Insight: Why the NPA and Open Banking need to join forces

Nanna Saito Neilsen,
06 Jul 2021

It’s well documented that Open Banking in the UK, compared to the rest of the world, is fairly advanced in terms of development and uptake.

According to the Open Banking Implementation Entity (OBIE), by the start of 2021, 294 fintech companies and payment service providers had already joined the Open Banking ecosystem in the UK, of which 102 had live offerings in the market.

Recently, a study by Mastercard also revealed the digital infrastructure in the UK makes the country very well-placed for Open Banking to thrive.

Although we are off to a good start, the job is by no means finished.

According to ING research from 2020, across 13 countries in Europe, 35% of consumers said they had never heard of Open Banking. This is a shame, given its strong consumer use cases, such as simplifying budgeting and mortgage applications on the AIS side and offering more secure transactions on the PIS side.

What’s more, benefits to businesses – including Open Banking payments as a more seamless and low-cost alternative to cards – demonstrate it has the power to unlock more profits, powering our post-pandemic economic recovery.

As responsibility for the rollout of Open Banking transitions from the OBIE to a new organisation, we believe this is the perfect time to consider its future development. The future entity has a real chance to build Open Banking into a more robust and easily adopted payment form.

One criteria of success is the simultaneous development of the New Payments Architecture (NPA), which will enhance Open Banking.

What is the NPA and how does it relate to Open Banking?

The NPA is the UK’s new retail payments infrastructure that is set to replace Bacs and Faster Payments. According to the Payment Systems Regulator, “the NPA has the potential to future-proof payment services in the UK by providing a robust and sustainable infrastructure where innovation and competition can thrive.”

Metaphorically, the NPA is the foundation upon which the house is built. This new architecture will provide the ‘rails’ for Bacs and Faster Payments, of which the latter is used for Open Banking payments.

What can be gained?

If Pay.UK, the entity responsible for building the NPA, and the future Open Banking entity increase their levels of coordination as these projects continue to develop, we can see great gains for both. For one, the NPA providing a strong core infrastructure means solid rails upon which more competitive overlay services, such as Open Banking, can develop.

Furthermore, if both camps divide and conquer – with the NPA focused on building the foundation and the post-OBIE entity honed in on strengthening Open Banking payments – we avoid duplicating efforts to address the same use cases. That way, PSPs can focus on creating one stellar experience for consumers and businesses, rather than two mediocre ones; this ultimately leads to better outcomes for payers.

Increased coordination between the NPA and Open Banking can also de-risk the big changes that are inherent in an industry-wide project.

One major concern is the migration of Bacs because of its central role in day-to-day payments in the UK. If the market is left to develop alternatives, such as Variable Recurring Payments through Open Banking, using the new infrastructure, there is potential to mitigate against the risk of this move. This could create an opportunity to complete the Bacs migration even sooner.

Finally, if the NPA and Open Banking camps work together, we will see greater competition in the market. Take an example: as it stands, both entities could develop an offering for businesses to request recurring payments similar to the current Bacs solution. This could be problematic for smaller PSPs, which often have limited resources: which new solution should they allocate their time and energy to?

If, however, Pay.UK and the future Open Banking entity have sufficiently different focuses and create distinctive solutions, smaller PSPs can invest in both. This would result in a proliferation of payment solutions and a more equal distribution of market share.

A brighter future together

Both Pay.UK and the OBIE have achieved so much already in the face of a monumental task: changing the very fabric of how we pay. At this point in time, we have the opportunity to make these projects even more successful by increasing their levels of coordination.

The industry’s common objectives – stability, better products and cost effectiveness – can be more easily achieved by working together and, should everyone band together in a complementary way, we see a bright future ahead.

Written by Nanna Saito Nielsen, VP of banking operations at GoCardless

Imran Gulamhuseinwala of the OBIE joined Open Banking Expo Unplugged to talk about what’s next for both him and the OBIE as it reaches the final implementation stages of its roadmap. Listen to the podcast episode here.