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One of the key promises of Open Banking is that it will cut the middlemen out of transactions. For customers and merchants this sounds ideal: customers can carry out transactions far easier, merchants can cut down costs - but what happens to acquirers in this brave new world?
One of the many changes to the way that banks, merchants and customers will interact is Account-Based Payments. This is a faster, more secure and potentially far more convenient way of conducting payments between consumers and merchants, or between two consumers. In a hypothetical example, an eCommerce store customer at checkout would select their bank, authenticate themselves via the bank's own Strong Customer Authentication (SCA) and would then be able to pay for all future payments much more quickly than they would otherwise. In stores, a shopper could scan a QR code or use Near Field Communication (NFC) to link with the merchant's account before making a payment. Unlike traditional debit, credit and eWallet payments, account-based payments eliminate many fees attached to payments, deposit funds immediately and allow customer-friendly services like instant refunds.
Clearly, there is no place for acquirers as they are currently constituted in transactions like these. Although they are likely to be around for many years, an increasing portion of their revenue is going to be lost to Account-Based Payments unless they can become part of the Open Banking revolution. But how?
One of the new roles Open Banking is opening up is that of a Payment Initiation Service Provider (PISP), responsible for creating the infrastructure behind account-based transfers. Several companies that work in this space already exist and they are likely to be joined by other new entrants into the market, including existing payments and fintech companies who have existing trust and relationships.
I would say that one key way to use the structures as an acquirer is to create new ways to pay online and off, adding your considerable expertise to existing goodwill to offer PISP services to clients in addition to traditional acquiring. This would give merchants and customers services that they might not be able to get elsewhere.
For example, it can offer customers easier payment experiences when they are abroad. Currently, when paying for services in a foreign currency you will see your payment in that currency. Open Banking will however allow for payments in the currency you use, incentivising buying from overseas and potentially making things easier when tourism returns.
Security is another key factor, an area in which acquirers can offer services to merchants. Anything that involves the ?opening up? of data would seem to bring with it security concerns and opening up banking data even more so. Acquirers can show that when information passes through their hands it will not be compromised.
Any of the above, and the no doubt huge range of new products that Open Banking will enable, could be added to the existing services that acquirers provide. This would allow them to keep up with newer companies. If they take advantage of Open Banking now, and show why they are still relevant in a changing world, then the possibilities are limitless.
Open Banking and Open Finance session, Wednesday 9 June, 12pm
As part of the upcoming Customer Experience Summit UK Finance will be running a free session on Open Banking and Open Finance.
As customers rapidly adopt open banking services, the way they interact with financial services brands is evolving. In this session, a panel of experts and practitioners will discuss the pace of innovation, the ambition to create a more competitive landscape and the regulatory considerations faced by financial services firms as these initiatives become the ?new normal?.
The session will be led by Phillip Mind, Principal, Payments Policy at UK Finance with panellists including:
Places at the event are free and can be booked here.
Marc Docherty, HEAD OF UK ACQUIRING / LARGE - STRATEGIC BUSINESS, WORLDLINE