This article was originally published inside the Open Banking Report 2021. To download the report, please click here.
Open Banking is the most exciting disruption to hit financial services in a generation and is fundamentally changing the payments landscape. Account-to-account (A2A) payments offer not only cost savings and better cash flow but unrivalled reach by covering anyone with a bank account, all while providing smoother onboarding processes and superb bank-grade security. Because their benefits are so compelling, I predict that A2A payments will no longer be an ‘alternative’ payment method but will cross over to the mainstream within five years.
While in the UK specifically, an early majority of merchants are asking for this payment capability, ultimately, consumers are driving A2A payments’ unstoppable momentum. Whether at checkout, loading digital or crypto wallets, paying utility bills or (one of the fastest-growing use cases in 2021) repaying debt, A2A payments offer familiarity, convenience, and clarity for consumers, all wrapped in a sleek user experience. There’s no training and no onboarding, you simply initiate and authenticate the payment in the banking app you likely use every day. Consumers just get it, and that’s key: drop-out rates have reduced over the last year as consumers become more comfortable with A2A payments as a choice, and success rates are now over 98% for those that proceed with the payment type.
In the three years since Open Banking became a regulatory requirement in the UK, API call volume has increased from 66.8 million in 2018 to 5.8 billion in 2020. Over 2.5 million UK consumers and businesses now use Open Banking-enabled products, which has caused the number of total payments to increase by over a thousand percent since 2018. As of 31 July 2021, Token has captured 37% of all market growth in the UK for open payments year-to-date. Across Europe, merchants still have to adopt en masse, of course. Still, we’re moving beyond early adopters in the UK and expect a similar acceleration in growth rates in European markets like Germany by the end of 2021. Once A2A payments are available from all gateways and PSPs, there will be a more significant boost in numbers.
Open payments are paving the way for A2A payments to achieve 20% penetration of all ecommerce and surpass the use of both debit and credit cards by 2023. And strategic partnerships like Token and BNP Paribas’ are setting the stage. Launched in 2021, BNP Paribas’ Instanea is the first SEPA Instant immediate payments offering for merchants in Europe. Powered by Token, Instanea now enables consumers across France to pay by bank online and in stores.
New signals point to open payments nearing a critical tipping point, as research from Token reveals that Variable Recurring Payments (VRPs) may be poised to ignite further explosive growth. The OBIE will now mandate variable recurring payments for sweeping, which is a significant step forward in open payment functionality. Token’s recent industry survey of over 60 senior-level Open Banking and finance professionals found that 67% have a strategy to commercialise VRPs once banks support them, and the majority of ASPSPs have prepared to do so by 2022. Furthermore, if VRP functionality were offered tomorrow, 100% of merchants surveyed would make them available to consumers, with security and fast settlement times reported as their most compelling benefits.
In parallel with broader tech industry trends, it is clear that financial services evolved from web-first to mobile-first and will now embrace API-first strategies. Yet, this journey is not without its challenges, including the need to negotiate the hurdles put up by Europe’s fragmented Open Banking ecosystem (lack of harmonisation in pan-European Open Banking API standards, bank processes, and predictability are but a few). The good news is: solutions are within reach. Industry and regulatory pressure can get us all over the line together. For example, European regulators can encourage and enforce banks to continue to raise the bar on stability and reliability. At the same time, industry bodies can apply pressure on banks to adopt SEPA Instant consistently or implement a form of payments guarantee (such as an authorisation API specified by SWIFT).
Given the current complexities and fragmentation of Open Banking in Europe, having the right solution and partner is critical to gaining a strategic advantage in Open Banking opportunities, the most promising of which is Open Banking payments. That is why, while other service providers solely aggregate data access to banks, Token provides third parties with a single API for the broadest payments connectivity for banks in Europe. As we drive the shift from traditional payment methods to A2A payments, Token’s focus has enabled us to develop deep functionality that makes accepting bank direct payments elegant and simple. We white label our entire solution to enable other players in the existing payment value chain to bring bank direct payments to their customers. To that end, Token also has sophisticated, reseller-friendly features baked-in, including merchant management, customer billing, hierarchical configuration management, certificate management, and programmable authorisations.
I believe there is huge cause for optimism regarding A2A payments and a strong sense that they are crossing a critical threshold. All signals point to an explosion in growth in line with consumer appetite and new use cases on the horizon. In Token’s survey on the future of open payments, we found the three most compelling use cases for variable recurring payments: subscription services, utility bills, and one-click ecommerce payments. Any one of these use cases has the potential to make good on the promise that A2A payments present a credible challenge to the dominance of cards. Nail all three, and we arrive at the holy grail that lies beyond open payments’ tipping point: irreversible ubiquity.
About Todd Clyde
Todd Clyde is CEO of Token and an established operator of Silicon Valley software companies, with a thirty-five-year track record of bringing groundbreaking e-learning, digital banking, and now API technologies to market. Token is Todd’s fifth technology startup, navigating his previous four to successful exits, including one USD 2 billion exit.
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