Deploying new solutions dedicated to merchants is key in order to help them keep up with the growing demands of the ecommerce market – and Open Banking should be the catalyst driving this innovation. Instead, various regulatory hurdles, as well as data and technology discrepancies are hindering smooth solution rollout.
In 2020, retail ecommerce sales worldwide have increased by 25.7%. The industry’s boom continues to rapidly trend upwards, as, in the US alone, sales are projected to surpass USD 1 trillion dollars in 2022. This calls all online businesses to future-proof their ecommerce strategy if they want to retain their competitive advantage in the market. One of the aspects that could have an immense impact on this is ensuring the availability of a wide variety of payment options for their customers.
For this reason, currently one of ConnectPay’s strategic goals is to utilise Open Banking via Merchant API that is powered by Payment Initiation and Account Information services (PIS/AIS).
Merchant API enables merchants to securely collect funds from their customers’ bank accounts, bringing two-fold benefits. Customers can access payment services in an instance, resulting in a more seamless shopping experience. For merchants, easy and rapid API deployment creates a suitable environment for faster scaling, and it reduces compliance liability, as the service provider will take on all of the responsibility of adhering to regulatory standards.
While the solution would open up significant room for frictionless payments in the ecommerce world, launching it EU-wide comes off as a challenging task. Interestingly enough, one of the main obstacles in the way is represented by a plethora of differences in regulation and data collection concerning Open Banking, which effectively limits a smooth API rollout.
Let’s take a step back – the goal of Open Banking
There is no doubt that the PSD2 directive and the introduction of Open Banking have had a significant impact on the banking sector, as streamlining third-party access to client data opened up vast opportunities to create new and refined financial products and services. However, the differences in how each country interprets Open Banking legislation have had the opposite effect.
Instead of enabling financial service providers to simplify the necessary integrations of a myriad of complex operations, resulting in a more seamless online transaction experience, these inconsistencies throughout the market have posed new challenges for companies. Thus, while the concept itself was expected to drive industry innovation, spurring the growth of an entirely new payments ecosystem, in reality, it is still far from becoming all that it claims to be.
What’s hindering progress?
While working on the Merchant API, we have encountered a few setbacks. Firstly, the aforementioned regulatory differences per country – each state interprets regulatory policies differently, resulting in subtle nuances that need to be taken into account on a country-by-country basis. In theory, a universal integration to address the issue could be deployed across countries and their financial institutions; however, in practice, it does not seem like such an idea would ever hold up.
Another aspect is the lack of integrity in data and technical requirements throughout the market, as PIS/AIS service implementation is still an object of interpretation. For example, while enabling PIS, some banks do not require providing clients’ data (such as Name, Surname, IBAN). Others, on the other hand, mandate the incorporation of AIS (Account Information Service) alongside PIS, to optimise the customer’s journey.
To top it off, PISand AISare regarded as two different licences, although, in many cases, one cannot work without the other. Therefore, incoherent regulation of these policies and the absence of a clear, unified approach towards what payer data has to be provided hinder further progress and the presence of a truly open financial service ecosystem.
What could truly enable Open Banking?
First and foremost, based on our experience, we think that in the European Union there is a clear need for a unified payment provider list that would have real regulatory power. The present Register, set up by the European Banking Authority (EBA), is based solely on the information provided by the national authorities of the EEA Member States. Therefore, unlike national registries under the PSD2, it has no legal significance, meaning that if an unauthorised institution is inadvertently included, it does not impact its legal status. Similarly, if an institution has been omitted, the validity of its authorisation will not be affected.
Coherent AIS data regulation and clear PIS technical principles are also key in fostering Open Banking. Currently, the inconsistencies concerning the implementation and applicability of these licences make operating in the digital ecosystem more cumbersome and less efficient. Specifying the requirement scope would address the problem at hand.
To conclude, Open Banking paints a bright future for the cross-border payments space, having the potential to play an important part in helping international businesses overcome the challenges and complexities specific to cross-border transactions. However, key changes regarding the aforementioned points still need to be made in order to empower companies to innovate and, in turn, unlock the industry’s full potential.
This editorial was first published in our Cross-Border Payments and Ecommerce Report 2021–2022, which taps into the fast-growing cross-border market and provides a comprehensive overview of trends and developments that are pivotal in this space, being the ultimate source of information for ecommerce businesses interested in expanding globally.
About Marius Galdikas
Marius Galdikas is a Business and Technology executive with 15+ years of proven track record in developing digital products and accelerating growth in various enterprises. Experienced in the Global Finance industry, proficient at delivering highly scalable and reliable systems and platforms. Well versed in organisational development and navigating teams of experts towards common goals.
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