Interview with Todd Clyde, CEO, Token
PSD2 in Europe and Open Banking in the UK has made slow progress in trickling down into tangible customer benefit. What are the strategic imperatives that need to happen to change this?
I wouldn’t say it’s made slow progress, we are now making good progress in the UK. The CMA9 banks in the UK had to go live in January 2018. Half of them missed that deadline and took an additional 3-5 months. It then took 6 months for the APIs to stabilise. Since early 2019 we have a tremendous uptake in the UK and there are now 100 million transactions a month that are happening through Open Banking APIs. It is growing at a rate of approximately 20 million per month. So it is happening. I think the challenge for the rest of Europe is that the banks did not have to be live until September 14th 2019. But half the banks have missed the deadline and of those that made it, many are not compliant. So it will take a while for banks to come online and for the APIs to stabilise. But just like in the UK banks will get there, traffic will follow and the benefits will eventually be realised.
There has been a struggle to deliver Secure Customer Authentication seamlessly across the industry within the user experience and as such it’s delayed. Why do you think this has been such a struggle?
SCA is mandated to apply to both card payments and bank payments. To initiate a bank payment as a Payment Initiation Service Provider (PISP) SCA implementation has not been that much of a struggle. It was very clear that there was one party responsible and that the bank as the Account Servicing Payment Service Provider had to undertake SCA. Granted the initial versions had too much friction but that has since improved. On the card side they have really struggled with this and the reason is that there are so many more parties involved. You have the acquiring bank, the card scheme and the issuing bank. The issuing bank is ultimately responsible for SCA but the card network and the acquiring bank all play a role as well. Therefore it is a lot more complicated to solve and consumers were not aware of the changes, leading to a delay in implementation on the cards side of the industry.
The whole industry, including the regulators, have an understanding that trust is at the core of a successful open banking ecosystem. Do you think customers have been sufficiently informed of the changes that are coming?
If you ask a consumer if they know what open banking is, and Accenture investigated this, only 9% of consumers know what open banking is. But does that mean consumers aren’t going to use it? No. I don’t think it’s the job of the bank to educate customers. The bank services these requests and provides the data but it’s a third party that’s consuming it. So I might be using a budgeting application, but I don’t know what open banking is. I think it’s the responsibility of the third party to educate the customer within the confines of the use case that is being supported.
Token has brought open banking to the property sector, talk to us a little about that.
Most of the transactions that are happening in the UK at the moment are data related because the payments functionality piece is still quite limited. However a customer can make a single immediate payment that has to be authenticated in real time and the first real use case for this that is currently being adopted is the initial payment made in support of setting up a direct debit. Property is a great example of that. Paying credit card fees on that first payment is expensive for rental agencies, so if they can make that payment through an open banking transaction they are saving all of the associated merchant fees. We are live with about three or four property rental agencies in making the initial payment in support of a subsequent direct debit via open banking payment initiation. We are also live with a number of FX wallets or stored value wallets with a top up mechanism; rather than topping up with a credit card, Applepay or PayPal, it allows users to top up with a single open banking transfer therefore saving these stored value wallet companies associated merchant fees also.
Open Banking is not just happening in Europe although we like to think of ourselves as leaders. What does the wider landscape look like?
I would say India and Hong Kong are very advanced, but the UK is definitely leading. They have really been the catalyst for this trend globally. Open Banking has been mandated in 36 countries, 8 of which are outside of Europe. It is taking off because the benefits are so compelling. The benefits to third parties are cheaper payments and access to data. The benefits for banks is that it puts them at the centre of this new payments ecosystem and allows them to be closer to the customer, competing against fintechs and bigtechs that are looking to disintermediate banks.
Instant payments and open banking are considered the holy grail. Are banks really taking advantage of this yet?
Not just banks but national payments infrastructures. Next generation of payments is really a three legged stool. Step one is faster payments – build the highway. Step two – open banking – that builds the on and off ramps to that highway. Step three – a federated identity. Many nations that are going after open banking are creating a federal identity capability to simplify the authentication and make it consistent between banks. Saudi Arabia is investigating open banking and that is because of the new faster payments system. The same can be said of Canada. If you are going to invest in the highway, you can’t forget to invest in the on and off ramps and that is open banking.
Todd Clyde, CEO, Token