How faster payments have led to significant growth of Open Banking payments
I’ll start by introducing you to the Faster Payments scheme and share insights with you on why it is having an enormous impact in the UK. Faster Payments (or FPS if you love an acronym as most payments people do….) allows a consumer or corporate customer to approve an automated bank transfer from within their own bank account, allowing them to transfer funds, from one Account to another Account, in an instant and where the beneficiary of this payment can receive these funds instantly also.
Although Pay.UK’s SLA quotes up to 2 hours for funds to be received over their network, at Nuapay, 99% of our Faster Payments are received into a Nuapay Payment Account in 2-10 seconds (perhaps this is not as fast as the speed of light but hopefully you will agree a Faster Payment is extremely fast!). Of course, this works in favour of the customer when they wish to receive a refund or some form of payout made to them, as they no longer have to wait “3-5 working days” for funds to reach their account via the card schemes; instead, the customer can receive their credit; be it refund, insurance claim payout, emergency welfare payment or a gambling payout of winnings in under 10 seconds.
This inevitably has contributed to a 500% accelerated growth in the UK Open Banking payments in 2021; allowing consumers and corporates to send payments via automated bank transfer within seconds. Open Banking is a universal payment method which allows a payer to bypass the card schemes, avoid downloading another 3rd party app and it can avoid any manual data entry.
An Open Banking payment can be initiated from a merchant’s eCommerce checkout page, from within a merchant’s mobile app, initiated via contact centre or at Point of Sale with the assistance of QR Codes or Hyperlinks. Ultimately the customer is directed to a web page or screen within a mobile app with a list of Banks in their region; where they may select the bank they wish to make the payment. Once a payer has performed Strong Customer Authentication to successfully passed their Bank’s access requirements, perhaps by using Face ID or Thumbprint ID, their bank will present and prompt the Account Holder to approve the payment. In the Nuapay payment journey, once the payment has been approved, we direct the Payer back to the merchant where a final confirmation payment message can be displayed.
Up until 2 weeks ago, Faster Payments applied a transaction limit of £250k on both inbound and outbound payments. However, 2 weeks ago Pay.UK announced an increase of this limit to £1M, again on both receiving and sending payments. I am confident the higher transaction limit will awaken the B2B invoice sector; which traditionally relies on expensive payment instruments such as Chaps and Swift to invite customers to settle high-value invoices or whose customers are forced to split a high-value invoice and make several manual bank transfer instalments until the outstanding balance has been paid. Faster Payments has now allowed these customers to settle an invoice up to the value of £1M in a single payment which can be automated via Open Banking.
Europe has had a taste of this too with the introduction of SEPA Instant; speeding up access to cash flow driving merchant demand and speeding up access for customers receiving refunds or payouts driving consumer demand and on both counts delivering more compelling user experiences. SEPA Instant is set to supersede a traditional Credit Transfer.[DB2] However at this moment in time, SEPA Instant is only available to an estimated 50% of the Banks in the European Economic Area. However, the European Commission recently announced legislation due out in Spring 2023 which will mandate SEPA Instant across all EEA Banks.
As you can see the payment industry is constantly evolving to improve payment experiences for users, mitigate transaction risk for merchants and drive healthy competition amongst banks and payment providers; all governed by the safety of regulation.
Nuapay’s Product Engineering team is constantly looking into the future to predict future buying behaviours and to develop invaluable payment solutions to assist businesses wherever money is in motion. For example, Nuapay helps businesses with recurring payment needs mitigate their payment risk, by combining our Open Banking Payment Initiation service with our Direct Debit collection service. Combining the two products to validate the payer and their bank details using Open Banking and by de-risking the Direct Debit mandate enrolment. In fact, a Direct Debit mandate can be reduced to a one-click payer consent step.
An extension of this concept will be delivered later this year as the Open Banking industry is set to release Variable Recurring Payments; an ability for an account holder to provide consent for a direct bank to bank payment. This marks another milestone in the payments industry as account holders give consent for their account to be swept to another account in their name and allow them to set parameters or conditions on this.
Beyond this account sweeping function, the next generation of Variable Recurring Payments or VRP payments is likely to develop into a C2B function, where account holders can give consent within their bank account to pay merchants on a regular or recurring basis. However important policies such as consumer protection, dispute management and liability need to be defined before this new payment initiative becomes more widely adopted.
In conclusion, customers and businesses are seeing the huge positive impact of Faster Payments in the UK and of SEPA Instant in the European Economic Area and Open Banking payment acceptance. It is no longer acceptable for customers to wait “3-5 days for a refund to be sent back to their card or account” and it is no longer acceptable for merchants to wait for Transaction + 4,3,2 or even 1 day for the settlement of their payment funds. Account2Account payments have always been prevalent in Europe and Open Banking is the fastest growing payment method our industry has seen in a very long time.