In his Finextra interview Jim Wadsworth, SVP Open Banking for Mastercard, explains that while PSD2 legislation has driven the trend in Europe they are seeing it as a global opportunity.
Jim defines Open Banking as enabling customers to have full control of their account data and the ability to release that data to appropriately qualified third parties, enabling and encouraging innovation and competition. He sees it as a milestone for the industry as important as the iPhone.
When asked the question of when he believes it will become mainstream, he describes a timeline of 2018 seeing banks finalizing the basics of their API platforms, and early to mid 2019 seeing the start of accelerating growth of FinTech innovators making use of them. By volume of transactions it could easily be comparable to the cars industry.
A critical challenge that Jim identifies is the lack of API standardization. A FinTech developer seeking to build a new service that accesses multiple banks will have to re-engineer an interface for each one – There are six different standards in Europe alone.
However this also begets an opportunity, for players such as Mastercard to aggregate all of these different APIs and offer developers a single one stop shop for connecting to them. They recently signed a deal with Token to provide for such a platform.
Another issue is accountability : If a third party app goes wrong in some way, even though it’s the responsibility of the FinTech developer who built it, customers will see the banks as being accountable. Jim sees the solution to this being some form of real-time audit of the third party providers, and is also actively exploring a new potential set of rules for settling these types of disputes.
In terms of how the traditional players will advance the industry Jim reflects the same vision described by Token’s CEO in his interview., moving beyond simple PSD2 compliance to instead an era of API-Enabled Banking, such as offering account aggregation services and innovative new lending facilities.
The Battle Between Payment Giants
Writing for the Payments Journal industry expert Tim Sloane describes the Battle Between Payment Giants, exploring the changing market dynamics Open Banking is driving and how huge players like Mastercard and Paypal may inter-operate and/or compete.
Mastercard is making a number of strategic moves, building out capacity through leading a multi-million pound pre-Series A investment round in Konsentus, a regtech company that helps financial institutions become PSD2 open banking compliant, and employing new roles such as an Open Banking Products Director.
Their acquisition of Danish payment-technology company Nets for €2.85 billion is the largest in their history and will gain them infrastructure, bill-payment technology and open-banking capabilities.
They are also very actively bringing new service innovations to market, that these capabilities make possible, such as a new service with Lyft, to provide a co-branded debit card and bank account issued by Stride Bank and powered by Payfare to their drivers, with hand-picked benefits including immediate access to their earnings, secure, no-fee bank accounts and cashback on everyday purchases.
Other key payment innovations include Payment on Delivery, a new solution allowing businesses to pay a supplier in real-time when receiving goods or services, and they are one of the early leaders offering biometric payment cards.
They rolled out Bill Pay Exchange to make it easier for consumers to view, manage and pay telecom, utility, rent, credit card, mortgage and other personal bills without having to set up accounts with different billers, remember multiple passwords, and log in to multiple websites.
Through partnerships with four eCommerce retailers — WHSmith.co.uk, Funky Pigeon, Cult Pens and The Card Gallery, they are offering online shoppers a Pay by Bank app (PbBa) — created by Vocalink, a Mastercard company, this leverages the U.K.’s Faster Payments service to give users the option of paying for goods with their bank account. This bypasses the need for entering payment information and passwords, simplifying the buying and payment process.
The Paypers reports on this deal, within a context of describing the hugely important Instant Payments market, noting that:
Mastercard’s Pay-by-bank-app is not Open Banking in the true sense of PSD2 Open Banking, but a proprietary solution with its own APIs designed for its distribution partners. Conversely, it is a taste of what Open Banking could bring to merchants in the future, not just in the UK, but all over Europe.
and also identify a critical market insight:
Merchants have not fully appreciated the huge implications of Open Banking for their own businesses and for their customer’s payment checkout experience. Potentially, part of the reason why merchants have not embraced Open Banking is because they imagine it is an initiative for banks to create new banking services.
To date Open Banking has been thought of mainly through a context of consumer lifestyle banking apps, those that enable new savings features for example.
Given merchants are the ‘tip of the spear’ for driving online payments, once the trend manifests itself through e-commerce features that facilitate more online sales, then truly the dam will be burst. By using immediate payments rather than traditional card payments, merchants will not only receive their funds faster, but the processing fees are expected to be less than for card payments. These kinds of benefits will act as massive drivers of uptake by merchants.
Call it instant or call it immediate, the genie is out of the bottle and Open Banking will be the catalyst.