Despite its potential to transform the financial services sector, the rollout of the open banking scheme in the U.K. to provide secure, third-party access to financial data using application programming interfaces (APIs) has repeatedly faced criticism from industry players since it was launched in 2018.
Concerns about the regulation, which was mandated by the European Union’s Revised Payment Services Directive (PSD2), have ranged from the slow uptake of the initiative, a heightened risk of exposing consumers’ data and a lack of common data standards across the industry, to others going as far as to call it an outright disappointment.
Read more: Chetwood CEO Calls Open Banking ‘Disappointing,’ Regulation Key to Neobank Success
In an interview with PYMNTS, Tom Greenwood, CEO at U.K.-based open payments gateway Volt, acknowledged that the regulatory scheme got off to a bumpy start. However, he said there have been huge improvements in terms of the quality and stability of the APIs and interface, as well as the general performance of the network.
That growth led to open banking hitting a milestone figure of 5 million users in 2021, with adoption increasing at a rate of about 1 million new users every six months.
Related: UK Open Banking Reports 5M Users
“I think a good reference point is the fact that open banking adoption is faster and ahead of where contactless payments was in terms of number of users and number of transactions at the same point in time,” Greenwood told PYMNTS.
He also responded to the harsh criticism clearing banks have faced around the substandard integrations they have put into the market as part of complying with the regulation.
“As far as I’m concerned, banks are reaching compliance and they’re doing what they’re required to do. Some banks, of course, are dragging their feet a little bit but overall, bank cooperation around open banking, particularly from the CMA9 [the nine largest banks in the U.K. per the Competition and Markets Authority] has been pretty good,” he noted.
He also pointed to the fact that banks have gotten the short end of the stick and have not been able to monetize the regulatory requirement, which is why they are “crying out” for an equitable distribution of value from this infrastructure for all participants.
Once that happens, all sides will work together a lot more cohesively, with banks becoming more cooperative and engaged in building and delivering the best solutions for consumers.
As Greenwood said: “You can’t have one side getting all of the benefits, advantages and making all the money, while the other side is paying for everything and getting nothing in return.”
VRPs Are Changing the Game
There have been ongoing developments of new standards to foster open banking, one of which is the CMA-mandated use of variable recurring payments (VRPs) to allow the automatic transfer of money between a customer’s own accounts (known as sweeping).
See also: UK’s CMA Clarifies Variable Recurring Payments to Foster Open Banking
According to Greenwood, the game-changing development is going to strongly challenge the antiquated direct debit technology that has a cumbersome signup process and interface, instead offering the shopper the same service with a seamless, one-click or no-click payment experience.
It also takes several days for merchants to receive their money on direct debit — not to mention the many issues around trying to withdraw funds from bank accounts that don’t have sufficient funds, or the costs associated with failed transactions.
Here too with open banking, he said businesses will have the ability to not only replicate the payments service, but also achieve real-time payment accounts for accounts, rather than the five or six days wait for direct debit.
The next step, he continued, is to move beyond simply moving money between customers’ accounts and make it possible to use VRPs for eCommerce transactions or first- to third-party transactions.
Read more: Partnership Lets Worldline Clients Access Volt Payments Gateway
New Kid on the Block
According to Greenwood, what is identified as open banking in Europe is currently happening all around the world — India’s Unified Payments Interface (UPI), Pix in Brazil, the New Payments Platform in Australia, PayNow in Singapore and even the FedNow Service’s pilot program in the U.S., which is expected to be launched in 2023.
Related: Volt Expands Open Banking to Brazil
Overall, he said there are close to 60 countries outside Europe that are at various stages of implementing open banking and account-based real-time payments services, and that will contribute to making the bank-operated, account-based system a universal payment method, circumventing legacy card schemes, curbing card fraud and limiting the highs costs of financial intermediation.
See also: Crypto Payment Firm Mercuryo, Volt Partner to Launch Open Banking Transactions
He further said he’s a firm believer that four or five years from now, “real-time will be the only time,” helped by the increasing levels of consumer and merchant expectations for faster, simpler and seamless services.
“I think it’s certainly a transformational time for payments,” Greenwood said. “Visa and Mastercard have been incredibly impressive businesses, but they’ve been the stable incumbents in this market for the last 60 or 70 years and [now] there’s a new kid on the block — innovation — and that includes open banking.”
Sign up here for daily updates on all of PYMNTS’ Europe, Middle East and Africa (EMEA) coverage.
