As part of our annual Payments Compliance Outlook report this year, which reveals the need for firms to find a balance between growth and compliance, we interviewed a selection of professionals in the industry for the inside scoop.
Open banking and open finance continue to be exciting market developments that are affecting firms across all jurisdictions in our study. From the ambitious implementation timeline of UK regulators to the EU’s proposed open finance framework, this topic will likely continue to be a top payment trend in 2024. Here, we speak to Andrew Boyajian, head of variable recurring payments (VRP) at Tink, one of the UK’s leading open banking providers, to understand more.
Open banking has been around for a while now and, initially, consumers weren’t very aware of it. Do you think that’s changed now?
We have approached a place where there is a nice intersection. If we zoom out, it is nice to reach a place where we can see the progression to open banking. This originated with Diners Club in the ‘50s, and then Visa launched in ‘58, and then we saw the beginnings of Mastercard.
What worked in the card example was the building of demand. We are seeing consumers beginning to become more expecting of things like speed, and convenience. Merchants are looking for high conversion rates, and demand is now building for these solutions that open banking can power.
We are seeing more and more banks consider their strategies. On the experience and trust front, we are getting better and better with payments. You now just need a face scan for biometric SCA, for example. This was not the case a couple of years ago.
The experience with open banking is also now far, far better than it was. Consumers are seeing this out and about. It is no longer a strange payment form, similar to how Diners Club evolved. When these elements come into place is when we will see a tipping point.
Vixio has recently seen an uptick in regulatory activity for open banking in the UK. What are your thoughts on future open banking regulatory developments?
I'm really excited about the regulatory activity that is happening. One thing with inertia to me was an area dedicated to variable recurring payments (VRPs).
Moving from a single payment to VRP environment. This means repeated transactions and not single, immediate payment. This is exciting as there is some effort to get technology to market. We're beginning to see pilots and proofs of concept. This is very encouraging to see, and the focus for regulators is on benefitting end-users and addressing pain points. There have also been recent developments with PSD3 and PSR in the EU. It is encouraging that as well as developments with the SEPA payment access scheme, we are seeing the building blocks that are required to kick off open banking momentum. This has all happened in just a few months.
What are the key use cases for VRPs and what is the overall business case for this?
One of the best use cases is sweeping. Sweeping VRPs would be an evolution of how consumers can control their finances. The rollout of sweeping, the automatic transfer of money between two accounts, is well underway, much like a direct debit or standing order, except with greater transparency over the amount, frequency and end date. We're beginning to see how end users can have better control and flexibility. It is a terrific opportunity to begin promoting VRPs. The first area where this is happening is lower risk cases, such as tax payments, where VRPs are a great way of complementing existing payment methods.
This is one of the reasons that Tink partnered with NatWest, as it meant that they had a way to position it to their end users.
What needs to happen to ensure that VRPs are a success story in the UK?
When thinking about what creates the best experience with VRPs, it is understanding the needs of wider adoption. We need to create the best experiences. From our view, we need to consider how to make it easier to get to market, and how to make something reputable. For example, are there ways to standardise it? Could we agree to focus on these use cases, and think about internal operations? Things like this mean any financial institution can use minimal effort to implement VRPs. This is the key to making sure that it can take root in the UK. We want to see how this grows as well, for the best commercial model. This would mean we have a logical, next step in place, such as subscriptions.
Is much work taking place on VRPs in the rest of Europe? Do you think that the recent regulatory proposals could help make way for this kind of innovation?
The UK prides itself on being a leader in open banking. VRP is propelling it as a leader in open banking. In the EU, SEPA is creating the right framework for this. PSD3/PSR creates a capability for uniformity and considers how experiences can be consistent throughout the EU. Beyond that, there is also the European Commission's proposal for instant payments. Instant payment legislation is looking to promote use and create parity in pricing. The adoption of this is a building block for VRP.
In 2024, what do you predict will be the biggest trend in payments?
I think that we will see the continued growth of Pay by Bank with retail consumers. One thing that this will pave the way for is VRPs. I think this is going to be the case in SEPA as well. Other markets, such as Australia, are considering what their equivalent is.
Want to know more?
This interview gives you a flavour of what's inside our Payments Compliance Outlook 2024: The Compliance Dilemma - Growth At What Cost? available to all Vixio PaymentsCompliance subscribers. Get your bitesize version of the report to learn more below.
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