Are open banking payments taking off? How businesses and consumers are already reaping the rewards
In part two of this series, Tom Pope, head of payments and platforms at Tink, lifts the lid on where open banking payments scale is coming from – and whether the world is ready.
We are seeing open banking payment adoption take off where there is a clear consumer demand for a better user experience.
Open banking is rethinking payments from top to bottom, front end and back end, as an entirely different way of serving payments.
We are at the tipping point for mass market adoption across Europe.
VRP clearly holds promise to extend open banking’s reach.
‘There are detractors in the industry who question whether open banking payments will reach mainstream consumer adoption, but the results we’re seeing, together with our customers, tell a different story,’ says Tom Pope when we sat down to talk about the future of payments. ‘There is clear consumer demand. Not for a new brand at the point of payment that they haven’t heard of before, but demand for a better, slicker user experience, and that is what open banking can provide.’
‘Like everyone else, we are excited for open banking payments to take on more B2C eCommerce use cases, and we are aiming to be the first to market in the UK with a comprehensive Variable Recurring Payments (VRP) or Bank on File product as we call it. We are working with major banks and the industry to build the technical frameworks and we remain very optimistic about this longer term. But we must be realistic: merchants care about user experience, and so if you’re asking where the greatest demand is today, it follows that it is in areas where the user experience is clearly sub-par.’
‘Today, this is the account top-up and bill payment use cases, where many of the experiences out there are pretty painful. Imagine topping up an account by needing to leave the merchant’s app, remember an account number and reference field, and type that in exactly - without making any mistakes - in your bank’s clunky app. Unsurprisingly, user abandonment is high. With open banking we can transform that experience and make the payment process a competitive advantage for the merchant.’
‘We have worked with some great pioneers in the industry who are benefiting from being quick to see the potential of our technology. For example, Kivra is a dominant bill payment provider in Sweden, a household name that together, we have pioneered open banking payments for an app that 60% of the Swedish adult population use – that’s an incredible result. To think that there are more open banking payments going through Kivra’s platform and Tink’s connectivity in Sweden than the entire UK open banking payments market.’
‘By the end of this year, we could be in a place where the majority of people in Europe have come across an open banking-powered user experience. Now it’s probably only 5% to 10%, and confined to Western Europe and the Nordics.’
‘The driving force behind all our merchant partnerships to date is that the payment was the weakest point in their user journey. These companies were all great at something else, payments wasn’t their core proposition. Organisations are recognising that open banking can make payments or onboarding become one of their strongest points, something that offers more value and strengthens the relationship with their users,’ says Tom.
Is the world ready? What needs to happen next?
‘More than ready,’ says Tom. ‘In fact, look outside of Europe and there are markets like Brazil that are way ahead of us. We shouldn’t lose sight of the fact that building a payments platform at scale is not a trivial task. Based on the due diligence we’ve been through with our major global customers, we are optimistic that Tink is leading the way technically: we have proven that we can handle significant spikes in payments volumes, with upwards of 99.9% reliability. But payments is not a hobby, it isn't something you can cobble together with a gaggle of engineers and a $20 million seed. It’s a serious business – so it’s important that the platform has enterprise grade reliability and security. We invest a significant chunk of our development time in platform reliability work – we wouldn’t have a business if we didn’t.’
‘The key thing here is also scale. We have always believed that it’s possible to grow through acquisition if you do a great job of seamlessly integrating the technology and the platform – it has to be invisible or it’s not good enough. Tink has acquired the aggregation platform of UK open banking pioneer OpenWrks, alongside leading open banking players in the Nordics (Instantor), Spain (Eurobits) and very recently the DACH region (FinTecSystems), who have all built specialist, local market, high-quality connectivity. Those bank connections are relatively easy to move to one platform, but very hard to build in the first place. We have already integrated much of that connectivity into the Tink platform, so that every one of our customers across Europe can benefit from the local connectivity that those teams have achieved. That’s been a core part of our strategy and it's been incredibly successful. If you look at the success rates and expertise that we are now able to offer in those markets by coming together, it is much greater than either company could have established just by itself. And this is reflected in the business we work with, from big banks, like Nordea, to groundbreaking fintechs like Lydia and PayPal – companies pushing open banking innovation and giving Tink pan-industry and scale expertise.’
‘The final piece of the open banking jigsaw is that no payment type has ever been able to become truly pan-European before. So if you add up the benefits, we are getting closer and closer to a payment method that offers near-perfect success rates, practically zero fraud and zero chargebacks, all with a great user experience – and with no separate brands or logins.’
What’s the long-term play?
‘I’d say that regulation has taken us so far, with the open banking standards we have, and it's a very strong foundation. What we and other providers are now looking to do is work with banks to enhance those APIs. Some of that might come in the form of further regulation, or individual large payments providers working with banks bilaterally. Variable recurring payments clearly have a lot of promise for the payments industry. We see a ‘bank on file’ experience emerging to replicate ‘card on file’ which could then truly extend the reach of open banking payments into commerce.’
Why the opportunity is now
‘It’s a bit of a cliche, but we are at a tipping point for open banking payments,’ concludes Tom. ‘Once you hit 60% of an adult population who have experienced open banking payments, which we have in Sweden, who come back to do it again and again, then you hit your tipping point. We’re seeing the spill over now to more use cases and more markets, the momentum is happening. The volumes that are now being processed are generating user improvements, which in turn increases the volumes – which you can’t get if you’re just playing around with a few thousand beta testers. We’ve hit the flywheel moment for open banking payments.’
Didn’t catch part one of Tom’s interview? You can read it here.
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