In this piece, Andrew Self, Senior Manager in our policy division, explores how operational and technical standards can be developed so that they meet the functional requirements for retail transactions via account-to-account payments. This piece builds on a previous thought piece by Kate Fitzgerald, our Interim Head of Policy, which talked about how account-to-account payments can help increase the choice of payment system for retailers.
Account-to-account payments can help increase the choice of payment options for retailers and change the way we buy things in the future. However, we believe there are four issues that need to be addressed to promote account-to-account retail transactions using open banking. These are:
There are a range of considerations when thinking about what functional capability requirements are needed to realise our vision for account-to-account retail transactions.
Open banking payments allow consumers to pay by bank transfer, sending funds directly from their bank account. Currently, people tend to use them to allow authorised and regulated firms, Payment Initiation Service Providers (PISPs), to make transfers on their behalf between their accounts (for example paying off a credit card bill or topping up an ISA) or to make a bill payment, (for example making a self-assessment tax payment). In many cases, this works well. Retail transactions, however, are a more complex environment and if this type of payment is to work well, additional functionality is likely to be needed.
Retail transactions introduce a new party in this payment chain -- retailers, who would normally lead the payment process and offer particular payment options to their customers. Retail transactions also add a number of uncertainties (such as a customer paying a certain time before goods or services are delivered) which the consumer’s account provider needs to be able to assess the risk of. These types of factors place demands on the underlying payment infrastructure.
This means the payments industry will have to change or establish new standards, infrastructure, and service support, to operate a fully-fledged retail payment service. We want to hear from the account-to-account ecosystem how these features and capabilities can be added.
We’ve set up a Strategic working Group (SWG) to assess a range of different retail scenarios to see if the current functionality works and, if it doesn’t, identify gaps and propose ways to address them. This will help us understand which options can be progressed quickly, and which will need additional time and work to deliver.
Scenarios that the SWG will explore include:
- E-commerce single transaction: you buy a mobile phone on a website or through a retailer’s mobile app.
- Pre-ordered online grocery shopping (with variable amount): you order a grocery shop on Monday for delivery on Friday. When the groceries arrive, a product has been substituted, so the amount you pay changes.
- High risk e-commerce transaction: you pay for an expensive holiday several months in advance, which could be disrupted by sickness or an airline going out of business.
- Subscription payments: you set up a mobile phone account with varying monthly payments.
- Physical point-of-sale transaction. you use a retailer’s mobile app to pay for an item in store and walk out with the goods immediately.
Of course, this list isn’t exhaustive. We expect the SWG and its expert panels to identify other relevant scenarios as part of its work. We’d also like to hear from our stakeholders outside of the SWG about any functionality gaps.
To help bring the issues we’ll consider to life, let’s take a closer look at the steps in a typical e-commerce payment, and the types of things we need to consider.
We’ll need to examine each of these steps – and variations on them – through the account-to-account retail transaction lens so we can understand what functionality will be needed to support these payments. There is clearly a lot of work to be done. We are looking forward to working with our stakeholders to identify the challenges and find a way forward so that account-to-account payments can be developed further to provide a wider choice of payment options.
If you like to tell us how functional capability can help unlock account to account retail payments, please contact us at A2A@psr.org.uk.