As Open Banking platforms continue to surge in popularity with both merchants and consumers, Michael Bridgman, GoCardless’ Group Product Manager, spoke to Payment Expert about the firm’s corporate ambitions and the state of the market, following the launch of the company’s Instant Bank Pay solution.

PaymentExpert: Can you tell us about GoCardless and your mission as a company?

Michael Bridgman: GoCardless is a global leader in bank-to-bank payments with offices in the UK, Australia, France, Germany and the United States. With our global payments network, businesses can collect payments from customers anywhere around the world through a single technology platform. Each year we process US$20bn of payments across more than 30 countries. 

Our mission is to take the pain out of getting paid for 60,000 businesses worldwide, from multinational corporations to small businesses. We believe that for many businesses taking recurring or regular one-off payments, bank-to-bank payments provide the best way for a merchant to get paid. 

The GoCardless platform also integrates seamlessly with over 200 partners across the industry – such as Tide, Xero and Sage – providing benefits for businesses such as reducing late payments and maintaining healthy cash flow.

PE: Are you able to tell us more about your launch of instant bank pay and what it means for the sector?

MB: We recently announced Instant Bank Pay, a new open banking feature which is directly integrated into our global payment platform. It allows merchants to 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.

Research from GoCardless has shown that 85 per cent of recurring revenue businesses have a need for receiving additional one-off payments. The launch of this new feature means that we can now serve any merchant, whether they have an ongoing or one-off relationship with their customers, and also expand our offering into the adjacent e-commerce market. 

We’ve always believed that bank-to-bank payments are the best way to take payments. Up until now, bank debit has been the best method for this. However, while it provides many advantages to consumers and businesses, speed of payment authorisation is a drawback. 

Now that open banking technology has matured, we’ve addressed this challenge by giving merchants the best of both: open banking provides instant confirmation of payment authorisation and bank debit will continue to solve major cash flow, cost and friction challenges associated with cards. 

This need for one-off payments is evident for GoCardless customers, such as Broadband provider Cuckoo. After using Instant Bank Pay during a pilot, Cuckoo found that two-thirds (66 per cent) of customers who experienced a failed payment were able to benefit from using instant, one-off payments. Of those, 86 per cent were able to make a payment within 48 hours, minimising disruption to their service. 

PE: Has the COVID-19 pandemic had a major impact on both consumers and businesses with regards to the importance of bank-to-bank transactions?

MB: COVID has had an enormous impact on both consumers and businesses globally. One example of this is how the pandemic increased the need for businesses to digitise their services. While this certainly has its benefits in an increasingly digital age, this process has been particularly painful for bricks-and-mortar businesses as well as those that had previously relied on invoicing. For the former, this has involved setting up new payment systems, while for the latter, it’s meant digitising the entire quote-to-cash process. 

As a result, many bricks-and-mortar companies have turned to bank-to-bank payments as a straightforward, low-cost alternative to cards, while invoicing companies are benefiting from the vastly simplified process compared to traditional bank transfers.

Another big consequence of the pandemic has been the impact on business’ cash flow. For small businesses in particular, this is more than just a problem of numbers. Even at the best of times, the emotional toll of late payments is incalculable: sleepless nights, distracted parents at the dinner table, stress, anxiety. During the pandemic in particular, cash flow challenges meant that a single late payment could have been the difference between surviving another month or shutting up shop.

Thankfully, bank-to-bank transactions, which offer lower cost and quicker settlement times compared to cards, have allowed businesses to reduce late payments and keep more of the money they are paid.

PE: How do you believe app-based open banking platforms have evolved payment systems?

MB: Globally, open banking services have fundamentally changed payment systems. iDEAL in the Netherlands, UPI in India and Swish in Sweden are some examples of the immensely popular payment mechanisms based on bank-to-bank transactions. In particular, iDEAL effectively replaced cards and accounts for about 60% of Dutch e-commerce transactions. This has yet to happen in the UK and many other countries with emerging open banking systems. However, international examples show that there is a real opportunity to challenge the primacy of cards and card networks, and build a system based on the direct relationship between buyers and sellers.

In the case of Sweden and India, app-based bank-to-bank payment platforms initially developed as a P2P offering to pay family and friends. Once this soared in popularity, businesses then accepted bank-to-bank transactions as part of their payment process. While we wouldn’t necessarily replicate this P2P model in the UK, it demonstrates the enormous value of customer buy-in when introducing new payment methods; in the UK this buy-in will likely be merchant-led.

Furthermore, data integrations enabled by open banking also offer an opportunity to change payment systems. For instance, by integrating bank data from multiple accounts into their ERPs, larger businesses can get a complete, up-to-date view of their accounts receivables position, without having to download lengthy bank statements. This improves their ability to respond to challenges as well as the accuracy and speed of reconciliation.

PE: How will open banking and open payment platforms assist merchants with better engaging with customers?

MB: Whether your offering is B2B or B2C, customer satisfaction is vital to any business. A big part of delivering that experience is through the payment journey. No one ever really wants to part with their money. But being able to provide a superior customer experience while giving customers the option to choose their preferred payment method, is a great way to convert a potentially negative experience into a more positive interaction.

Open banking payments enable this by converting a bank account into a digital wallet to create a seamless buying experience for B2B and B2C transactions, while providing customers with more choice. For example, for customers who place a premium on low-contact transactions when paying in-person, perhaps due to health risks, QR-code scanning could offer greater comfort than even contactless card payments.

Businesses can also use the data generated to provide more personalised services or payment options to their customers. Where buyers are willing to share information about their financial position, businesses can use this to build payment plans or offer alternatives to help customers manage their finances more effectively and build a more trusting relationship.

PE: Lastly, what are your predictions for the role of fintech in the recovery of economies from the pandemic?

MB: Directly, fintech as an industry offers significant benefits to the UK. Not only has it proven to be a key driver of attracting global talent, but the industry is also a big contributor to the UK’s economic growth. In fact, KPMG predicts fintech’s Gross Value Add (GVA) will reach £13.7B by 2030.

Additionally, as we step into a remote-first working world and high-skilled workers move to lower cost areas of the country, there is a real opportunity for fintechs to distribute the economic benefits of their growth more evenly across the UK. This is reflected in the Kalifa Review of UK Fintech, which recommends building out regional fintech clusters to ensure that growth is distributed as well as possible.

As well as the wider economic recovery, I believe that fintechs will play a vital role to help individual businesses bounce back faster from the pandemic. Fintech lenders, for example, can provide small businesses in particular with quicker access to credit and reduce costs through flexible options that they can use when they need. Fintechs can also help organisations use data and automated processes to reduce the costs of (re-)scaling their business, as well as helping them understand their financial position better; improving cash flow by proactively offering solutions to avoid pending challenges.

Lastly, fintechs can make it easier for consumers and businesses to save by improving visibility on expenditure and removing the barriers to saving. This is valuable on an individual level, but it also ensures that capital is being allocated efficiently; helping businesses to grow while also making money for savers.