts to help streamline identity procedures, such as the creation of long passwords, cause friction for customers. Many inevitably forget the long passwords they create and $70 charges by banks to change passwords cause frustration. In 2020, Digital ID will help eradicate these bugbears while providing numerous economic benefits and more secure identification for consumers.

9. Relentless Collaboration

Fintech continues to be the buzzword in financial services, relating to the rapidly evolving technology that is fast revolutionising the industry. However, in order to keep innovating within the industry we can’t rely on technology alone; it’s a team sport. Throughout 2020, as Open Banking continues to offer more opportunities within the payments ecosystem, we must continue to collaborate with other players to keep innovating.  

10. Make Payments with Cars

The Internet of Things (IoT) is making devices smart. For many years we’ve heard about fridges that consumers can make payments on, but cars have been noted as the next big thing to be inter-connected. Research highlights that the automotive industry could be the most lucrative IoT platform, and by 2023 it’s estimated that 775 million cars will be connected through telematics or in-vehicle apps accounting for $63 billion in transactions that year.

If these estimations are to be achieved, over 2020 we’ll start seeing IoT payments for petrol, tolls and food.

11. Banks and Card Payments Converge

Due to Open Banking and PSD2, the ability to have a card or bank account payment in near-real time starts to enhance the possibilities for how a consumer may wish to pay at the point of sale in 2020.

We will likely see consumers offered with the choice of paying by real time payment rather than by card; same outcome through a different route with a different charging scheme. This may extend to initiating a sequence of recurring payments, the first in real time, the remainder in a Direct Debit format.

12. Invisible Payments

Invisible payments are dominating the payments industry with the likes of payments rings, Uber and Amazon Go, all of which are completely frictionless, with payment details stored inside the product. Across all sectors in 2020, businesses will need to keep up with convenience-led lifestyles, placing it at the heart of financial services product design.

To discover more about Ingenico B&A’s 2020 payment predictions, visit https://www.ingenico.co.uk/future2020

The post 12 Days of Payment Predictions with Ingenico appeared first on PaymentsJournal.

This article on digital identity discusses:

• The present state of identity ecosystem – its complexities, the root cause of identity issues and connected challenges
• The need to digitize identity management
• The pivotal role banks can play in creating a new trusted digital identity ecosystem
• The apt business and technology model that can help banks design a future identity world
• Blockchain as a technology option for digital identity
• The relevance of digital identity in the open banking era

A World Built around Your Identity

Imagine an international trip where you carry yourself as identity and get the liberty of not carrying a passport, ticket or boarding pass, or booking reservation details. In your identity basket, you also carry your financial identities (credit card, prepaid card etc.), identity of your things (laptops, gadgets etc.) and identity of co-passengers – really a long list indeed. In contrast, if we build a digital world keeping your identity in the center, then the re-imagined world would be one of extreme personalization and frictionless yet secured. Airports and its services will be aware of your arrival and will render personalized services to you based on secured verification of your identity.

Issues with Present Day Identity Ecosystem

The reality is in the present day world, identity is a headache for both the provider and user. For example, a bank performs a series of complex, expensive, time consuming and effort intensive checks before issuing a financial identity to you. However, the customer experience regarding this process is poor.

Moreover, the final product – verified identity of an individual or corporate- remains locked within the bank. The bank does not broker it and does not try to monetize it. The fate of other identity issuers are also the same.

Root Cause – Missing Identity Layer in the Internet

The cause of the problem with identity and its use finds its roots in missing an identity layer on the internet from the beginning. We are now using the internet for virtually all transactions. However, our basic identity is still created in a physical world and get translated in a fragmented manner to the digital world, resulting in a poor, frictional experience for us.

Fragmented digital identities of today need a unification in the form of an identity metasystem, which can protect other applications from the internal complexities of specific implementations. Such a system will allow digital identity to become a plug and play digital instrument. The role of an identity metasystem is to provide a reliable way to establish who is connecting with what – anywhere on the Internet.

Claim-Based Definition of Identity

To design an identity meta system, we need to define identity of a digital subject. The definition can be an assertion or claim based. The difference between the two is important as an assertion is an expression of strong belief and a claim has an element of doubt in its definition and requires evaluation. Like any evaluation, it may result in positive or negative outcome. In a closed domain system, attribution can work but claim is more suitable for an open, federated set up like the modern day digital economy.

Identity has Magnitude and Direction

Let us look at the present day fragmented digital identity landscape:

As per the blueprint of Digital Identity by the World Economic Forum, identity attributes are as follows:

While these attributes are atomic in nature, our identities are molecular, leading to unnecessary exposure of identity attributes. For example, you need to be 21 or older to buy alcohol, and if you show your driving license to prove it, you are exposing many attributes beyond your age. Hence, we need to digitize our identity attributes to avoid any unnecessary over-disclosure.

Now consider an identity beacon and a RFID based passport. While a beacon keeps emitting a signal, an individual passport does not emit a continuous stream of an omnidirectional signal, making it prone to eavesdropping towards any attempt of stealing national identity information. Hence, for identity, domain directional property is also important. If we combine requirements of atomicity and directionality of attributes, it becomes a no brainer to appreciate the need for a metasystem of digital identity.

The Evolving Role of Banks as Identity Brokers

In the present industry landscape, the following diagram explains why banks and financial institutions can have a head start in creating such identity ecosystem.

Business Model for Identity Brokerage Business

The reward for building such an identity ecosystem is a gold mine. As an identity broker in the system, the owner can become an inseparable stakeholder in a federated de-centralized and open economy. However, the journey for being such a broker is painful and complex. The complexity will arise based on scope of operation in terms of industry and geography coverage, as the requirements for identities are different across industry and across borders. To increase market share, a corporation needs to get into a consortium or a utility platform mode. These approaches will further increase complexity.

Technology Model to Support Identity Brokerage Business

The pivotal question we need to answer from regulatory and socio-cultural perspectives is what do we want the identity system to be – transparent, translucent or opaque? Transparent and Opaque are both extremes. Hence, translucent approach is most suited for managing identity ecosystem. A three-domain approach of identity management is depicted below:

The issues in the above model are as follows:

• Currently, for one person, many identities are issued in the identification layer and then he or she creates many virtual identities in Authentication and Authorization domain for using digital services. These many to many identities of one individual across identity domains causes a cardinality problem. Hence, the issue of digital identity in authorization domain will solve this cardinality problem by binding all mundane identities of an individual into one digital subject.
• If we bind the mundane identities and virtual identities using one digital identity then it can render living in glass box effect. Hence, the creation of multiple identities for a digital subject can solve this problem by allowing users to maintain multiple persona based digital identities. User at his or her discretion, can use each such created digital identities and further create virtual identities to access services of digital world. This will enable him or her to maintain multiple persona in authorization domain but at the same time will allow a traceability and control in authentication domain.
• It also digitizes identity so that the principle of minimal disclosure can be implemented
• If we want to instill federal control in our socio-economic fabric, we can implement it at this authentication domain.

Overall Architecture and Need for Blockchain at the Virtual Identity Layer

The technology choice for developing a digital identity system needs careful consideration. In the digital identity domain, there are personally identifying information (PII) and hence a decentralized implementation like blockchain can be catastrophic as it is a susceptible honey pot. But, in the authentication domain, a blockchain based identity management system may be an ideal system to implement. Such a blockchain based system can also build reputation, which can be tamper proof, where trust is beyond human manipulation but ensured by an unbreakable algorithm. 

Open Banking – an Transformation Opportunity in Architecting Digital Economy of Tomorrow

We have embarked on our journey of open innovation, open APIs, open data, open banking and the open economy, and we will experience a paradigm shift in digital life because of this open revolution. Identity, consent and PII are going to be critical in weaving a new socio-political digital construct. Banks are poised strategically to takes hegemony in this change. In this leadership journey, banks have to remodel their factory. They need to go beyond open banking regulation to the realm of Uberization and Amonznization of banking platform. Digital identity is going to play a pivotal role in the reinvented banking structure.

For more on this topic, download Wipro’s whitepaper on the topic here.

The post Digital Identity Ecosystem appeared first on PaymentsJournal.

Leading digital cross-border payments provider, InstaReM, is rebranding to become part of Nium. Nium is the first global payments platform to enable businesses to send, spend and receive money from around the world, in addition to empowering them to develop their own products. Nium’s ambition is to create a world of ‘Open Money’ where everyone’s money is free for them to use, whenever, wherever and however they want.

The launch of Nium was announced at the Money 2020 USA event in Las Vegas on 27 October 2019.

Nothing like Nium and its ‘Open Money Network’ has ever been created before. Organisations working with Nium will have the opportunity to become a member of ‘The Open Money Network’, a digital collective of financial institutions, fintechs, ecommerce platforms, travel companies and online marketplaces. In addition to using Nium’s ability to send, spend and receive money, members of the network will be able to use the platform to build new products and services free from legacy system constraints.

Businesses will be able to use Nium in three ways: buying Nium’s off-the-shelf products, working with Nium to build custom integrations for their enterprise tech stack, or by using the Nium platform to build innovative products and services that make the cross-border movements of money quicker, more convenient and cost-effective.

As one of the first organisations to partner with Visa’s Fintech Fast-track programme, Nium will work with prominent financial institutions and high-profile start-ups to help them build the financial products and services that a future of ‘open money’ demands.

The team behind InstaReM has been gearing up to become Nium since their recent USD41 million funding round earlier this.

Prajit Nanu, co-founder and CEO of Nium said:

“As we look to the future, our strategy is to move beyond merely creating services on our own proprietary platform. We have worked really hard in the last four years to build new capabilities that open a world of possibilities in the global payments universe. To express our broader capabilities to the world, and to engage more directly to our existing and future enterprise partners, we have rebranded InstaReM to Nium. We aspire to become enablers; creators of an open platform that businesses and partners use to build a world free of old constraints and restrictions – a true world of Open Money.”

The post Instarem Rebrands to Nium, World’s First Global Enterprise Payments Platform appeared first on PaymentsJournal.

This referenced blog appears in Finextra, and summarizes points made at the just concluded AFP annual conference in Boston by a BNY Mellon exec about B2B open banking in the U.S.

We at Mercator Advisory Group have received many inquiries about open banking during the past year, much of the interest driven by the advent of PSD2 in Europe, increased cloud usage, and the growing proliferation of APIs.

So in effect, open banking in the U.S. is being driven by market realities based on changing client expectations in line with technology advancements.

‘Laura McGortey, director of strategic partnership solutions at BNY Mellon, claims that there is more open banking activity in the US B2B payments space in comparison to the Eurozone, on the final day of AFP 2019 in Boston……McGortey highlights that a flux of bilateral and strategic partnerships in corporate payments have resulted in open banking being welcomed in the US as a “market driven phenomenon” – a far cry from enforced such as PSD2 implemented by European regulators.’

We surely don’t disagree. The largest institutions have been building external API capabilities for several years, increasingly adding non-consumer scenarios to the mix, such as data integration with self-provided and third party treasury management systems, allowing key constituents to access account data in near real-time for better cash forecasting and so forth.

There is a contrast between Europe, where PSD2 mandates open banking (although generally more directed towards consumer uses) and the U.S., where regulators have, to date, taken a hands-off approach, although various state privacy laws must be taken into consideration.

‘In Europe, McGortey explain that with PSD2, open banking has defined security parameters, defined roles and defined ecosystem governance. Further, “there is a mandate for consumer banks which enables open access to bank accounts at the customer’s request.”…However, she adds that there are no regulated API connectivity format standards despite the large number of participants that “utilise” these industry standards, put in place by the Competition and Markets Authority in the UK, for example….“While adoption for consumer accounts is enhanced through regulatory drivers, adoption for business accounts is based on market interest,” McGortey’s slides posit.’

Things are changing rapidly, not only for banks but also their corporate clientele, who are also in the process of navigating the transforming industrial landscape and figuring out their organizations’ positioning in the world 5+ years from now.

The article is worth a scan to get a real viewpoint from the front lines.

‘During the panel session, Lisa Akahoshi, payments strategy lead, Verizon and Jeremy Ordone, director, banking and cash management, Marriott and Wayne Bognar, treasury manager, Evoqua Water all explored how a number of companies are at a crossroads and are unsure of whether they are an organisation in their industry, or a technology company with products and services in their respective sector. Mobile phones have transformed business in this way.’

Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group

The post BNY Mellon Director: U.S. Has More B2B Open Banking Activity Than Eurozone appeared first on PaymentsJournal.

Financial institutions today are challenged with meeting consumers’ high expectations for fast and convenient digital banking processes, while also needing to mitigate fraud and comply with increasingly stringent regulatory requirements. Consumers want to do more of their banking through digital channels. A 2018 survey of more than 5,000 consumers showed that 69 percent want to be able to conduct their entire financial lifecycle – from account opening to taking out personal loans – entirely  through online and mobile channels. Yet, too often today, new customers are still sent out of the digital channel and forced to visit a branch location in order to complete the account opening process.  A move that injects additional friction into the process and increases customer frustration.

That’s because even in today’s increasingly digital era, banks are struggling to fully digitize the account opening and onboarding process. In order to prevent application fraud and comply with strict know your customer (KYC) and anti-money laundering (AML) regulations, financial institutions must positively verify their customers’ identities, which has traditionally been difficult to do in digital channels. Last year, it was estimated that banks alone were to exceed $31 billion in global fraud loss.

In a climate where fraud, identity theft and data breaches dominate headlines, consumers need to be on high alert. Digital identity verification is a key technology to not only enable the end-to-end digital banking services that consumers desire, but also to maintain trust between financial institutions and their customers. A process that onboards new customers faster, lowers operational costs, and ultimately improves the consumer’s digital banking experience.

The Need for New Identity Verification Methods

Traditionally, financial institutions have relied on a combination of knowledge-based authentication (KBA) questions and static personally identifiable information (PII) in order to verify consumers’ identities in digital channels. However, in the wake of large-scale data breaches in recent years that exposed the PII of millions of consumers, these methods are no longer effective. Fraudsters and cybercriminals use the vast troves of exposed consumer data available on underground markets – including birth dates, addresses, social security numbers and more – to create synthetic identities or open fraudulent new accounts under legitimate consumers’ names.

As a result, financial institutions must look to new approaches for verifying consumer identities in digital channels. A number of new technologies and trends, from the proliferation of smartphones to the emergence of advanced analytics and machine learning, now make it possible for financial institutions to automate and secure consumers during the digital account opening process.

Identity Document Verification

Thanks to the prevalence of smartphones today, financial institutions can now leverage consumers’ mobile devices for verifying the authenticity of their identity documents. Using their smartphone camera, new applicants can snap a picture of their driver’s license, passport or other identity document and upload it directly to the financial institution. Advanced artificial intelligence (AI) and machine learning algorithms look for embedded security markings that are invisible to the naked eye, to verify that the documents are authentic and unaltered.

E-signatures: Enhancing Customer Experience and Compliance

Signatures are a traditional form of verifying identity, but manually “wet” signing documents can be a time-consuming process, that can involve visiting a branch, or printing, scanning and posting documents, all of which carry a higher chance of human error. The pain-points associated with manual signatures become even greater if an agreement spans geographical regions. Given this, banks are increasingly adopting e-signature solutions as a more seamless and secure, e-signing experience that allows the bank to acquire new customers quicker and offer a higher quality service, no matter their location.

E-signatures also help banks remain compliant with GDPR and other regulations by capturing a customer’s digitally signed document supported by a comprehensive visual audit trail detailing what the customer has agreed to, when and how they signed.

While many banks have already adopted basic e-signature abilities, the technology alone is not enough to completely automate the new accounting opening process while reducing fraudulent enrollments. For example, manual identity document verification checks or introducing paper agreements, are both ways in which banks end up with a semi-automated or siloed process, which increases application abandonment rates and application fraud while negatively impacting the overall customer experience.

Biometrics

Financial institutions can also leverage consumers’ smartphones for biometric authentication methods including fingerprints, facial recognition with liveness detection and even iris scanning. For example, banks can request that the consumer snap a selfie to submit at the same time they submit the digital copy of their ID. Automated facial comparison technology with liveness detection can verify that the person in the selfie is real and is the same person pictured on the identity document. When combined with biometric identifiers such as fingerprints and iris recognition, financial institutions have a powerful tool for quickly verifying new customers’ identities to a high degree of certainty.

Risk-Based Analytics, Real-Time Account Checks and Transaction Monitoring

Banks can combine the identity verification methods described above with advanced risk analytics, real-time account checks and transaction monitoring to achieve context-aware identity verification. This combination of technologies allows financial institutions to aggregate an array of real-time information from several different data sources and digital channels to make immediate decisions that assess the total risk associated with the new customer. These data sources can include third-party partner risk data, recent transactions and real-time account checks at other institutions, as well as risk analysis based on the user behavior, biometrics, location, device integrity and more. Real-time analysis of this data helps provide a comprehensive and contextual picture of the applicant that can complement other identity verification checks in order to help the financial institution reduce the risk of fraud in the new account opening process.

 Multi-factor Authentication

With the technologies described above, financial institutions can establish strong identity assurance in digital channels through multi-factor authentication. Rather than simply relying on something the applicant knows (such as KBA or PII) to prove their identity, banks can leverage mobile device data along with biometric or behavioral risk indicators for a multi-layered security approach that takes into account something the applicant has and something they are, in order to apply the precise level of security, at the right time, thereby helping to mitigate the financial institution’s exposure to fraud.

Ultimately, digital banking is predicated on trust. Consumers must be able to trust that financial institutions will protect their sensitive data and PII through strong security measures. Combined with a positive digital account opening experience, banks must be able to trust that new applicants are who they say they are. With new digital identity verification technologies, financial institutions can finally effectively verify new customers’ identities in mobile and online channels, without compromising security or impeding the digital customer journey. By enabling a convenient and secure digital account opening processes, banks can meet the expectations of today’s digital consumer and re-establish trust, while fighting fraud, reducing abandonment rates and meeting regulatory compliance.

The post Digital Account Opening: Enabling Greater Trust Between Financial Institutions and Customers appeared first on PaymentsJournal.

Token (https://token.io/), the turnkey open banking platform, today announced a $16.5 million strategic investment from a pool of investors, including Opera Tech Ventures, the venture arm of BNP Paribas — one of the world’s largest banks — and two other visionary banks headquartered in the Middle East and Southeast Asia. Existing investors, including Octopus Ventures and EQT Ventures, also participated in the investment. The capital will be used to build on the success of TokenOSTM, which is fast becoming the world’s leading open banking platform, and accelerate new ways of innovating payments with digital money and ID solutions. This will change the movement of money for everyone globally.

Token was founded in 2015 by serial Silicon Valley entrepreneur Steve Kirsch (FrameMaker, acquired by Adobe Systems and Infoseek, acquired by the Walt Disney Company), who recognised that existing payment rails designed and built before the internet created huge fragmentation and complexity. True digitisation in payments would only be achieved by overhauling the core infrastructure and Token’s mission was to create the next generation of payment capabilities. TokenOS, the company’s open banking platform, enables a global ecosystem of banks, their customers and developers to initiate payments and move money and information securely, instantly and frictionlessly worldwide.

The company now has more than 4,000 banks connected to its platform and recently announced it has been selected by Mastercard as one of its partners to support the connectivity layer of its open banking hub. Additional Token customers include Tandem Bank, Think Money Group, An Post, Sberbank Croatia and Slovenia, and Khaleeji Commercial Bank among many others.

“As the emerging category leader in open banking infrastructure, Token gives banks a fast track to deliver great open banking customer experiences,” comments Steve Kirsch, founder and CEO, Token. “For banks, establishing an early position in this new hyper-connected market is a competitive advantage; a new wave of independent financial apps and services will soon be available to their customers, so banks need to be clear about their future roles. By solving the infrastructure problem, Token enables them to focus on service innovation and delivery earlier than the competition.”

“The open banking wave – driven in Europe by PSD2 regulation – is a huge opportunity to create new value propositions for consumers, as well as dramatically improve existing ones,” said Alastair Mitchell, Partner and investment advisor at EQT Ventures. “Such a fundamental change in the plumbing behind the movement of money creates big challenges for incumbents and large opportunities for new players to create whole new markets. Token is emerging as the definitive leader in open banking, having been selected by an increasing number of major players as the exclusive technology platform to underpin this new way of doing business. This investment, with the backing of a number of heavyweight global financial institutions, cements the company’s leadership position. EQT Ventures is delighted to support Steve and the team on their journey to transform banking!”

The post Token Secures $16.5 million from Opera Tech Ventures and Additional Strategic Investors as Open Banking Set to Transform Payments Industry appeared first on PaymentsJournal.

This article has it all!  It documents the Open Banking battlefield and discovers laws, alliances, confusion, betrayal, battles, and more! OK, I’m not sure about betrayal but if it isn’t in there yet I bet it will be soon enough! All of this is driven by a mandate for openness that lacks a specific purpose or use case. As a result market participants are all trying to leverage the APIs and partners to develop new revenue streams and establish its market position:

“PayPal and Mastercard are independently making high-profile moves to shore up gaps in open banking and data compliance, and both companies are downplaying any competitiveness.

It’s delicate ground for two companies that have only recently become formal allies. Mastercard and Visa made deals with PayPal in 2016 in which the sides agreed to cede some competitiveness in exchange for interoperability, though Visa was more publicly combative with PayPal before that deal.

While open banking is meant to build bridges among financial services companies, the competitive question is, simply: Who gets to build that bridge?

Mastercard has launched four products over the past few days—a single connection to banks’ open banking function, real-time verification of third party registration, centralized query and dispute resolution, and advisory services.

PayPal has launched its PayPal Commerce Platform, which is designed to help businesses scale and connect with PayPal’s 227 million users, with 100 currencies available. PayPal will also manage compliance in more than 200 markets, provide access to mobile point of sale, business financing and consumer credit, and embed AI risk and fraud tools.”

Major players are all jockeying for position in the undefined new market and using Fintech partners to expand existing capabilities. For example, Mastercard partnered with Token.io while PayPal invested in Tink and Tencent invested in TrueLayer:

“Mastercard will use partners to build its API connection, with Token being among these partners, said Jim Wadsworth, senior vice president of banking for Mastercard. “There are other players in this market that are also active,” Wadsworth said.

Among other global players, China’s Tencent, which operates WeChat Pay, recently invested $35 million inTrueLayer, another open U.K.-based open banking technology firm that counts Monzo among its clients.

Wadsworth did not comment on PayPal or other companies pursuing open banking solutions in Europe. He did say that as a company that serves two sides of an industry — issuers and merchants — Mastercard is well-positioned to support open banking.”

The article then goes on to describe the real problem, a lack of specific use cases or common implementation standards:

“ ‘The issue is however, who is going to use these APIs? Banks are using multiple standards, including proprietary ones,’ said Van Wezel, who added that connecting to 4,500 banks in Europe will be a massive task for any fintech or merchant. ‘Therefore, consolidator models will be required. That is, providers that make the connection to the different banks and provide a single API for developers to consume for the new account information and payment initiation services.’

APIs lack harmony, and these complications are going to get worse because open banking is not developing in the same way in every country. In some markets there’s regulation and in some there’s market forces.

‘If I want to benefit from a connection between a financial institution to a fintech through an API, do I want to serve a bunch of big countries, or do I want to serve one small country? There’s no standard for how these APIs work,’ Wadsworth said. ‘There’s actually about six standards in Europe, but there’s even differences in there. The connectivity is the challenge. What we’re trying to do is give a unified front end. We’ll connect to all of the countries in the background, and that relieves the banks of doing that plumbing.’”

So its no surprise that in the US, where no mandate exists, each financial institution decides for itself if building an API portal makes sense and will have a well-defined business plan to leverage whatever is built. Also no surprise, these are built most frequently by the large banks to benefit their large corporate clients.

Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group

The post PSD2, Open Banking, and the Battle Between Payment Giants appeared first on PaymentsJournal.

In 2018, we witnessed an array of developments when it comes to how banks, insurance companies, and other financial institutions are leveraging technology. Whether it be the explosion of mobile banking options, the proliferation of cloud-based investment tools, broader acceptance of payments platforms, or data privacy and security enhancements, the lines between IT and the financial sector are fully intertwined.

All these changes have impacted the lives of consumers’ relationships with banks and insurers in many positive ways, and change will continue – with much of it focused internally in the second half. Here are some of the key developments that should be top of mind for banks and insurance when it comes to deploying, maintaining and managing their technological capabilities over the next twelve months.

Open Banking Gives Way to Digital Experiences

Open banking tiptoed in earlier last year in the European Union, opening up customers’ payments and banking data to third-party financial services providers. Since then, we have not seen any dramatically different applications hit the market, or changes in customer or bank behavior.

As we continue to march forward in 2019, financial institutions on both sides of the pond will increasingly embrace open banking as the next stage in maturity of client-facing digital transformation — and allow third parties to enhance customer experience. By making API life cycle management capabilities a focus, banks that had the foresight to crystalize their open banking strategies will see benefits of being able to scale, control, govern and reuse APIs. By controlling the flow of data and services through open APIs, banks can mitigate competition risks and at the same time offer customers a wider and more easily customized set of services.

This will allow banks to put a greater focus on the customer, mobile engagement and the bank’s ability to deliver valuable new payments experiences and other financial services.

Those who have zeroed in on an open banking model will have an advantage as first-movers, while those who follow might be disappointed when they find they’re a bit late to the dance and most that the most charming ecosystem partners have already been snatched up.

IoT Use Broadens in the Insurance Industry

The commercial property and casualty insurance industry will reap the benefits from the growth of the Internet of Things. Buoyed by its first pricing rebound since 2013, companies will broaden their use of IoT technologies, such as telematics with fleets and sensors for smart buildings. They will introduce continuous monitoring with sensors for sensitive food and drug shipments, wearables for machinery users and many other devices that monitor operations.

Like the consumer business, insurers will unlock the value of new technologies to develop and deliver brand-new value propositions in risk and fraud prevention, improved claims management and customer engagement that are completely disrupting traditional insurance. This can include “pay-as-you-go” or “pay-as-you-live” insurance products that are enabled by IoT.

The most innovative commercial insurers will build on that value by building ecosystems around IoT data – for example, road-side or medical assistance. They will also look to shorten business cycles internally. For instance, letting manufacturing sensor data trigger a claim upon notification of an accident.

Challenger Banks Experience Growing Pains

Challenger banks – the digital-first financial institutions that arose to challenge the larger banking groups – will experience two growth-related developments starting in the second half of 2019.

First, they will graduate from being start-ups and move into a more “traditional institution” marketplace, all the while gaining meaningful market share. This will lead to the second development: challenger banks will experience growing pains that the incumbents are all too familiar with. As the oldest challengers near their ten-year anniversaries, they will discover that even they — the early digital movers — can be challenged by their IT architecture.

The potential problem on the horizon is that their pace of digital innovation will be dulled. Some incumbent banks are well are that if they are not strategically focused on automating their IT planning and portfolio management practice, they are at risk of continuing to be unable to move with agility. Challenger banks will find themselves in a similar position this year if they don’t act to gain more transparency and a reduction in complexity. The same holds true on the operations side if business processes are not documented, automated, monitored and optimized.

These are just a few of the ways that insurers and banks will benefit from technology. As we move deeper into 2019, it would be prudent for financial institutions to explore which technologies and innovations will accelerate their digitalization to better grow, compete and win over customers.

The post What Do Banks and Insurers Need to Do with Their Technology in the Second Half of 2019? appeared first on PaymentsJournal.

Bahrain’s Open Banking compliance deadline of 30^th June is rolling round quickly and its regulator, the Central Bank of Bahrain has already signalled that it has no plans to extend it.

This means Bahrain’s banks need to move quickly. Doing so, however, is risky: hasty decisions taken today will have a big impact tomorrow, both on the technical heavy lifting required and on the bank’s ability to deliver innovative and revenue generating new open banking services. Given the pressures, the temptation is to think purely in terms of compliance. But publishing an open banking API is one thing. Establishing early-mover strategic advantage in the new open banking market is another.

And make no mistake, the strategic advantage is significant.

Open banking promotes the decentralisation of banking services. This new era enables agile fintechs to create new data and payment services that put the wow-factor into digital banking. Account aggregation, where the customer can coordinate accounts from all their banks from a one application, is one such service. Here, the key question for banks is: Which is better – to allow your customer to aggregate accounts into your bank’s app, or have them aggregate your account into another bank’s app?  

Market dominance in open banking is about timing. Who will be first to create and offer new services? Who will offer the broadest array?

Getting the infrastructure right is the key.

By adopting APIs that are already proven and interoperable, banks can sidestep the technical integration headaches demanded by this new market and instead focus on creating winning strategies that get them to market quickly and effectively.

Fortunately, Bahrain’s banks are not the first to respond to an Open Banking regulatory mandate, which means that by thinking strategically, beyond mere compliance, they can sidestep many of the challenges already encountered elsewhere.

Observing how Open Banking has developed in other markets, particularly in Europe, is revealing.

Already working under the auspices of new European legislation (the Second Payment Services Directive) the nine largest banks in the UK, dubbed the CMA9, have been forced by the UK government’s Competitions & Markets Authority (CMA) to co-develop a common open banking API. The result has not been pretty. The API, designed by committee, is so complex that it requires both human intervention and 15 steps before an access request can be approved. What’s more, each bank has implemented the API differently, further hindering the smooth interoperability that it was originally conceived to enable.

Other banks across Europe have also produced their own APIs ‘from scratch’, which makes the business of linking their systems together in the way the regulation demands a massive and costly integration challenge. This lack of API standardization has prevented the European open banking market from flourishing.

Bahrain’s banks can make different choices and avoid the same fate. Ours is a small nation, with a limited number of banks. If we choose to integrate common, standardised APIs then our banks can avoid the tangle of technology that elsewhere is stopping Open Banking before it has started. With interoperability question solved, our banks can then focus on developing and supporting the ground-breaking digital banking services that will drive new revenues, delight customers and promote financial literacy across the region. Then Bahrain’s open banking infrastructure will be the envy of the world.

Co-opetition is the way forward for open banking in Bahrain, between banks and fintechs and also between banks and other banks. With a common infrastructure in place, everyone stands to benefit.

The post Proven APIs Hold the Key to Open Banking Success in Bahrain appeared first on PaymentsJournal.

Bigger and more diverse.

That’s not the just the world at large but also the payment technology ecosystem. Technology is advancing at a rapid pace and consumer expectations are in driver’s seat when it comes to how, when, and where they pay for things.

New gadgets are always being launched and payment softwares are evolving faster than ever. Executives must keep their companies observant and nimble when it comes to noticing and responding to these new trends in payment technology.

The first step for executives is simply knowing what’s going on in the payment technology industry. The next step is taking action to ensure that your company is offering the right payment solutions for your customers.

To help you with that first step, here’s a deeper look at a few current trends changing the landscape in payment technology that every executive should consider when looking at payments

Common Trends Reshaping Payments Industry (That Executives Need to Know)

For consumers, it’s all about ease, reduced fraud (better security), and increased satisfaction.

For businesses, while the above are extremely important (especially customer satisfaction), there’s also the reality that revenues increase with many new payment innovations.

Here’s a quick look at the trends reshaping the payments industry:

Same-day ACH

Nothing drives customer frustration more than waiting.

Whether it’s submitting a late payroll filing as a business or needing to make a last-minute payment as a consumer, the need to move money quickly comes up often.

As of 2017, SDA debit transactions now allow for same-day payments without the burden of new infrastructure or governance, allowing for virtually universal access to banks and customers. While this is faster, it’s still not real-time and nor does it allow for making payments on weekends or holidays.

Many retailers still reel from the interchange fees imposed by debit and credit card payment processing. As such, same-day ACH is gaining ground as a potential solution that could allow businesses to reduce their processing fees while still offering similar benefits to consumers as credit cards companies do (discounts and rewards).

Digital wallets

With more than one in three consumers saying they plan to use a digital wallet for purchases, the growth potential here is clear.

Consumers are hungry to consolidate and secure their payments. They want to avoid long payment processing times and having to hand over sensitive customer data whenever they make a purchase. Digital wallets reduce that friction at online checkout while increasing security at the same time.

Adoption has slowed on this particular innovation, but businesses stand to win by offering trending digital wallet payments options to consumers as a way to encourage secure, speedy spending.

Peer-to-peer payments

Everyone dreads the hassle of settling up the bill at the end of a nice group dinner.

While that pesky problem hasn’t been completely solved, peer-to-peer payments are extremely popular and increasingly offered as a feature in digital wallets or as standalone applications. Solutions like Paypal, Venmo, and Chase QuickPay (now with Zelle) offer consumers the opportunity to move money within groups and among individuals with relative ease and speed with little to no cost in many cases.

Some solutions (like Zelle) even allow for immediate availability of funds for the recipient while the funds are settled by the banks later.

For consumers looking to step away from paper checks and ATM withdrawal fees, P2P payments are an increasingly attractive payment technology in this shifting ecosystem.

Biometrics

Watch out for biometrics to begin replacing security solutions such as passwords and PIN numbers (which are hard to remember and costly to maintain for companies in terms of security, storage, and support) when it comes to account security.

The bet here is that consumers are willing to sacrifice a little bit more personal information (fingerprints, facial recognition, voice identification, iris scanning, etc.) to allow for great speed and security in payment processing.

With consumers already opening up their phones using facial scans and climbing into cars with touch recognition applications, the future seems bright for biometric security in payment processing and business should take note.

Public cloud

Gone are the days in which businesses had to build huge internal infrastructure to reach peak volume. Now, cloud-based infrastructure can shift outside of core infrastructure and can be built in just weeks.

This means more agility and higher revenues.

Payment providers can now deliver fast and frictionless payments around the world, at scale. Some companies have enabled themselves to bring new products to market in under two weeks by switching to the public cloud.

With consumers hungry for new and better payment products, that kind of lean speed can make a big difference for many businesses.

Open API

“Open banking” is all the rage right now.

Customers want the power to enable third-parties (think Mint, Robinhood, Acorns, etc.) to access their banking information so they can use services that exist outside of traditional financial institutions. In some places like Europe, banks are even required to open up for these providers (with protections for consumers and after meeting regulatory requirements for data security).

Banks run the risk of losing customers if they are overly restrictive (even in the name of security) such that customers cannot use nonbank tools adjacent to their banking. On the flip side, banks without adequate data security protocols potentially attract more fraud and can easily lose customers that way of course.

Businesses that allow customers to connect their trusted banking institutions to third-party while also effectively protecting personal financial information will win the day when it comes to the open API trend in payment technology.

How businesses can get payment innovation right

Knowing the payment technology landscape is the first step to nailing payment innovation. While the benefits and convenience of new payment technology are great, the connected ecosystem for vendors presents some unique challenges. A core goal here should be maintaining payments ecosystems that are adaptable and flexible with the right integrated support in place to solve business and customer needs.

Not every new payment solution your business rolls out will go as planned. Vendors rolling out new payment technology for consumers need to have support for handling integrated solutions.

Businesses should evaluate payment tech vendors (from whom they purchase payment tech products) on their ability to provide support for their products and the integrations with other tech solutions.

Another hurdle is keeping track of regulation while moving at the speed of rapid technological changes in the payment technology industry. That’s a tall order on both the payment tech vendor side as well as for the businesses they serve. It’s also very doable and can lead to exciting advancements, as we have seen in recent years.

It’s undoubtedly an exciting time to be innovating in the world of payment solutions.

The post What Every Executive Needs to Know About the Ecosystems Reshaping Payment Tech appeared first on PaymentsJournal.

There’s still hell to pay in the back-end, says Marten Nelson, Co-founder, Token.io. True digitisation in payments means overhauling the core infrastructure as well as its connectivity layer.

All the hype about digital transformation in financial services risks eclipsing something really important: that this ‘new dawn’ of open banking extends only as far as the connectivity layer that enables payments to be authorised. It doesn’t touch the back-end systems that actually move the money.

For many, this doesn’t matter. For a whole host of payment use cases like e-commerce transactions, domestic account transfers and credit card payments, the fact that the customer’s bank simply adjusts their balance when a payment is authorised is more than enough.

Cosmetic surgery, however, neither makes you fitter nor faster. And so it is with payments. The nips and tucks in today’s system are already visible; take the painful settlement times and exorbitant costs of international money transfers as a case in point. The difficulties in making cross-border business-to-business payments also suggest that not everything is as it should be. Both of these services involve larger sums passing through a hairball of back-end systems before they finally arrive as cleared funds at their destination.

That’s assuming they do arrive, which isn’t always a given.

Solving these challenges with technology requires more than interoperable APIs. It needs a whole new approach to international payments.

We shouldn’t criticise open banking, of course; it’s driven by noble causes and, in time, will achieve great things. PSD2 and the API revolution is opening up the banking market, increasing competition and fuelling a race to the top, where the best providers will win out by delivering more secure, more convenient and more cost-effective financial services to everyone.

Just don’t go thinking that the journey to digital payments starts and finishes with APIs. The reality is that they’re just a little taste of what’s to come.

The post Open Banking Is Just a Taste of What’s to Come appeared first on PaymentsJournal.

The journey from unbundling to rebundling and back has been a formidable one. Emerging technologies and the pace of innovation are driving changes throughout the banking industry at an unprecedented rate. From Asia to Europe, U.S. to Africa, and Australia to the Middle East, consumers are not only increasingly adopting digital – most are demanding it. While the movement toward our ability to bank anywhere is inevitable, the path towards transformation varies from one region to the next – and very different models have evolved within each geography. While some challenger banks are trying to go at it alone, as in the case of Starling and Monzo, both of which leverage technology and data to provide digital-only offerings focused on changing consumer needs, incumbent banks are grappling with the right way to evolve: some choose to stand up a whole new separate digital bank to appeal to new demographics (as in the case of Standard Chartered in Hong Kong), while others choose to rebuild and rebrand. The challenge of the latter is obvious: the digital experience is dependent on the ability to update/upgrade the legacy core system. Regardless of which path to take, the fact remains that going digital extends beyond moving transactions from analog to internet to mobile as part of some surface level technology refresh. Becoming digital is a complete transformation that requires a change to the bank’s DNA.

This is the new normal of transformative business model evolution within financial services. As opposed to the “move fast and break things” culture of Silicon Valley – innovation – to be effective and sustainable – must be thoughtful and disciplined. This new mindset needs to be embedded in the culture of the organization, with steadfast commitment from the top down to those with boots on the ground. Bringing new products and services to the marketplace will require a willingness to trial by error, tolerance to accept failure, and openness to learn. “How open are we?” becomes not only a question of technical capabilities but also a question of culture and one of survival.

How deep is our technical bench?

While it might seem trivial, banks of the future will be increasingly run by technology. With more consumers adopting digital products and services from leading big tech companies such as Apple and Amazon, they have come to expect the same seamless experience with banking as well. In the new digital era where people are spending more time than ever on their mobile devices, where retail foot traffic has dropped, where customers no longer visit bank branches, consumers prefer to bank at the comfort of their home or as they go about their day, when they want it, and how they want it. Mobile banking quickly became a table stake instead of nice-to-have, and the financial experiences expected from our applications have moved from reporting the past to predicting the future. To compete, financial institutions must reimagine banking itself within the context of our daily lives, our routines, our needs, our desires, and their impact on our future.

Looking at corporate technology budgets may help to shed some light on the direction where some of the banks are transforming – and whether they are spending to survive, or spending to evolve. For example, J.P. Morgan’s technology budget will grow to US $11.5 billion, much of which is slated for strategic investments, such as exploring quantum computing and developing new retail products. They are also opening a FinTech campus in Palo Alto in 2020, which further demonstrates their commitment to learning from and leveraging the technology platforms that influence much of their customers activities. Meanwhile, Bank of America’s technology budget is said to be US $10 billion, of which, a third will be slated for “new initiative investment spend.” Banks are not taking threats to their business model lightly. Their spending habits demonstrate that.

Open banking and the rise of the super app

Until recently, a consumer’s financial data was centrally held within their financial institution. But this too has started to change with the implementation of various Open Banking initiatives that have evolved through the past decade and launched within recent years across the globe. It has become apparent that the future of banking will be driven by open business models and APIs. A quick look at what has transpired gives us a glimpse of where banking is headed.

Since the Open Banking Implementation Entity (OBIE) has rolled out two of the four releases as part of its roadmap, over twenty million API calls for data are being made every month. In the past month, the greatest beneficiaries of account switching have been banks like HSBC, Santander, and Nationwide, along with FinTechs like Monzo, Starling, and Revolut.

In the U.S., though regulatory changes are likely far off, it is inevitable that a more open model will emerge as big tech players like Google, Apple, Amazon, and Facebook dabble in payments and other activities, as in the case of Apple’s new Apple Card initiative, in partnership with Goldman Sachs. While it might not be as avant-garde as some bank-insiders would like, Apple is putting its stamp in the payment space by declaring: “Created by Apple, not a bank” in its launch campaign. Much to banker’s chagrin, this will likely resonate with consumers more than they’d like.

Meanwhile, the emergence of super app models in the East by tech giants such as Alibaba and Tencent has presented consumers with a new way of consuming banking services, most notably in the payments area. Challenger banks such as MYbank and WeBank (backed by Alibaba and Tencent respectively) have grown substantially the past few years. At the same time, Alibaba’s affiliate Ant Financial has been expanding rapidly outside of its home market, China, by pursuing a strategy of serving the enormous market of Chinese tourists and are accustomed to the AliPay platform. The super app is connected with more than 200 institutions, including over 100 banks, 60 insurers, and 40 wealth management companies and security brokerages.

It is still far too early to judge whether the great unbundling efforts have been successful or not. Thousands of fintech startups have taken market share in key revenue areas and banks partnering and investing in them has not slowed down the march and impact of the fintech ecosystem. The move toward open banking and large-scale efforts by dominant technology platforms will only exacerbate the issues banks face. Technology will continue to enable new value propositions that were never expected. This will work to re-establish customer intimacy and trust by acting as a personal CFO for customers across every walk of life. Winners will be those that can create longer-term savings and wealth, optimize spending, and build more proactive and personalized insights that extend beyond traditional financial services. Rebundling acts as an opportunity for us to reimagine – not to build on the past, but to seed future business models.

In a world where Chinese citizens with Chinese bank accounts can conduct their whole life on Alipay and WeChat super apps while outsiders pay cash; where 47% of American consumers are still writing checks; where people in Africa can pay and obtain microloans on their mobile phones in an instant – the answer to the age-old question to the promised land: “Are we there yet?” is unfortunately “No, not yet.” As Chris Skinner wrote in his book Digital Human: “The new world is one of transient relationships, shorter-term commitments and everything online all the time. However, the financial system is built for lifetime relationships, long-term engagement, and everything over the counter.” If the industry is to thrive in a new environment with competition from global technology firms, we must leverage the scale and trust of incumbent banks, agility and focus of fintech startups.

It is time to embrace open banking business models or banks will cease to exist.

***

Join us at Money20/20 Europe this June in Amsterdam, as we dive further into the game-changing stories and trends, driving forward the global Financial Services, Payments and FinTech community. Find out more about the Money20/20 Agenda and Stories by clicking on the links below.

Money20/20 Stories

Agenda

The post The Future of Banking appeared first on PaymentsJournal.

15 months after open banking launched in the UK, consumer understanding of what it means remains low. In January this year, research showed that just 9% of British adults had used open banking services, and less than a quarter (22%) had even heard of it.

In fact, this is only part of the picture. Just because consumers do not recognize the terms ‘PSD2’ or ‘open banking’, does not mean they aren’t interested in their practical applications.

During research conducted in Q4 2018 for Equiniti Credit Services’ annual report into consumer attitudes to credit, for example, 70% of respondents said a service that allowed their bank to provide personal data for a loan application would be preferable to filling out the forms themselves. Such a service is only possible through open banking APIs.

Furthermore, 64% of survey respondents stated that if they knew they were going to be overdrawn, they would accept a loan at a lower rate instead. Before open banking, this would have required a significant time investment from both the consumer and financial institution – time principally spent filling out forms. As the difference in interest rate is usually just a few percentage points, the time required has outweighed the benefit to both parties.

Now, though, through the open APIs mandated by open banking legislation, a lender can take a broader view. Credit providers can make a low-friction loan facility available automatically to the customers that have consented to share their data before they go overdrawn – even when a previously agreed bank balance is reached.

Ultimately, open banking will impact the market for unsecured credit through customer-centricity, via the provision of value-added services like those explored above. Consumers have already experienced this in many other sectors (Uber, Netflix…) and now expect the same from financial services. Open banking enables this.

With opportunity, though, comes challenge. The data contained within Equiniti Credit Service’s research report, “A three part harmony: how regulation, data and CX are evolving consumer attitudes to credit”, shows that consumers are warming up to data sharing – but there is still reluctance, not to mention data protection legislation, to contend with.

This means that lenders must strike the right balance, and do so efficiently and cost-effectively. The latter will be vital, as the necessary investments in skills, compliance and systems soon adds up, strengthening the case for outsourced specialists with market-wide expertise.

These changes are just the beginning. PSD2 has fired the starting gun on the API economy and the effects will eventually be felt across all industries.

Download A three part harmony: how regulation, data and CX are evolving consumer attitudes to credit here.

The post PSD2 and Consumer Credit: How Will Open Banking Impact the Market for Unsecured Loans? appeared first on PaymentsJournal.

On Friday, March 8, I attended the 2019 MIT Fintech Conference at the Aloft Boston Seaport Hotel in downtown Boston. This was the fifth annual conference planned and hosted entirely by a team of graduate students, primarily from the MIT Sloan School of Management and Harvard Business School. I was impressed by the quality and professionalism of the event, which exceeded some professional events I have attended. Most of all, I was impressed by the energy and enthusiasm of the students for the fintech space; one of the bank panelists during the event lamented that banking had become perceived as “boring” by students over the years, hindering recruitment.  I think that is changing; the conference sold out well in advance, and had about an equal mix of students and professionals. If incumbent financial institutions can find a home for these students, they will be well positioned for the future.

I was particularly impressed by the pitch from AlmaPact, which won the competition; the company is rethinking student lending by engaging university endowments, pension funds and high net worth investors to provide individual loans to students with unusual terms: instead of paying a fixed rate, the graduate commits to pay a percentage of their annual pre-tax income. As this grows, the payments increase, but always remain affordable.  Initially, the company is focused on students at prestigious schools pursuing careers with strong earning potential, making it safer for investors to participate, but anticipate expanding access as they grow.

Having just reviewed my colleague Brian Riley’s excellent examination of asset-backed securities in the credit card sector, I immediately thought that AlmaPact could eventually securitize these loans, dramatically increasing the size of the program and allowing even more students to participate. I am not a lending specialist, but it certainly seems to me that this idea could be highly disruptive to the student lending industry, which is currently facing a crisis of defaults stemming from the extreme indebtedness of college and university graduates, who often face a crippling loan burden if they do not luck into a high-paying job. Small-government conservatives should be particularly interested in this strategy, which is a market-based approach to dealing with the problem that requires no government subsidies or interest rate caps. Banks with a student lending portfolio should follow this company and see how they do.

Another key takeaway, although it should not be that surprising at this point, is how thoroughly incumbent financial institutions and processors have incorporated the fintech sector into their long-term strategies. Despite being labeled “Incumbent Financial Institutions Fight Bank,” the session featuring senior executives from Goldman Sachs, J.P. Morgan, and Barclays started out with all three stating (a) that they saw fintechs as partners, not competitors; and (b) that they were all working with fintechs, either through accelerators that they had established themselves, or on a product line basis. Tanya Baker, the Global Head of GS Accelerate, represents a bank-owned accelerator, and Dan Packham was there as the Head of Innovation Corporate for Barclays. When I worked for FIS, I was part of the accelerator the company started with The Venture Center in Little Rock, Arkansas, which also supports an accelerator program with the Independent Community Bankers Association (ICBA). Also attending the conference was Ashley Nagle Eknaian, the head of Eastern Labs at Eastern Bank, who moderated a panel titled “New Models of Fintech Evolution,” featuring more innovation leads from Fidelity Investments and Vanguard, along with MassChallenge FinTech.

While there were obviously differences in details between the incumbents, such as whether to sponsor an accelerator, partner with fintechs, or actually host internal innovation labs, a key shared concern was how to bring innovation into the company and overcome inertia or outright hostility. The challenge is that, if you try to have an internal innovation group, as Fidelity Investments or Eastern Bank have, you run the risk of having line employees view the group as a kind of “ivory tower,” without the burden of meeting quarterly targets or running a profit.  On the other hand, if you leave it up to the business lines, they will tend to focus on improving existing products rather than inventing new ones, since their incentives are tied to the profitability and sales of the existing products. One way of dealing with this is to have a rotation program, where product managers and executives from the business lines are assigned temporarily to the innovation group to work on specific projects that they can then build support for upon their return. A less formal mechanism is to involve line of business personnel in innovation projects, either through weekend “hackathons” or part-time ongoing participation.  Another idea offered by one of the panelist was to practice internal “pitch sessions,” where you pitch ideas to the business lines just as you would to a prospective customer or venture capitalist. Dan Packham of Barclays pointed out that there is innovation going on within the business lines, too: in fact, one of his jobs is too connect and coordinate multiple groups in different silos working on the same problem. Along these lines, one of the panelists said that one of the things they want to encourage is everybody being innovative for the firm, not just one area.

One of the keynotes featured Lou Maiuri, the COO of State Street Bank, who claimed State Street is the biggest contributor of code to Hyperledger. Maybe that is just among banks, but still impressive. In addition, State Street is developing global inflation index, which I think could definitely be monetized through an Open API (or just used to add value for clients). In some ways, this incumbent is doing more actual innovation than many fintechs.

In conclusion, the thing I was most surprised by while attending the conference is how the lines have blurred, between incumbent and challenger, between large organizations and startups. Collaboration was everywhere, between groups within large organizations, and between traditional financial institutions and startups. This seems to me a most promising harbinger for the future; rather than wasting time and resources fighting each other, all participants are working together to fulfill the promise of financial services. As one participant observed, if you want to change the world, financial services are one of the best ways to do that at scale.

The post The 2019 MIT Fintech Conference: A Show Review appeared first on PaymentsJournal.

January 2019 marked a year since open banking came into play in Europe. While 2018 saw a steep learning curve for all involved, the next year will start to show serious, market-defining transformation. Will banks manage to capitalise on new ways to stay relevant in the digital era? Marten Nelson, Co-founder and CMO of Token, shares his views.

As we head into the end of Q1, now is an ideal time to take stock. As other regions prepare for their own open banking disruption, what are the main takeaways from the UK’s early experimentation and what do we think the tone for 2019 will be?

2018 was certainly a tumultuous year. This was never going to be an easy transition for established banks, which were suddenly required to allow third parties on-demand access to consumer accounts (with account holders’ consent). Nevertheless, the financial services sector has learnt a great deal about the challenges and potential use cases, which the most forward looking banks and third parties will build on to deliver true innovation in 2019.

Open banking has been the talk of the financial services industry throughout 2018, not just in the media but across the global events circuit. Initially, discussion focused on the challenge for banks striving to fulfil the new regulatory demands.

Teething trouble

Perhaps without appreciating the availability of external help, or out of a desire for control, the UK’s main banks started out by creating their own APIs to allow third party access. In the process, they spent a fortune, duplicated effort, and ended up with something complex, costly and compromising. Things didn’t exactly get off to a good start when six of the CMA9 – the nine biggest UK banks – missed the government’s open banking deadline.

When they did begin to roll out APIs, inconsistent interpretations of standards resulted in a poor developer experience, and limited consumer use. The first wave of offerings were rudimentary bank-specific apps – primarily giving bank customers the ability to view multiple accounts in one place.

Worries about security breaches and data protection headaches also occupied banks so much in the early stages that many failed to see the broader potential.

Shifting the focus: consumer innovation

If banks in other regions have learnt one thing from the UK’s early open banking experiences, it’s that there are external experts who can take care of the technical detail, freeing up banks to apply budgets, time and strategic thinking to creative new use cases – those that will make open banking pay.

In fact, this is probably the aspect of open banking’s progress that has been least well publicised over the past year: the roll-out of real consumer innovation.

In January 2019, just one year after open banking’s launch, the Open Banking Implementation Entity counted 23.1 million open banking API calls – up from 3 million in July 2018. By this time, there were 104 regulated providers, comprising 71 third party providers and 33 account providers.

As new applications have started to take shape, so too has the media begun to illustrate the benefits to consumers – for example, via apps that take people’s ‘loose change’ from eCommerce and in-store card purchases and invest it.

Building society Nationwide has embraced open banking’s potential to reach out to previously unserved sectors of the market, establishing a fund and inviting third parties to devise apps to help financially-challenged households better manage their money. Elsewhere there are now facilities being developed to block potentially harmful forms of spending such as gambling.

The market won’t wait

The realisation is growing that open banking offers a path to new revenue potential. PwC and the Open Data Institute have calculated that, by 2022, associated opportunities could be worth £7.2 billion. And, with all of the main UK banks now live with the most recent open banking standards, activity is heating up.

Token, Yolt and Barclays were among those to claim critical ‘firsts’ powered by open banking in 2018, enabling easier payments and smarter money management for consumers, and shining a light on what’s possible.

We can expect a rush of increasingly ambitious use cases in 2019 to make open banking more tangible and attractive to consumers and those vying for their attention. One helpful development would be to stop using the abstract term ‘open banking’ when communicating to consumers, emphasising instead what they stand to gain.

In the meantime, banks and their partners still have some strategic decisions to iron out. Many proprietary bank APIs remain unstable, as I saw when we attempted a live demo of a TPP initiated payment at Merchant Payment Ecosystem in Berlin which failed due to technical issues on the bank authorisation side.

Third parties relying on them need to apply pressure on the big financial heavyweights to address their stability. Beyond Europe, it’s likely that financial services entities will bypass such API headaches altogether by choosing established, independent APIs with built-in security, high performance and more.

The post 2019: The Breakthrough Year for Open Banking appeared first on PaymentsJournal.

There are some well know names in the BaaS List including BBVA Compass, Capital One, Silicon Valley Bank and Citi to name a few. But what really is the difference between traditional banking, BaaS and “Banking As A Platform” (BaaP)? Traditional banking works off a platform that is programed for a specific entity that does not allow the ability for others to leverage its technology.  BaaP is a banking platform that allows the platform to offer BaaS.  Whereby BaaS is the mechanism thought which specific services are offered without purchasing the entire BaaP, meaning the sharing of the infrastructure.

Interview Highlights

Dov Marmor, Head of Banking as a Service at Green Dot Corporation shares his thought in the Fintech podcast. Yes, Green Dot does push its prepaid debit cards for sale at places like CVS but it’s also expanded into a banking service that allows companies like Uber, Walmart and fellow Fintech-ian Stash Invest to facilitate financial services.

You are the Head of Banking as a Service at Green Dot. Explain exactly what that means.

Banking as a Service is our term for our partner banking and payments and card businesses that we operate. Essentially, it’s a platform that is the end-to-end infrastructure for managing a banking or payments program at scale. We allow other companies to link into our infrastructure to design, develop, imagine, sky is the limit as to what they want the future of financial services to look like. Through that partnership, Green Dot is able to take care of the regulated and the infrastructure piece while the partners can truly innovate and create the next generation of financial products for their customers.

What is the biggest challenge facing banking as a service right now?

I think the biggest problem that we’re all trying to solve is how do we teach every individual in this company personal financial management. Now that’s something that they don’t teach in school. You learn about Moby Dick and Huck Finn and economics and this and that, but no one ever tells you what to do with your paycheck every month or how to invest in the stock market or how to optimize your taxes. I think that’s probably the biggest underlying problem that everyone’s trying to solve and the partners that we work with have just really innovative ideas on how to encourage some of those things. 

Is the target Green Dot Banking as a Service customer any business that requires some sort of online payments tool or banking tool?

That is definitely a subset of the customers. I think that if you see a financial service as being valuable to your customer and integrating that financial service in a seamless way so that it feels like a part of your platform, I think banking as a service is a perfect option.

And when I say it’s not just limited to payments, what you might actually want to have is an account that lives within your platform. What you might want to have is a payment vehicle so that you can pay people but also give them their first bank account on the back end.

So, all these different pieces. It also might be the ability to text money to your friend. Any one of these items we’ve developed the underlying infrastructure to make that happen and then the partner puts their own little magic pixie dust on top of it by creating this really unbelievable user experience that ties to another ecosystem.

Banking and payments have come a long way in the last 10 years and will continue to evolve and change the way consumers bank and pay.  Bank accounts will no longer be availabe only at and through a regulated bank, but through entities that offer the service to the public through many different intermediary’s from the public’s perspective, as will payments.  One does not have to look far to find them … PayPal, Square, and all the Pays (Apple, Android, Walmart, etc.)

Overview by Sue Brown, Director, Prepaid Advisory Service at Mercato Advisory Group

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It’s the start of a new year and therefore a good time to assess the past and think about what’s ahead. Last year we saw the launch of the first new core payments infrastructure in the U.S. in more than 40 years (TCH RTP), the release of a New Payments Platform (NPP) in Australia and the implementation of Open Banking CMA9 in the UK which laid a strong foundation for 2019. Looking at the “crystal ball” to see what we can expect in 2019, I predict the following four areas will fundamentally change the future of payments.

Change the plumbing

Retail customer expectations have evolved thanks to the rise of real-time sharing of information – from Twitter, Instagram, Snapchat, etc. Retail consumers expect a seamless flow of information, instantaneously and 24x7x365. They also crave the same kind of service from their payment’s infrastructure. Consumers are expecting their payments to be instantaneous, ubiquitous and always-on, with the ability to add their own information (or Emoji’s as is the case with Venmo).

If the information-rich, real-time payments service is available to retail banking consumers, then the corporate banking consumers who actually pay for that infrastructure want speed combined with enhanced data flow to support their increasingly digital business. Corporate/Transaction Banking consumers are looking for faster, seamless, cross-border payments along with the ability to track the payments in real-time with transparency.  This has led to the rise of new payments infrastructures across the globe, like the implementation of UK FPS, Singapore G3, Australia NPP and EU Instant SEPA. In 2019, North America will continue to play catch-up with Canada already launching a modernization initiative and the Federal Reserve seeking public comments in Oct 2018 on what could be “potential steps” that could be taken by the Fed “to support the vision of RTGS [real-time gross settlement] of faster payments.” Even international payments underwent a change by launch of SWIFT GPI. In 2019, I expect this change to start accelerating rapidly, with corporations jumping on this bandwagon. There will also be an increased focus on standardization using ISO20022 message formats, with EBA’s EURO 1 migrating to ISO 20022 in 2021 while the FEDWIRE & CHIPS are currently scheduled to move to ISO 20022 by 2022.

Mine the Data

In 2006, loyalty marketer Clive Humby declared data “the new oil” – a resource with the same transformative, wealth-creating power associated with fossil fuel. Payments data is commercially the “sweetest oil” because it helps close the loop on the information flow. That’s why the big tech giants including Google, Apple, Facebook and Amazon (GAFA) want to be a part of the payments landscape. Accurately closing the loop between advertising and what’s sold allows GAFA organizations to know what is working and what is not. For example, they want to know what the consumer actually bought and for how much, based on targeted ads. This allows GAFA to price and improve the marketing. Additionally, it allows them to build a “payments” profile for credit scoring, buying patterns, returns processing etc.

Corporate consumers are also looking for more information about their own payments and liquidity profiles. They want to get real-time insights combining the payments data with their own internal data sources like inventory, RFID tracking and invoices to help them perform cash forecasting, reconciliations and treasury functions much more efficiently. The new payment rails will be based on ISO20022, which will support the creation of enhanced data intensive services. This year we’ll see a close and real-time coupling between payments and analytics engines.

Lego bricks, not monoliths

There is a rise of Open Banking/PSD2-like regulation across the globe. Either through regulatory means or due to market pressures, I foresee that payments will no longer be the monopoly of the banks. The banks will be forced to open the ability to initiate and execute payments to Third Party Players. We have already seen the rise of Payment Service Providers (PSPs) like Adyen, Klarna, Alipay, Square, Paypal etc. which are not banks per-se. With PSD2 coming into effect in September 2019, we will see the world move away from a product-centric view of payments so entrenched within the current banking world to a more services-based view leveraging APIs and micro-services. We should see new and innovative services coming to the forefront by combining other services like Fx, Credit, Accounting etc. Already, the likes of BBVA, Nordea, Visa, and Mastercard have started providing premium (non-free) APIs to developers and TPPs to offer services beyond simple payments and card authorizations.

Organized Fraudsters

Enhanced security in this new faster and open world will continue to be a focus this year. We have seen several high-profile breaches in the recent past, including the Bank of Bangladesh hack using SWIFT payments, the Equifax breach of Social Security numbers, birth dates and home addresses for up to 143 million Americans, and the most recent 380,000 sets of payment details stolen from British Airways. The sophistication of these hacks combined with intricate knowledge of how the payment systems work leads us to believe very focused and organized minds are behind these hacks. Card no present (CNP) frauds are on the rise and will increase exponentially with real-time payments and open banking. LexisNexis’ annual True Cost of Fraud survey for 2018 found that fraud cost represents an average 2.10% of mid/large m-Commerce digital goods merchants’ annual revenues. However, all is not lost. Newer tools like AI/ML, geolocation, digital identity etc. can make tremendous impact. This year, we will see a rise in spend in tackling these issues by leveraging the advances in the technology.

Final Thoughts

All the areas I’ve outlined above are interdependent. The new payment rails have incorporated features to support enhanced data elements and overlay services in their design. Real-time payments and open banking both have significant impact on fraud management. So, while none of these trends are individually prophetic, together they will lay the ground for a completely new payments landscape in 2019.

The post 2019 Forecast: Four Predictions in Payments appeared first on PaymentsJournal.

As the shift towards open banking gains speed, it’s time for financial institutions around the world to recognize this for the huge opportunity it represents – rather than as yet another threat, inconvenience or compliance challenge to gear up for.

It’s likely to be a popular topic for discussion at this month’s Sibos 2018 in Sydney. Here, financial services organizations will come together to debate where the industry will head next in the context of increasing deregulation and disruption.

For overwhelmed bank leaders, it helps to look at developments through the eyes of the consumer. Boiled down, open banking requires that banks play their part in enabling financial service innovation. They can no longer monopolize customers’ data and, in the process, curb the options for how individuals manage their money. Spun more positively, open banking is a chance for banks to show just how customer centric they really are: “Look at all these apps and services you can use now, because we’re partnering and innovating to bring you the latest financial tools!”

A chance for reinvention

Done properly, open banking could win back business for established banks – turning jaded, disappointed customers into born-again brand ambassadors: “My daughter was stuck in London with no money, but I sent her some via the app on her phone and she got the next train”; or “I can now see and manage my pension, mortgage, current account and credit card all on one screen.”

This, and more, is the promise of open banking: a chance for everyone to play a role in better, more creative services for customers.

The key for banks is not to be sidelined and thereby allow newcomers to take over their customer relationships and earn all the revenue – much as telecoms companies have to be careful about over-the-top/bundled content providers (such as messaging platforms, streaming apps and gaming companies).

So if there’s an app to help a group of friends split the check in a restaurant, or to squirrel away the small savings made each time someone walks rather than gets the bus, or brings a flask instead of paying a barista for coffee, the bank gets at least some of the credit.

Lessons in prioritization

By getting in early – embracing open banking and forging an app ecosystem – traditional financial institutions can establish a sure footing before challengers, including technology and e-commerce players, beat them at their own game. Banks in Asian markets and parts of the Middle East are already excited by the potential, while Australia’s financial community is keen to lead with new service innovation. But what is their best chance at success?

Among the many lessons to be learnt from Europe’s early experimentation with open banking is the need for decisiveness and speed. This must start with liberation from the ins and outs of systems and data integration. However ambitious banks aim to be, they shouldn’t get bogged down with thoughts of developing the enabling software themselves if they want to reap the promised benefits within an acceptable timeframe.

In other words, they must avoid being sidetracked by details around the interfaces required to connect up, secure and drive the enabling data or payment reconciliation as new services are created. There are companies that can take care of all this technical detail – freeing up banks to capitalize on the shift in business model that open banking enables.

Agility through affiliation

One of the main determinants of success with open banking will be how quickly and easily banks can form new partnerships and smooth the joins between their respective activities. And preferably not one application at a time – which would mean great cost, and involve extensive specialist labor.

The less obvious danger of inertia is losing ground to peers. A 2017 report from consultants EY suggested that the biggest near-term threat to most banks comes not from fintechs, but from traditional competitors better leveraging their solutions. “Our analysis of 45 major global banks reveals that while all banks are engaged with fintechs one way or another, only around a quarter are extensively engaged due to barriers to collaboration,” the authors noted.

This is the real challenge, then: being able to connect and co-innovate readily with third parties. It isn’t setting up a whole new specialist business unit to look after open banking. As many banks will have learnt the hard way, future-proofing their operations has less to do with developing a digital strategy and far more to do with evolving their banking strategy – leaving technology experts to do the physical enabling.

Trying to go it alone and do everything from scratch isn’t practical or efficient – certainly not in a fast-paced digital world populated by impatient consumers with high expectations. Agility and success depend on hooking up with teams who’ve done this before, and have the skillset and knowledge to help them out-innovate the competition.

Token is exhibiting at Sibos Sydney from 22 – 25 October. Meet Marten at Discover L4, booth DZ05, to learn more about how APIs improve the payment experience, drive new value added services, and why European legislation is the springboard to enabling businesses across the globe to harness the power of open banking. Marten will also join the panel “Open Banking: Australian & International Perspectives” on Tuesday 23 October at 11:45 on the Discover stage: http://bit.ly/2CUGMI9

The post Open Banking Goes Global appeared first on PaymentsJournal.

Now talk about a somewhat surprising headline. This posting appeared in Global Finance and perhaps what surprised me the most was that the summary conclusion is based on takeaways from a treasury management conference in Europe.  Given that PSD2 (essentially the official launch of an open banking era across the EU) went live back in January 2018, certainly there is more to the story.

“Approximately 60% of treasurers believe PSD2 and open banking are not relevant to them, according to a live audience poll at Eurofinance’s International Treasury Management conference in Geneva on 27 September….The Revised Payment Services Directive (PSD2) went live on 13 January and promised to open up a new world of third-party payment and banking services to businesses and consumers that grant access to their bank account information.”

As it turns out, the major implementation efforts have taken place more in the UK than across all of the EU, since there is some wiggle time for the broader EU adoption.  One would expect however, some more detailed understanding by regional treasurers of such a defining regulatory directive with broad implications (and a fair amount of publicity).  We tend to think that this is because, generally speaking, PSD2 has been considered more of a consumer impact (retail banking and individual payment services) than on the corporate space.  This is of course true to an extent due to the need to gain client approvals, and in corporate payments/banking things are always more complicated.

‘However, EuroFinance plenary session panelist Paul Misere, EMEA treasurer for Dutch medical technology company Medtronic, said that until he was asked to speak on a panel about PSD2, he’d never heard of it. “I had to Google it,” he said. “PSD2 and open banking is not a hot topic for a lot of multinationals. Treasurers need to have a dialogue with their banks about the opportunities open banking provides,” he added.’ 

The article goes on to point out many of the potential benefits to open banking from a corporate perspective, so obviously this will ramp up over time, and is certainly one reason why API usage is gathering such momentum in markets not under regulatory pressure around open banking, including the U.S.  The view in most other markets is more from a competitive perspective, in that clients are expecting better services, so let’s use technology to get there.

Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group

The post Treasurers Don’t See PSD2 and Open Banking as a Priority appeared first on PaymentsJournal.

NEW YORK, LONDON, DUBAI, MEXICO CITY, 2 October 2018– Volante Technologies Inc., a global provider of software for accelerated end-to-end payments processing, today announced that Qatar Islamic Bank UK plc (QIB) has selected VolPay Channel: Open Banking and Token to implement PSD2 compliance for the bank.

Building upon Volante’s partnership with Token who provide PSD2 compliant APIs, VolPay Channel: Open Banking will deliver a complete out-of-the-box solution for handling complex orchestration related to PSD2 regulation, along with flexibility to handle the evolving Open Banking landscape.

VolPay Channel will not only manage the two-way communication between the API layer and the bank’s systems, but also tie the authentication and execution of the payment into a meaningful user journey across multiple use cases. The solution has been designed with interoperability in mind, providing banks with an option to work with multiple TSPs in one or more geographies. As with all VolPay Suite products, the solution includes high degrees of automation enabling a rapid implementation with minimal disruption to QIB.

Nadish Lad, Global head of Payment Products, Volante Technologies, commented, “Banking practice and regulation is changing faster than ever and it is important to lay down a firm foundation for Open Banking and payments orchestration rather than embarking on piecemeal development. The complexity is not only in the integration, it is also around adapting multiple use cases for a seamless improved customer experience.”

Philip Benson, Senior Operations Manager, QIB (UK), commented, “By using Volante’s ready-made PSD2 solution, we are able to become PSD2 compliant within only a few months, without having to divert costly IT resource to the project. This enables us to focus on our core business and we continue to serve our UK clients in the best way possible.”

The post QIB (UK) plc selects Volante Technologies’ PSD2 Open Banking solution appeared first on PaymentsJournal.

HOSTED BY: Ryan McEndarfer, Editor-in-chief at PaymentsJournal.com with Aaron McPherson, Vice President, Research Operations at Mercator Advisory Group

While some of our listeners may be familiar with the concept of open banking, for those who are not, can you give us a brief overview of what open banking means? And also what are some of the applications and services that open banking is addressing?

Mark Atherton, Group Vice President of Financial Services, Global Business Unit at Oracle

Sure. Open banking is rooted in the idea of data sharing between a bank and basically an unaffiliated third party. The concept isn’t entirely new, but some of what we’re doing in open banking is new. The key enabler is all around API, which is an application programming interface. And again APIs aren’t necessarily new. They’ve been used for decades in banks but typically to move banking information like a balance between a bank and accounting software. What’s new now is we’re using APIs to actually do banking activity like payments. APIs have been around for a long time. That’s pretty well established. Some of the earliest adopters were eBay or Google Maps when Google was creating mashup applications, leveraging Google Maps. But these were closed APIs, and the terms were defined by Apple, eBay, or Google. Open APIs, or open banking, the terms around the APIs are really established more by the regulator and have a common set of terms that banks are being forced to conform with, as opposed to banks pushing their own terms for the APIs out there. The European regulators spurred a lot of this effort. They started with the Payment Services Directive in the early 2000s and then came out with the revised directive, which is known as PSD2, in 2015. Again, the idea was really to spur Innovation. And PSD2 really was a launch point where we saw this really take off. It drove the banks to have to open up their banking capability and allow innovators outside of banks to create services that consumers could use and then actually reach their funds and use that through third-party services.

Aaron McPherson, Vice President, Research Operations at Mercator Advisory Group

Yes, and I think in some of the research we’ve done at Mercator one of the opportunities we’ve seen is that banks who have spent a lot of money on things like identity verification services and fraud scoring can use open APIs as a way to monetize those services outside of their regular ecosystem. So if you look at what these as done with their authentication API portal, they’re actually combining solutions from a number of different vendors and making that available. I think that’s a model that we’ll see some banks adopt if they’ve got some specialized capabilities in-house.

What is behind this industry push toward open banking, and how do you anticipate the shift toward open banking will impact the relationship between traditional banks and fintechs?

Mark Atherton, Group Vice President of Financial Services, Global Business Unit at Oracle

The initial push again came from European regulators. The UK in particular probably had the strongest push, and it was rooted in the sense that banks are holding their customers hostage. Banks were slow to innovate, but consumers really couldn’t do much about it. Some interesting services were available to consumers, but if you couldn’t connect them to the bank, it didn’t really matter. And so the banks saw them as competitive and they held them out, and that’s where that friction was in the market. Today you have a case where you’ve got applications like Mint here in the U.S. that have really strong money management service including electronic bill pay. That service isn’t very interesting if you can’t actually do the electronic bill pay. So now we can actually connect those applications to the banking services and create some pretty interesting capabilities. Early players tried to get you to transfer your money from the bank to the new service, but that really never took off. So now through APIs we can actually connect and embed these services directly into a banking application and pull banking services directly into a third-party service. Zelle is an example where you see this going both ways. Many banks embed Zelle into their online banking applications. But you can also use Zelle as a stand-alone and connect bank data so that you can do real-time payments out of Zelle. 

Aaron McPherson, Vice President, Research Operations at Mercator Advisory Group

Yes, I think one of the things that people have started to understand is that banks have understood is that fintechs often have an advantage in terms of customer intimacy and their ability to respond quickly to changing market needs, whereas fintechs have realized that banks have the scale that they need and that it would be very expensive for them to build on their own. So there’s kind of a complementary set of needs here, which is why there’s more interest in working together and that’s why there’s more interest in creating open APIs that make it easier to work with fintechs. It doesn’t have to take years to get up and running with them.

Now Mark, as you pointed out, regulations and rules mandating open banking were enacted in the U.K. earlier this year. How are U.S. banks addressing open banking, and do you expect similar regulations to be passed here in the U.S.?

Mark Atherton, Group Vice President of Financial Services, Global Business Unit at Oracle

So right, it was rooted in EMEA, in the U.K. in particular with the regulators and that has started a movement that has pretty much taken hold globally and certainly in the U.S. U.S. banks are responding, you can see this today, with lots of services that are available through and connect to your banks. So I gave an example of Mint. There’s examples of Zelle. Venmo is used widely by young people that do payments and so it’s out there. It’s real. It’s taken hold. You probably wouldn’t necessarily see regulations to push the movement here in the U.S., especially because we are going into sort of a negative reaction to increased regulation right now in the U.S. But you could see regulations start to come up as you get into data privacy fraud and some of those issues. The initial impetus to actually to drive it and push the banks to open up, a lot of the bigger banks are able to respond to that and have done so. Some of the smaller banks — just from costs, investment, and others — you think of community banks, credit unions, they’re probably more challenged. I don’t know that regulation is actually going to push them to do it. There’s probably a different issue.

As banks open up to third parties, they face a challenge of managing the exposure of customer data. How can banks address the potential cybersecurity challenges of open banking?

Mark Atherton, Group Vice President of Financial Services, Global Business Unit at Oracle

Well, banks invested a huge amount in data privacy and fraud [management] in particular. today. It’s pretty well managed and as they open the APIs, there’s significant testing that’s done. If you’re going to connect to those APIs, you’ve got to prove data security abilities of your applications to the bank so that those connections are made. It is interesting question, and I think this is going to evolve, is where is that line around fraud drawn today? If somebody gets into your banking application for whatever the bank is and commits fraud, usually the bank is going to back you up and cover the fraud liability. If somebody gets into your bank account through a third-party application, the bank is probably going to push back and say, “Hey, as a third-party developer you created an application. The consumer was tricked into opening the application. That way fraudulent payments were made. That’s on you not on us as the bank.” Probably that’s an issue out there certainly that everybody’s thinking about.

Aaron McPherson, Vice President, Research Operations at Mercator Advisory Group

I think one of the challenges is that consumers may hold their banks responsible even if legally they aren’t because they’re accustomed to their performing that role. All of you’ve seen some of that with Zelle, where people have used the service in ways that it wasn’t intended, got burned, and then found that their bank was not willing to cover them.One of the things that you’re giving up perhaps unwittingly when you use a real-time payment service versus a card is you’re losing that zero liability guarantee. So I think communication is important and consumers need to understand who’s responsible if something goes wrong. It’s a challenge for banks to communicate that, especially when working with third parties, and it may be something that the banks want to consider actually charging for. One of the things you can do when you’re making an agreement with a fintech is to charge them for insurance essentially so that if something goes wrong, you will cover it, but they have to pay a fee for that. And that’s another way to leverage the fraud management capabilities that banks have invested in.

As we look forward, what are the other challenges that will be present with open banking to banks? 

Mark Atherton, Group Vice President of Financial Services, Global Business Unit at Oracle

Well, it’s interesting to categorize, if you start to segment the banks, that’s when this question starts to become interesting. If we think of the four largest U.S. banks and then the super regionals, they have very sophisticated IT teams, very sophisticated security teams, lots of capability in technology. Most of them are on the forefront of all this. Now they have API strategies and the rest. Now when you get into community banks and the credit unions, that’s where this probably becomes a bigger challenge. In many cases they’ve actually outsourced a lot of their technology to third-party providers and their internal technology capability is incredibly limited. So they already see some challenges just in digital banking and the kinds of digital services they would offer as a bank because really they have very limited capability to build those on their own. And so now if they have to invest in infrastructure and capabilities around open banking, it becomes that much more of a challenge because many of the platforms that are run today by the big third-party providers in the U.S. aren’t API enabled. And they’ll go back to the banks and say, “Look if you want APIs and this stuff, then you’ll have to pay to build it out as you would expect, and it’s very expensive.” We already know that the community banks and credit unions are under a tremendous amount of pressure. We lose 200 or 300 every year in the U.S. This is probably another big heavy log on the load that they’re trying to pull and survive. I think that the smaller banks are probably the ones that have the biggest challenges with this.

Aaron McPherson, Vice President, Research Operations at Mercator Advisory Group

Well, I know that some of the processors that we talk to who work with credit unions actually see this as a business opportunity that they can work directly with some of these fintechs and provide an integrated turnkey service to their credit unions and to community banks. I think there’s a big role for processors and technology companies to digest this and make it available and provide a lot of the support for it so that smaller institutions can take advantage of it.

That leads us to the million dollar question: How can banks embrace open banking and make it work for them and for their clients?

Mark Atherton, Group Vice President of Financial Services, Global Business Unit at Oracle

You’ve got to get into it, and you’ve got to get started. A lot of banks are probably going to be slow to the move because nobody wakes up in the morning like “Hey, I really want to change my bank today,” right? I want to resettle my cards, my accounts, my balances, my bill pay, all that stuff. So it’s easy to get complacent around this. For the large regionals obviously, accelerate the path toward APIs and getting the applications API enabled. There’s services firms that can help build those APIs. Oracle has an entire set of over 1,500 banking APIs, and we have supporting services in managing APIs, running APIs in order to support things like that. We see a lot of traction around that in the U.S. And then the second point is, get back to innovation because the APIs open those channels, but at the same time, there’s nothing that prevents you as a bank from doing a lot of the same things that fintechs are doing. I think there’s an interesting question here, and Aaron brought this up earlier, is the battle between a third-party provider and a bank of who’s going to be responsible for fraud. If you’re using the banking application, the banking capability, the bank’s going to stand behind you. You can use a third-party service, but if you unwittingly open that up and you’re a victim of fraud, the bank probably isn’t going to stand behind you on that. We know in the U.S. that there’s 10 to 15 million victims of bank fraud every year. The cost associated with that, estimates range $8–15 billion a year. Banks would love to see some of that move on to somebody else. And that’s what’s out there. I think banks continue to be in a really good position to innovate and provide these services. Back their customers with the standing of the bank, and they are positioned to weather through all of this.

So before we close out this conversation, is there anything that you’d like to add?

Mark Atherton, Group Vice President of Financial Services, Global Business Unit at Oracle

No, I think that, it’s an interesting and very exciting time in banking. And the move toward fintech, and investment in fintech, is significant. A lot of it is going into lending. A lot of it is going into payments. Banks have certainly taken notice. I think this has spurred banks to do more to innovate probably than we’ve seen in the last 15 plus years. This is an interesting time in this market. And you can see the banks putting out a lot of really interesting services. You see them investing in fintechs, like the Wells Fargo investment in Zelle. Then you see some really cool third-party applications come up that benefit consumers. Banking has been pretty slow to innovate. You think of the things that you could do online, you know with an airline ticket, or even with your cable provider you can do things from a set-top box or from a phone, and yet it’s really hard to just get to manage and move money. This market is finally going through its transformation and you know, obviously we’ve got a framework now to do it through the open banking efforts.

Aaron McPherson, Vice President, Research Operations at Mercator Advisory Group

I think in Europe one angle that we’re seeing that is a little different from the bank and fintech angle is that banks are actually using the APIs themselves to communicate with each other. One of the challenges that banks have traditionally had, which is getting a good picture of their customers’ total financial activity, is now becoming easier because they can access that information such as balances through these open APIs. I think it’s enabling banks to provide better service and they might not even be a fintech involved at all. Or again, banks might if they have a particularly strong capability, try to sell that through open API. So I think we’re going to see a lot of interesting models coming out in the next couple of years as standards get resolved and as pilots get completed. It’ll definitely be interesting to check back and see how things have developed.

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To be a leader in digital and innovation Barclays becomes the first UK High Street Bank to allow customers to bring their current account into its mobile banking app.

Announced on September 12th customers who have personal or business accounts with Lloyd’s, Halifax, Bank of Scotland, RBS, NatWest, Nationwide, or Santander can choose to quickly and securely view their balances and transactions when they log into the Barclays mobile banking app.

This new feature runs on an open banking API technology. This technology according to Barclays is designed with customer security at a hart and customers will also be able to view all their data permission history for added security and peace of mind. In addition to safety, Barclay looks to make this customer experience seamless by allowing them merely selecting there are other banks from within the Barclays mobile banking app at which point they will be securely redirected to there other bank’s app or online banking page to choose which accounts if any they would like to connect with. Once the account connection is made the user then can disconnect the account at any time.

When asked about the app improvements Catherine McGrath, Managing Director of Retail Banking at Barclays stated, “Today, lots of people have current accounts with more than one bank, so keeping track of your finances can be tricky as well as time-consuming. Our new feature is designed to solve this problem, offering a simple and secure way to get a clearer picture of your finances, all in the place six million of our customers already go to do their banking.”

As more UK Banks start to adapt and enable this open banking API technology into their platforms, US financial institutions should pay very close attention to consumer behaviors and trends as they could provide critical data on opportunities and threats of enabling this new technology.

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