Open banking celebrated its fourth birthday in the UK this month. Looking back, some have called open banking in the UK a flop, like Starling Bank’s CEO Anne Boden to MPs at the Treasury Committee. While others highlight there are more than 2.5 million open banking payments a month with global payment transactions are expected to exceed $116billion by 2026, a 2,800 per cent increase in five years from present global values of below $4billion.
Open banking is a regulatory requirement in the UK and EU purposely designed to improve financial services and competition for end customers. Though open banking was put on paper first in the 2015 Payment Services Directive 2 (PSD2), it dates back the European debt (banking) crisis post-2009. Remember that? When banks stopped lending (but kept borrowing) and had to be bailed out at both the corporate level (Northern Rock, HBOS and RBS) and national level (Greece, Ireland and Spain). It’s hardly surprising governmental bodies at the time were keen to forcefully implement improvements throughout the oligarchical banking industry, but probably as unsurprising that the banks now appear a little unhappy its arrived.
Ralph Rogge is the CEO and co-founder of Crezco, an open banking account-to-account solution for B2B payments. Prior to Crezco, Ralph was COO and founding shareholder at YouLend, which was sold to payment giant Banking Circle. Here he shares his thoughts on the open banking landscape.
What has been the traditional company response to financial technology innovations nationally?
The response to any technology innovation, financial or otherwise, from a company or consumer, nationally or internationally, is the always same. First have your ‘innovators’, a small minority of the market willing to try cool things nobody has ever used before. These are optimistic creatures excited to try new things. Then you have your ‘early adopters’ who are more conservative but are still first-movers and do not need to see what the competition does first. Then the ‘early majority’ who remain agile, not wanting to be left behind, but rely on others for guidance. Then you have your ‘late majority’ and ‘laggards’, too boring to describe. The only difference in response between the consumer and the company, or between technology innovations and financial technology innovation, or a national or international audience, is the time taken for the laggards to catch up with the early adopters.
How has this changed over the past few years?
The pace of technological adoption is speeding up. It took decades for the telephone to reach 50 per cent of households in the early twentieth century. It took less than five years for mobile phones to hit the same penetration rate. With regards to financial innovation, people are more conservative, banks haven’t evolved much in thousands of years, but this is somewhat understandable given the downside risks. Contactless credit and debit cards were launched in 2007, accepted on London buses in 2012 and the underground in 2014, but they still needed COVID to see full universal adoption across the country. We hope account-to-account payments won’t take so long and the data so far is positive.
Is there anything that has created a culture of change inside the company?
Culture isn’t created overnight nor lost in a second. It’s something that has to be continually worked at and enforced, otherwise lost. Nonetheless, we’ve had a few offsite that have reminded us that we’re all human and in this together so let’s work together too.
What fintech ideas have been implemented?
Crezco has leveraged the open banking account-to-account real-time payment initiative to embed checkout solutions on invoices. If you receive an invoice via accounting software providers like Xero or QuickBooks, we’ve embedded a payment link on the invoice providing a more seamless and secure checkout that uses open banking’s Faster Payments rails. We experience the convenience of B2C contactless checkouts daily. At Crezco we bring that checkout convenience to the B2B market, and soon the cross-border B2B market too.
What benefits have these brought?
We save time for our customers’ customers in providing a more convenient checkout solution. This increased convenience leads to less delay and sees our customers’ invoices paid sooner, improving their cash flow and saving them time chasing late payments. We also provide greater visibility and clarity to both the payee (our customers) and the payers (our customers’ customers) providing certainty of payment and handling reconciliation.
Do you see any other industry challenges on the horizon?
We used to have to pay to send an SMS, more so to a foreign recipient. This is no longer the case, via solutions like WhatsApp and Signal, we send hundreds of messages daily across the globe without much thought. Payments need to reach the same level of senseless thought. We are a long way from this presently, but that’s why we are here: to make things easier.
Can these challenges be aided by fintech?
100 per cent they can be made easier by fintech. Regularity support will certainly help and quicken up the process, but we will get there regardless. It is a matter of ‘when’ not ‘if’.
The open banking movement started in the UK and EU is great, but the world is catching up, and some countries, like Brazil, Mexico, Australia and Canada, are about to, or have, take over. These great intentions