Over the past year, it’s become clear that Open Banking payments are no longer the future but that they are here — and they’re here to stay.
So, what’s changed? And, more importantly, how will Open Banking payments evolve in 2022 and beyond?
Firstly, account-to-account (A2A) payments already account for around 13% of all e-commerce payments in Europe. However, Open Banking has enabled A2A payments to finally go mainstream, to the point that Open Banking-enabled A2A payments now present a genuine threat to cards. In fact, Wordline taps A2A payments as a global payments megatrend for 2022, and have predicted that market penetration for account-based payments will reach 10% of all payments over the next five years.
2021 was the year that merchants raised the alarm about rising payment costs – the biggest of these is Amazon. The ecommerce giant announced that it would no longer accept UK-issued Visa credit cards starting in January 2022, citing in an email to customers the “high fees” charged by Visa for processing credit card transactions. According to figures from the British Retail Consortium, UK retailers spent £1.3 billion to accept payments in 2020, an increase of 18% from 2019.
Could we be reaching ‘peak card’ sooner than expected?
In 2022, an early majority of merchants’ payments strategies will include A2A payments, and there are several reasons why A2A will continue to see tremendous growth, in my view.
The first is that A2A delivers significantly lower costs – typically, between 2x and 20x lower than traditional payment methods and independent of payment values.
A2A also provides liquidity, given that it offers instant settlement for merchants.
Finally, A2A payments deliver a seamless and secure customer experience – something that is too often lacking.
For example, a few weeks ago, I was on a train platform in London, entering card details to make a payment while juggling my mobile phone and a plastic card. And I thought, “why is this a good experience?”. The answer: it is not. Being seamlessly directed to my banking app to authenticate a payment with my face or fingerprint? Well, that’s better than good.
When we talk about significant growth, we really do mean it. According to Juniper Research, global payment transactions facilitated by Open Banking will exceed $116 billion in 2026, from just under $4 billion in 2021 — a 2,800% increase in five years. Moreover, increased consumer awareness will drive this take-up, with Europe leading the way and expected to account for 75% of the total in 2026.
Headwinds to navigate
While this is all hugely positive for the Open Banking payments ecosystem, let’s not mask that going into 2022, there are several headwinds still to navigate, namely around network challenges and protection. Firstly, we need to fight IBAN discrimination, which is an outdated – not to mention illegal – practice that sees banks or merchants refuse to make or accept a payment from a non-domestic bank account.
The Single Euro Payments Area Regulation prohibits this, but it’s still not fully enforced in Member States. Recently, there have been encouraging developments in France, where authorities can now issue fines of up to €375,000 to individuals and companies that discriminate against non-French IBANs. At Token, we hope to see other Member States follow suit with similar commitments in 2022.
There is also the need to achieve full coverage of SEPA Instant payments in Europe. At the moment, not all banks across Europe support SEPA Instant — and support is even inconsistent within banking groups. We also believe that the Open Banking industry must continue to consider protection for consumers, both in terms of payment protection to ensure there is a resolution if something goes wrong when executing a payment, and purchase protection, to insure against the failings of a product or merchant.
I don’t believe purchase protection should be part of A2A payments, and regulation already mandates payment protection. However, a key challenge is educating consumers about this. We also need a common dispute management mechanism.
Fraud protection is also critical. Although A2A payments are more secure than legacy online payments and cards, the industry must also go further with fraud protection. Open Banking can provide another avenue for authorised push payments fraud when online banking credentials are already compromised. In addition, we need to make consumers aware of new beneficiaries and all of their transactions in real-time. TSPs and TPPs also need to step up and invest in fraud tools to help police this new ecosystem.
Tailwinds on the horizon
But it is not all doom and gloom — far from it. As the New Year looms, so do considerable tailwinds. At Token, we forecast that new variable recurring payment (VRP) capabilities will unlock additional Open Banking payment use cases for merchants and direct billers through the latter half of 2022. Just as consumers programme rules for their smart homes and devices, we can think of VRPs as giving consumers the ability to programme rules for their payments.
VRPs will capture a share of subscription payments. And perhaps less obviously (but most excitingly) is VRPs’ potential to enable consumers to replace their card on file with an ‘account on file’, putting A2A payments behind ‘Buy Now’ buttons.
The potential for a re-bundling of services around A2A is also good news for banks. After all, Open Banking is an opportunity for banks to go beyond data access and reclaim their position as the centre of the payments universe, which should be firmly on banks’ agenda in 2022.
2022 is also when A2A payments will become the primary payment method for loading digital wallets.
Finally, Open Banking payments will become a key part of the world of unified commerce within the next year.
Open Banking infrastructure is now mature enough to allow merchants to bring offline payments online, which means consumers can scan a QR code in stores and authenticate an A2A payment on their mobile phones . As a result, merchants can fuse shopping experiences across their brick-and-mortar store, eCommerce site and mobile app, consistently offering the option to ‘Pay by Bank’ to consumers wherever they shop with them.
Roll on 2022!
You can also listen on demand to Todd via the Open Banking Expo Unplugged podcast on why A2A payments are going mainstream.