The JROC Open Banking report ushered in a new era for the tech as the UK looks to take its usage to a new level.
Speaking to Payment Expert, Nick Reid – the Head of Strategic Growth at BankiFi, analysed the role of Variable Recurring Payments (VRPs) in any future framework and why some of the longer term expectations are ambitious.
Payment Expert: Firstly, are you able to tell us what you made of the JROC Open Banking report?
Nick Reid: Whilst the JROC are still determining exactly what the future entity succeeding the Open Banking Implementation Entity (OBIE) looks like before any transition to a long-term regulatory framework, I commend the desire to not wait until the future entity has been established in order to sustain momentum. This had been a concern cited by some in my network when the Competition and Markets Authority (CMA) announced the completion of the roadmap earlier this year, so I’m sure the announcement will reassure many.
Some of the shorter-term measures are sensible, such as ensuring accountability on API availability and performance. The same can be said for measures around more consistent messaging for errors and payment statuses, as well as stopping discrimination of higher transaction values initiated by third-party providers (TPPs).
At BankiFi, our exposure to OB API availability and reliability is relatively limited because Open Banking is only one part of what we do. However, we are still aware of the issues here and appreciate that many others have been much more acutely impacted, not least the 257 TPPs across the UK.
I think some of the longer-term priorities are ambitious. For example, I’m quite surprised that the report explicitly cites retail as one of the areas where Open Banking payments can pose an alternative to cards. The benefits for merchants are obvious but putting aside the irrevocable nature of faster payments and lack of a formal protection scheme, I think it’s a big leap to expect payers to change their behaviour, especially anywhere a mobile wallet is an option at check-out. There are friction points with payments, including card payments, that Open Banking is addressing, but I don’t see retail as one of those with the most friction.
It will be interesting to see how some of these longer-term themes play out.
PE: What do you believe are some of the key steps that regulators can take off the back of the report to ensure the growth of Open Banking?
NR: I’m intrigued by (and commend) the intention to implement a commercial framework, as I have personally felt that we need the Account Servicing Payment Services Providers, especially larger, high-street financial institutions, to be brought on this journey as willing participants rather than reluctant bystanders, so we have to show them the upside. Premium APIs are cited as one of the ways of doing that, but it’s not the only option. Here at BankiFi, we are also actively working to help banks on this front.
PE: What do you believe the significance of VRPs can be when it comes to the growth of Open Banking?
NR: In general, the ability to help consumers, especially those who may be vulnerable, to manage payment schedules is also a valuable use case. VRPs give them the power to pay partially thanks to their ‘variable’ and ‘flexible’ nature.
VRPs have some very valid use cases. For example, our technology is designed to help SMEs do more from their digital banking channel. If I want to transfer any surplus cashflow to a savings account on a regular basis or set aside funds to cover my future tax obligation, VRP sweeping is an extremely useful way of doing that.
However, I’m less convinced on non-sweeping VRPs posing a credible alternative to Direct Debit for SMEs. Our proposition is about helping SMEs to get paid quickly and boosting their cash flow. Anything that takes payment certainty out of their hands, and puts more control into the payer’s hands, doesn’t help SMEs.
Likewise, allowing a customer to cancel a payment at the very last second hurts a business’ cashflow, as well as creating an admin burden to resolve. Finally, no solution can solve the scenario where a customer has no funds in their account, or has closed their bank account, which are the reasons GoCardless attribute to 80% of Direct Debit failures.
PE: How important do you believe Open Finance is to growing the UK economy?
NR: I think the move beyond payment accounts stands to benefit the personal finance management sector the most, and especially the wealth management sector. I can see obvious benefits for companies working across these fields.
Whilst I believe the UK’s ‘depth of functionality’ approach to Open Banking means it has scaled quicker than the Consumer Data Right system in Australia, for example, I do think the breadth of data sharing across non-financial sectors is an interesting concept. It will be interesting to see how the Smart Data scheme plays out in the long term because I see benefits for consumers and businesses.
