It is well documented that at Token, we believe the momentum of account-to-account (A2A) payment adoption is unstoppable.
However, A2A payments are not ubiquitous just yet — and that’s because APIs in Europe still have a long way to go. There are some fragmentation-related challenges to overcome and several challenges around stability and availability.
I believe that as Open Banking payments reach a tipping point, what is required now is regulatory and industry pressure to overcome these last remaining hurdles.
A fragmented Europe
One of the challenges related to fragmentation that I see is the idea of predictability. If we look at payment initiation via SEPA Credit Transfer, some of the transaction statuses we get back from the banks still don’t give us, at Token, enough confidence that the payment will be successful, and we can only rely on a full reconciliation to confirm this, which can take several days.
On the issue of SEPA instant adoption, not all banks in Europe support this — and support is even inconsistent within banking groups. For example, between two and three regional branches of a Tier 1 bank in France do not support SEPA instant.
Some banks are also limiting SEPA or SEPA instant transactions to within a single country. So if I want to initiate a SEPA transfer to an IBAN issued outside of that region, the bank may block it. This practice is often referred to as IBAN discrimination.
Another form of fragmentation is that banks across Europe have different cut-off dates and times for processing payments.
The lack of harmony in bank processes stems from the fact that it was not addressed by the scope of the PSD2 or even local regulators. As a result, we have a highly fragmented market with different tech standards of APIs and, on top of that, we are overlaying fragmentation of the transaction processing.
The reason I think SEPA Instant provides the answer to these issues is that it is real-time, which removes the problem of cut-off times, and the fact it is also instant means more predictable statuses and transaction outcomes. Certainly, these are good reasons for the European Banking Authority and NCA to push for wider SEPA instant adoption.
With no single pan-European Open Banking API standard currently, industry initiatives have resulted in various API standards for accessing bank accounts, such as STET, PolishAPI and the Berlin Group’s NextGenPSD2 framework.
I know reading this, you might be thinking: ‘Hang on, these are really the only three that most banks use and it shouldn’t all be that complicated.’
However, what I’ve uncovered in terms of variation across banks leads me to refer to these less as standards and more as frameworks. For example, some banks have taken a standard and decided to implement their own bespoke headers. Others have added a requirement for additional redirection as part of the user authentication – and the list goes on.
Given the complexities and fragmentation of Open Banking APIs in Europe, having the right solution to help you overcome fragmentation in the market is critical to delivering value back to your organisation.
While I have positioned SEPA instant as part of the solution, it is worth knowing that banks charge consumers for these transactions, which could prevent users from adopting it more widely.
The road ahead
Overall, Open Banking API stability is improving, with better response rates and predictability. The UK has achieved great success here, and Europe is on the right track.
But I believe that APIs in Europe will take six to 12 more months to stabilise fully.
Network stability issues we have witnessed in Europe include a large banking group in Germany whose customers could not log into authentication pages, and this went on for 10 days. We also received notification from a financial institution in France that it was temporarily switching off payment initiation services to effect an emergency change – this lasted for five days.
These examples demonstrate that, while many banks are making incredible strides in pushing Open Banking forward and engaging deeply in dialogue and support with TPPs like Token, others are simply falling short.
Notifications of planned and unplanned downtime are inconsistent — and banks often go offline for hours, or even days, without notice.
The question is, what can we as an industry do about this? Is it time for the regulators to step in? Should industry organisations challenge banks that are lagging?
Admittedly, there is no easy solution here, but we encourage industry players and regulators to continue to engage in dialogue on this topic.
The most significant potential for Open Banking lies in delivering the optimal consumer experience.
One of the benefits of Open Banking is that banks control the authentication, which ensures that authorising access by a consumer is as intuitive as logging into their mobile banking. However, the flip side is that many banks have not designed authentication to provide a good user experience.
Regulators in Europe would be wise to provide guidelines on user experience and mandate either decoupled or app-to-app redirect methods of authentication.
Similar guidelines and mandates in the UK created an experience that is easier and more intuitive than cards.
There is, however, a light at the end of the tunnel, despite resistance from some in the industry. The good news is that the UK has done it right, and the rest of Europe is on the right path.
Open Banking can be complicated, but it is an exceptional user experience when it all comes together.
In the UK, in my opinion, the user experience among the CMA9 banks is reasonably consistent, and with some banks, I would categorise it as amazing. We have the OBIE’s hard work to thank for this. I would personally choose it over my debit card if more merchants provided this option.
Nikita Septucha is VP of technical sales and implementations at Token