The banking industry has been slow to adapt to new technologies, but when it comes to the introduction of digital payments and mobile banking adoption is well on its way. Over the past few years, a wave of fintechs focusing on digital-based solutions has turned banking services into software services (Peplow, 2021).
The recent pandemic caused a shift towards e-commerce, which led to an increase in online transactions and the growth of the digital marketplace (Peplow, 2021). When it comes to in-store purchases consumers no longer want to use cash, but want the same feeling of instantly handing over money. Consumers expect their banking options to align with their fast-paced lives, and that means the expanding popularity of same-day payments (Feedzai, 2020).
Payments are changing
Open banking ePayments (OBeP) allows customers to send and receive money in a matter of seconds. It's become one of the fastest-growing payment methods in Europe, the Middle East and Africa (Ciobanu, 2020). OBeP is expected to overtake both credit and debit card payments in popularity by 2022 (Trustly, n.d.).
With the development of Request to Pay (RtP), open banking is taking instant payments one step further. The service allows users to proactively request payments from other bank account holders, who then receive notifications outlining the amount owed and when payment is due (Peplow, 2021). RtP makes payments flexible and even more convenient than with traditional bank transfers.
In addition to open banking innovations, cryptocurrencies have, and are still changing the ways payments are made. There are over 2,000 cryptocurrencies and most large retailers allow purchases via crypto (Cashbook, 2020). Along with crypto technology came other blockchain technology developments, which allowed payments to be made peer to peer even without banks as middlemen, or even through a bank account (Cashbook, 2020).
What is open banking?
Open banking is a banking practice that securely shares financial information, such as consumer banking transactions and other financial data, to third-party financial service providers (Estevez, 2020). Sharing data is done through the use of application programming interfaces (APIs) and only with the consent of customers (The Balance, 2020). Open banking is the driver behind both innovation and competition in the financial industry (Cahill, n.d.).
Why do payments use open banking?
Payments essentially need to be secure and seamless, and open banking allows for a frictionless customer experience for authorising payments.
Open banking verifies a user's identity and bank account numbers before authorising a payment or withdrawal of funds without the need to send bank statements.
Some Payments Companies You Should Know About
Paypal is an online payment company that serves more than 330 million consumers and merchants in more than 200 markets worldwide (PayPal Use Case, n.d.). The company is implementing open banking and account aggregation to improve user experience (PayPalUse Case, n.d.).
Revolut is a financial technology company that offers banking services. Revolut uses open banking to connect external bank accounts in one place and allows users to set budgeting controls based on their entire financial profile (Revolut Use Case, n.d.).
Curve is a payment card that aggregates multiple payment cards through its accompanying mobile app, allowing a user to make payments and withdrawals from a single card. Open Banking allows Curve’s customers to rack their finances in one place (Curve Use Case, n.d.)
What’s to come?
The future of banks depends on how open they are to integrating with innovative new technologies, such as instant payments and open banking. This technology keeps existing customers and attracts new ones, which increases revenue and keeps them competitive (Thomalla, 2020). Banks will find success when they collaborate with fintechs and act as trusted aggregators of financial services, while also providing transparency (Thomalla, 2020).
The evolution of payment technology and the change in consumer preferences spell the beginning of the end of a cash-based society. Original prediction envisoned that fully cashless societies would emerge by 2035, but with the rise of digital payments the use of cash has declined much faster than expected (Moss, 2020). It's plausible that cashless societies could emerge before the end of the decade.
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Cahill, H. (n.d.). InvoiceFair. The Evolution of Open Banking: Connectivity breeds digital competition.
Cashbook. (2020, June). Changes in payment trends over the last 10 years. Cashbook.
Ciobanu, M. (2020, October 8). Open Banking At The Heart Of Digital Transformation Of Payments. Holland Fintech.
Curve use case. (n.d.). Open Banking Use Cases.
https://openbankingusecases.com/apps/curve-app-paymentsThe Balance. (2020, October 11). What Open Banking Is and How It Will Affect You.
Estevez, E. (2020, August 27). Open Banking. Investopedia.
Feedzai. (2020, August 26). Instant Transfers vs. Traditional Transfers. Feedzai.
Moss, R. (2020, April 22). The Future of a Cashless Society. Total Processing.
PayPal use case. (n.d.). Open Banking Use Cases.
Peplow, M. (2021, February 22). How open banking is driving payments innovation. Finextra.
Revolut use case. (n.d.). Open Banking Use Cases.
Thomalla, P. (2020, July 7). Unlocking the potential of open banking with instant payments. Finastra.
Trustly. (n.d.). Open Banking Explained. Trustly.