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We are all familiar with the revolution of Open Banking in the financial industry.
It promises to drive innovation and make it easier for customers, banks and other third-party providers to share data but what does this really mean for your business and how can Open Banking affect you?
In this episode on The Payments Podcast, Charles Bennett, Head of Propositions explains what SME’s can do to take advantage of Open Banking to give them a strategic advantage. We also look at where we can expect to see the most change, and what businesses should focus on if they want to be ahead of the game.
Rich Williams: The way businesses and banks pay and get paid is changing. Do you know how it will affect you?
Hello, I’m Rich Williams, the host of ‘The Payments Podcast’. Do you remember what you were doing on 13th January 2018? No, me neither, but it was the launch date of Open Banking.
In this podcast, we’re going to talk about how, through the adoption of Open Banking, we’re set to see a whole new payments landscape for corporates. Everything will change, from bringing new, multi-bank payments and cash management capabilities to your business to the way you pay for something with your card online as a consumer.
With me today is Charles Bennett, head of propositions at Bottomline Technologies. Hello, Charles.
Charles Bennett: Hey, Rich.
Rich Williams: So, could you give us a quick summary of what Open Banking is all about?
Charles Bennett: Yes. So, it’s probably easiest to think about what happened before Open Banking. Really, anyone that you held a bank account with, they would look after your transaction data, not share it with anybody, and they would use it for some things but, arguably, they perhaps didn’t use it in the best way possible given it’s such a rich data source.
Since the introduction of Open Banking, which was launched in January 2018- and it was really brought about to increase competition between the banks and increase innovation for consumers and businesses in the UK. So, since Open Banking was introduced, all the banks now are able to share your transaction data with any approved third party that you give approval to.
It really is, effectively, a once-in-a-generational change that has been happening in the background and we’re now starting to see some things on the streets.
Rich Williams: With that in mind, then, and with everything that’s going on in the UK economy so far, since its launch, Open Banking has almost completely faded into the background. So what impact have we actually seen from it so far?
Charles Bennett: It’s a good question. Actually, you’d probably be forgiven for thinking, “What on Earth is all the fuss about?” if you’re not close to it. But I think the important thing is to realise that all the planning and change that’s been taking place over the last few years and the positive intentions around that change are now actually coming to the fore.
Let me give you some good examples of that. The last couple of years, if you work within the industry and close to Open Banking, there’s been a huge amount of background noise and activity within a number of organisations that are looking to make the most of Open Banking. We’re now starting to see some launches in the second half of this year, really. Say, for example, in the consumer space, you’ve got a couple of quite neat third-party apps that have come in, Yolt or Cleo.
What they do is, with your approval, they suck your transaction data and they do some really nice analytics and infographics so you can see how you spend your money on utility bills. Then what they do is they use that transaction data and the very clever insights to recommend quite a customised approach for who you might want to move your bills to.
It’s kind of like Moneysupermarket but a much more informed, intelligent version. Those are really good. I mean, they even proactively can tell you when it’s time to switch again because they monitor the market for you and monitor your spending habits, so it’s quite a neat little consumer proposition there.
Taking a look at the business space, there’s been a large play to make opening bank accounts for SMEs much easier. So, traditionally it’s taken days to open an account. What a number of new entrants have done, and some of the bigger banks, is make it much easier to open a business bank account online within hours instead of days.
Really, what we’re seeing is all the investment in the retail mobile banking space in the last five years is now starting to wash through on the SME side as well.
Rich Williams: If this is just the start for SMEs, or ‘Smees’ and Open Banking, what else can we expect to see?
Charles Bennett: Yes. So, I think in summary, a great deal more from now going forwards. I think a lot of organisations are really taking the right first smart steps into this space.
If you think about the transaction data that exists in bank accounts, one of the biggest problems that businesses face is they hold multiple bank accounts with different banks. It could be several bank accounts for sterling accounts, could be some in euros and some international accounts for dollars and maybe even further afield.
The problem with that is, logging into all these different bank accounts is very time-consuming, very laborious, and it’s just quite difficult to find different transactions if you’re trying to search for them.
What a number of organisations are doing, including ourselves with our cloud platform PTX, is we’re helping customers bring all that different bank account data into one, simple dashboard. You only have to log in once to view all your bank accounts in one place. It makes life so much easier. All our customers are saying this is what they’d like as the first step into Open Banking. So, that’s our first step.
Then you think about: what can you do with that data once it’s in one big repository? It’s really about applying some very clever data analytics and all the latest data science and intelligent tools that exist. If we conceal the data in one place, what we can now start to do is do some more effective cash flow monitoring and reporting. That’s a really nice service that we’re looking at already as well.
Others are also seeing how they can use data to help businesses make lending decisions must fast and quicker, which is freeing up more credit for businesses which is much needed to help them grow in the UK economy.
Rich Williams: What about organisations that wish to make it even easier for their customers to make payments?
Charles Bennett: Yes. So, you may have heard of a term called PISP, which is a Payment Initiation Service Provider. This is a term that Open Banking introduced, and if you are a regulatory-approved organisation and you can prove that you can achieve this PISP status - Bottomline have achieved that - you can actually enable customers to make payments on behalf of their customers.
What that really means in practice, imagine you’re looking on a utility bill’s website. You’re checking the bill, you’re comfortable with the amount of the bill for that quarter. You then normally might then go to your internet banking, have to log in, create the payment, type in the reference number, type in the amount and push that payment to the utility bill provider.
What we can now do, because of PISP, if you’re an approved-status of PISP, you can enable your customer to make that payment from within your estate. Again, if you’re checking your utility bill and you’re happy with it in the bill provider’s portal, what you can then do is enter your bank details there and then and that payment can be made on your behalf.
Really, as a consumer, it’s saving you the time of having to go into your internet banking or mobile banking and initiating that payment. It does make life a bit easier certainly for consumers, and I think billers are also quite pleased about what that might do both in the business and the consumer space as well.
Rich Williams: Would it be fair to say then that this new payment landscape will make a huge change for online retailers as well, for both the organisations themselves and the consumers that use them?
Charles Bennett: Yes, I think that’s true, actually. I think if you look at other territories, certainly within Europe, there are a number of schemes ideal in the Netherlands spring to mind where consumers actually pay for things on the internet using their banking. So, they push a payment to the merchant.
I think, because of Open Banking and all the new ways of working, we could see this coming to the fore in the UK. I think we’d need to get our heads around some of the things such as when you use your card, it comes with certain protections when you’re buying online.
We’d need to look at that and make sure that any use of Open Banking and using internet banking to push a payment comes with the right protections. Or at least, if it doesn’t, consumers are very clear as to the reasons it might be a better choice for them at the point of purchase.
Rich Williams: The innovation in new technology set to be put in place because of Open Banking seems clear. However, what other major changes might organisations see?
Charles Bennett: Yes. So, I think the simple answer there is: a great deal. We’re certainly in a period of unprecedented change at the moment and we’ve really only just begun with Open Banking. If you think about what happened last week, Pay.UK the industry regulator made a number of announcements about what they see as coming next.
That includes things like Confirmation of Payee, which helps to fight fraud, Request to Pay, which helps to improve the bill payment experience for both businesses and consumers, and of course, there’s the New Payments Architecture which is quite a tectonic change in the payments infrastructure.
So, all these new changes, innovations, I think this is why we’re seeing so many people who process payments and that use payments moving to the cloud to insulate themselves from all this change, but also to still be able to benefit from the change as well. I know we’re doing a separate podcast on this in the coming weeks. I’d certainly recommend taking note of that.
Rich Williams: Moving on to some closing remarks now, Charles. Following its understated launch in January, it’s already widely expected that this initiative will become a global phenomenon. Now, as Europe introduces PSD2, Open Banking is miles ahead. Could it create the standardised API that all banks eventually follow?
Charles Bennett: Yes, it’s a good question and, you know, PSD2 and Open Banking are certainly blazing a trail. It’s not a fad. It’s certainly here to stay. We’re seeing a number of similar sorts of changes across other countries. PSD2, as you mentioned. Australia are not far behind, Hong Kong, Canada, Singapore, USA. They’re all moving to these open APIs.
Will they all be the same standard? That’s probably quite an interesting discussion and we’re running out of time already today. Will we see interconnectivity between greater levels of standardisation? I certainly think we’ll see that and I think that will be a great thing to see.
Coming back to the UK, because we’re already in the thick of it and leading the way, many of the global movements around Open Banking are looking at the UK as a leading light, which is great for us. It’s great for the businesses and it’s great for consumers here because we’re seeing the benefits of this positive change before everyone else.
Rich Williams: Very informative. Thank you, Charles. So, that’s all we have time for on Open Banking for corporates, but keep an eye out for separate episodes on PSD2 and the New Payments Architecture.
In the meantime, for more information, you can read the Open Banking White Paper by Bottomline Technologies on our website, on our resource centre, and we’ll see you next time.
Guarav Tiwari, Commercial Product Lead on Open Banking Initiatives and Request to Pay, discusses the impact of open baking and how the overlay services will work.
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