The missing pieces of the Open Banking payments puzzle – Interview with PW Consultants

Monday 28 March 2022 09:43 CET | Editor: Oana Ifrim | Interview

Thierry Leblond from PW Consultants discusses the challenges to banking payments adoption and the prospects for this industry

Can you tell our readers a bit about your professional background and the history of PW Consultants?

I have been working in the retail payments sector since the "last century". First for the payment subsidiary of Crédit Agricole and for more than 25 years as a consultant, first with EY and now with PW Consultants. With more than 50 consultants and over 20 years of experience, PW Consultants supports all players in the payments ecosystem (banking, retail, industry, fintech, etc.) in their transformation towards payments adapted to the digital world.

What's the state of Open Banking payments, particularly in France? Could you please share stats and share if these stats are promising?

If we are talking primarily about payment initiation for C2B use, the Observatory that we published at the end of 2020 revealed a very strong ambition on the part of merchants to develop this payment method in ecommerce for use cases with large baskets. The aim is to overcome card limits that can block the completion of the transaction and to establish a fixed fee rather than a fee based on the amount of the transaction.

Some players are also finding success by combining their payment initiation offer with a payment link for in-store use, always in the case of large baskets (furniture, etc.).

Unlike the UK, France does not have consolidated figures on the use of Open Banking, but we note that among our customers, payment initiation (PIS) is very minority (around a few per 1,000) within Open Banking API calls, while the overwhelming majority remains linked to account information APIs (AIS).

However, a French fintech such as Fintecture uses its PSD2 approval exclusively for payment initiation (PIS) and already claims more than 3,000 customers. Another French fintech, SSP, is multiplying use cases that combine aggregation (AIS) and initiation (PIS).

What are the broader implications for B2B of Open Banking payment adoption?  

The adoption of Open Banking in the B2B sector is a real opportunity for companies to improve their internal processes by facilitating day-to-day operations in the areas of accounting, treasury, and human resources. 

The integration of Open Banking payments with accounting system providers allows companies to have real-time visibility of their cash flow, simplify bill payments or refunds, automate reconciliations (such as invoices and banking transactions).

Thanks to Open Banking APIs, the HR function can offer services with a social impact to employees, such as the instant payment of salary instalments, which is very common in the UK. Finally, the payment of salaries, pay advances or the reimbursement of professional expenses in real-time are simplified and secured. In addition to productivity gains, these transformations facilitated by Open Banking contribute to a responsible employer brand, concerned with the needs of employees and modern.

What are your thoughts specifically on France and the challenges around rolling out Open Banking payments? 

In France, the card remains the most used means of payment for cashless payments with 55% of volumes, ahead of credit transfers and direct debits (18% each) and then cheques (5%). The deployment of Open Banking is lagging behind the UK and the Nordic countries (in terms of number of TPPs, number of Open Banking APIs). 

Since the implementation of the PSD2 RTS, the CNPS (Comité National des Paiement Scripturaux) and the AFEPAME (Association Française des Etablissements de Paiement et de Monnaie Electronique) have organised recurring working groups (WG), bringing together the ASPSPs, the TPPs and representatives of associations in order to work jointly on the various operational subjects to be clarified with a view to achieving technical maturity and accelerating deployment. This stage has almost been reached for account aggregation (AIS), but payment initiation (PIS) is further behind. 

In France, Open Banking payments are not well known or widespread among the public. 

The merchants we met during our Open Banking & Payment Observatory often cited the cost to the payer as an obstacle to offering this payment method. Indeed, some ASPSPs charge 50 cts to 1 euro to the customer who initiates an instant transfer (SCT Inst) via their online bank. On the other hand, these same merchants cannot accept the risk associated with the initiation of a traditional credit transfer (SCT) for which the guarantee of execution and availability of funds is generally D+1.

Finally, the ergonomics with the different redirections or information to be re-entered (online banking identifier, etc.) are not as fluid at this stage as an xPay payment.

What are the barriers to payment via Open Banking in Europe? What elements are missing to drive Open Banking payments adoption in Europe?

The barriers to Open Banking payments in Europe are of a different nature. 

Firstly, in terms of implementation, we can see a wide variety of approaches across the continent with several standards coexisting (STET, Berlin Group, Open Banking UK, Polish Open Banking, etc.). Moreover, for some of these standards, the definition leaves room for interpretation and leads to slightly different implementations from one ASPSP to another. This generates significant integration and maintenance efforts for the players, and therefore a significant effort to "simply" guarantee the reachability of all ASPSPs.

To encourage the adoption of Open Banking payments at European level, there may be a need for strong governance to anticipate and resolve the difficulties of open standards. The organisation set up in the UK at the start of its programme and its ongoing development are undoubtedly inspirational. The API Scheme logic initiated at ERPB (SEPA API Access Scheme) and EPC (SEPA Payment Account Access) are another.

Another dimension concerns the underlying business model. The PSD2 obligations have made this two-sided market possible by opening up all ASPSPs, but this has not yet created a business model for both sides of the market. The development of Open Finance APIs, monetisable by the ASPSP, may solve this problem and allow ASPSPs to find a remuneration by encouraging their higher GNP customers to allow this paid access to their payment data. The work initiated by the Berlin Group on this subject is moving in the right direction.

But all this will only come about if the dimension of very concrete use cases anchored as closely as possible to the merchants' business processes is considered. Open Banking payment cannot compete "upfront" with a well-established payment instrument such as the card. The participants in our Purchase & Payment Journey Observatory emphasise that innovation must solve key pain points in order to be legitimate and emerge (e.g., large baskets, retry when a card payment has been refused).

What prospects do you see for the Open Banking payments industry in Europe in 2022 and beyond?

We imagine that Open Banking payments will develop around the instant transfer. For instance:

  • If EPI is created, the strength of the brand may limit the interest of payment via Open Banking in the long run;
  • If the European authorities make SCT Inst compulsory for transfers via online banking, this will create a call for merchant-initiated Open Banking 3-corner solutions;
  • In a market such as France with (where the obligation to issue electronic invoices is being phased in between 1 July 2024 and 1 January 2026), the combination of RTP (Request To Pay) and Open Banking payment initiation can create use cases for B2B.

About Thierry Leblond

Thierry is the Head of Payment Advisory at PW Consultants. He assists clients involved in the entire payment value chain in their strategic decisions: investment (due diligence), monitoring (48-month trends), positioning (market assessment), governance (payment manager), product launch (business plan) or solution choice (tender). He has piloted the publication of two white papers: Open Banking & Payment (2020), Customer journey & Payment: towards Unified Commerce (2022). Thierry joined PW Consultants after 8 years of experience in the payment subsidiary of Crédit Agricole and 14 years at Ernst & Young, during which he led several international payment systems projects.

About PW Consultants

PW Consultants is a Paris-based consulting firm specialising in the payments sector. With 55 consultants, we have been working for more than 20 years with all the players in the ecosystem (banks, merchants, schemes, manufacturers, etc.) in Europe and around the world to ensure that payment connects the worlds at the crossroads of societal, technical, and regulatory issues.

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Keywords: Open Banking payments, banks, banking, merchants, SEPA API Access Scheme, EPI, regulation
Categories: Banking & Fintech
Countries: Europe
This article is part of category

Banking & Fintech