Open Banking Expo’s Ellie Duncan caught up with Token’s VP of technical sales and implementations, Nikita Septucha, to find out what hurdles the industry needs to overcome for A2A payments to become widespread and the potential for regulation to help tackle those barriers.
1. What does your role at Token involve?
I’ve been at Token for two and a half years now, and I look after client onboarding and technical pre-sales. Myself and the team assist sales from a technical point of view, ensuring that the solutions we sell to clients meet their requirements.
The client onboarding and implementation side of my role are twofold. For larger clients, we have a project management function. But in most cases, the team’s role comes down to technical assistance with onboarding. We guide clients through technical onboarding and best practices based on the use cases they would like to implement with Token.
2. What are the main challenges A2A payments face in becoming more widespread?
We can narrow that down to two challenges. Firstly, what needs to happen is a more consistent user experience. The UK managed to achieve that, but Europe is far from it. Inconsistent user experience will result in low consumer adoption. So that’s the challenge on the consumer side.
When it comes to the TPPs or the merchants using account-to-account (A2A) payments, the block is inconsistency: inconsistency of the offering, inconsistency of reporting of the payment statements, inconsistency of the processing time for payments, and even IBAN discrimination. As an example, some banks are limiting SEPA or SEPA instant transactions to within a single country. So if I want to initiate a SEPA transfer to an IBAN that is issued outside of that region, the bank may block it.
If you group them, these issues create barriers for the merchants to accept payments. Effectively, just to make payments with specific banks, TPPs and merchants would need somewhere to store information about these inconsistencies. If you need to know all of that, it becomes incredibly complicated and inconsistent.
Generally, the merchants who will adopt A2A payments might think, ‘ I should probably stick with cards, because even if they are more expensive and clunky, at least they are predictable’.
3. What role might regulation play in helping to resolve some of these hurdles?
If you consider the two vital problems or challenges that I outlined before and draw parallels with the UK, the Open Banking Implementation Entity (OBIE) in the UK created guidelines – which included UX guidelines – for the banks to implement. You can now see that the UX is relatively consistent in the UK. Of course, it’s not identical and it doesn’t have to be because the banks have different authentication models and brands. But, overall, it’s consistent.
I think regulators can play a role to enforce the account servicing payment service providers (ASPSPs) within the markets to comply with certain guidelines. For example, the French regulator, from the new user experience point of view, is mandating all the banks must support app-to-app authentication by a specific date.
Problem number two is a little bit more complicated to enforce because it is broader. The reason it’s broader is issues like payment processing times, cut-off times, and support of SEPA Instant as a payment rail are not within the scope of the PSD2, strictly speaking.
For A2A payments to compete with credit card payments, A2A needs to achieve similar consistency regarding when and how quickly payments are made and offer a degree of certainty to merchants that will receive funds.
The question is: does another regulation need to come in to try and unify or influence that? Or does there need to be some sort of industry body that will try to put those banks into buckets or make it easier for TPPs and underlying merchants to understand which groups of banks can process payments in which way?
4. You have written that Open Banking API stability is improving. What can Europe learn from the UK specifically to ensure further strides are made?
I wouldn’t necessarily draw a parallel between the UK and Europe, but I would say that the only way for things to change is for regulators to step in, and they have a right to do that.
PSD2 regulation and the Regulatory Technical Standards were written in a way that means ASPSPs need to deliver highly available interfaces and, therefore, regulators should have means to enforce that. When regulators show they will take measures or be very actively engaged talking to the ASPSPs and not necessarily penalising them, the ASPSPs will see that regulators are looking at and questioning incidents or availability. Naturally, it will encourage ASPSPs to take things more seriously. If that’s not going to be enough, then stricter measures enforced by the regulator will certainly help.
5. What do you think the European payments industry will look like in five years’ time?
I believe that Open Banking is the future and that A2A payments are going to evolve. In five years, I would love to see A2A payments surpass the current card volumes, and for cards and some of the historic payment methods to be the second choice for consumers.
I think we are on track to get there. Again, with a little bit of help from regulators and industry bodies. Is A2A going to be mainstream? Absolutely. No question about it. The question is when and how quickly are we going to get there. Is it going to be five years, or is it going to be two years?
Certain industry bodies are taking steps in the right direction, but you can only go so far if there is no-one to enforce the actions coming out of the industry forums. That’s why the UK was a success, because the Competition and Markets Authority approved the roadmap that was coming out of the OBIE and that roadmap was enforced upon ASPSPs. Time will tell whether Europe will achieve the same conversion level, the same level of UX unification, without that enforcement.