Good afternoon, I’m Chris Hemsley and I’m the Managing Director of the Payment Systems Regulator.
In the lead up to giving this speech, I've been thinking about the ways I’m making payments. As you’d expect from the Payment Systems Regulator, I feel pretty confident using different payment methods for different types of scenarios. I carry cash, I'm set up for mobile payments, I make purchases – both in person and online – using my card, and I’m able to transfer money using my online banking.
But, the way I made payments adapted as the extent of the lockdowns inflicted by the pandemic took hold. I pretty much relied on using cards and direct bank payments.
That made me think – if you cast your mind back 18 or 19 months to the beginning of the pandemic, one of the sectors hit hardest was the charity sector.
The move towards digital, meant that those organisations which relied on casual cash donations saw a drastic decline in their collection pots.
However, through collaboration via open banking, a new initiative saw QR codes being deployed to allow you to donate to a charity in less than a minute – helping charities to collect donations.
And so, with that reminder about the importance of innovation at what was a pretty bleak time, I want to talk to you about the importance and future of Open Banking.
The potential of Open Banking
The UK is at the forefront of Open Banking, it enables innovation and increased productivity in our economy. But it is worth considering how it might realise this potential and what we need to do to make it happen.
I think it is useful to distinguish between two broad ways that Open Banking brings these benefits. First, the benefits that come directly from the use-cases it can support.
But, second, there are also the wider strategic reasons for wanting to make the best use of the opportunity provided by Open Banking, due to the impact it can have on supporting a vibrant and competitive payments ecosystem. One part of this comes from the potential to support retail purchasing and allowing for more flexibility for all payment services. But, to do this, requires a lot more work.
The opportunity for Open Banking to meet the needs of people and businesses
But first, the direct benefits.
Open Banking represents a real opportunity for more user control over payments, lower fraud risks, and new services.
I see very significant benefits from cost savings, speed of settlement, control and safety. And want to walk through a few examples with you to explain why.
Open Banking has significant potential to bring down the costs of payment acceptance for many merchants. Something made all the more important by the increasing cost of card acceptance. We have been analysing this and published our final conclusions on the card-acquiring market review. This also included our financial analysis which showed that average scheme fees more than doubled over the period from 2014 to 2018, with most of this increase occurring between 2016 and 2018.
So the examples of Open Banking being put to large-scale use is a valuable sign of the longer-term potential. For example, Ecospend, a PISP that facilitates tax payments is already helping HMRC, including by cutting its payment acceptance costs.
And there is also JustGiving – which used Open Banking on Captain Tom Moores’ fundraising page, allowing donations to be made via a bank transfer, helping the charity platform to reduce their costs.
Speed of settlement for merchants
Another way in which Open Banking can support businesses is the speed at which merchants receive a payment. Currently, we know that they can wait a long time to receive money that is owed to them.
If merchants can use Open Banking safely, they could receive payment immediately. And managing working capital effectively is a really important issue; for businesses large and small. Cutting several days off the time it takes to get funds into your bank account matters.
Control over payments
An increasing number of us no longer rely on a weekly or monthly salary. It is becoming more common for people to be paid for the work they undertake, potentially for a number of different jobs. But this makes it harder to manage your finances, particularly if your outgoing payments are unnecessarily inflexible.
And, at present, the inflexibilities of direct debit don’t work for everyone.
Which presents another opportunity for Open Banking to solve real-life problems.
Open Banking can already support business models that make one-off bill payments more flexible, such as Ordo's, which in turn allow people to have more control over their payments.
More generally, the ability to make Variable Recurring Payments (VRP) should allow people to safely authorise their bank to make frequent payments on their behalf, which could unlock further business cases in the future.
Open Banking could give us an alternative way of paying for things (including bills, subscriptions, coffee) with better control, flexibility and transparency.
Safety – APP and fraud
A further benefit Open Banking can bring are the opportunities for reducing APP fraud.
Open Banking provides the ability for banks to communicate with one another through an overlay messaging service, where they can send and receive information.
A way in which this has been implemented is through Confirmation of Payee (CoP) – the name-checking service designed to help people spot when new payee details aren’t right. Messages are sent to check whether the name of the payee matches the details entered.
The responses are all transacted using the Open Banking directory.
There are more than 1 million of these messages going across Open Banking every day.
CoP is just the start of proving that banks can communicate between themselves to prevent things going wrong with a payment and prevent customers and