As part of the Open Banking World Congress second day’s afternoon session devoted to drivers of change, Amy Kroviak, Co-founder & Independent Adviser, Open51 chatted with Nilixa Devlukia, Founder, Payments Solved.
Has the pandemic created opportunities for the market to drive consumer adoption
and will this change the landscape for open finance?
Amy and Nilixa started by noting how quickly fintechs had reacted to the pandemic (and how disappointingly slow government had been to recognise the role fintechs could play). The fintech response has been a good advertisement for what fintechs and open banking can offer.
That said, there are still issues to address before moving ahead towards open finance and open data more generally: from API performance, refunds and recurring payments to broader questions over consumer protection and data regulations.
The conversation touched on the pandemic’s impact on competition, Big Tech’s slow move into regulated financial services, the importance of continuing to focus on consumer benefits, and more.
Amy and Nilixa have since come back to follow up on questions from the audience.
Is the worry about refunds a real barrier? Do customers know that they can claim a refund today? If not, they would not miss what they didn’t learn about.
Amy: Open banking is enabling new, personalised products that benefit SMEs and consumers. But to date, there have been very few payments products developed.
It is evident, from research and feedback from the ecosystem, that payments innovation is dependent on increasing payments functionality. The often-used analogy is that refunds is like the reverse gear of a car - you wouldn't build a car without it, as you would be limited in how you drive. It is anticipated that when refunds capability is built into the open banking standards, hopefully before the end of 2020 according to the revised OBIE Roadmap, we will start to see real innovation in payments that will be the key driver for mass adoption and bring open banking enabled products mainstream.
In addition, variable recurring payments functionality will further broaden the opportunities to enable payments products and services that will make a real difference to SMEs and consumers.
COVID has highlighted three things when it comes to banking and its future: the enabling role of regulators; the focus on ACTUALLY solving consumer needs; the lack of infrastructure and how banks need to ramp up.
Amy: The role of the regulator is fundamental. It establishes the framework for the ecosystem to develop products and services that, hopefully, deliver benefits and value for consumers. Open banking was unique in the UK as it was a mandated remedy following the CMA’s retail banking investigation. There was a collaborative framework with industry and the regulators from the ground up.
Open banking is not mandated in all markets, as we know. However, open data - whether applied in financial services as open banking / open finance or to other sectors - is about using a consumer's data to deliver personalised products that deliver enhanced benefits. Consequently, it is more consumer-focused and market success will be dependent on meeting consumer need.
It is early days and there are still issues to resolve in open banking as we continue onward with open finance - consumer redress, for example. Yet the pandemic has demonstrated that the market and regulators both see the importance of delivering innovation that provides solutions to the challenges facing consumers, SMEs and, most recently, UK plc.
What is missing from the current version of Open Banking payment API to really drive the mass adoption of pay by bank use cases?
Nilixa: Two things: refunds; and mandatory levels of performance.
It was said that regulation is driving innovation when it comes to open banking. Can it also be that regulation is hindering innovation when it comes to open banking? Is there a tension between innovation and regulation?
Nilixa: I agree with this. A classic example is PSD2’s Secure Customer Authentication (SCA). SCA is too rigid, requiring two forms of validation from two out of the three categories - why? And SCA does not fully accommodate behavioural biometrics, which can be better at identifying fraud.