James Buckley, VP and Regional Director Europe at Infosys Finacle
A couple of years ago I was at a conference where a speaker remarked that her goal for instant payments was to pay a pizza delivery person when they arrived with the pizza and for the payment to be settled by the time the pizza was out of the delivery bag. Another fellow delegate remarked that we need to make it cross-border. With Euro instant payments and PSD2 opening up banking throughout Europe, that goal has been achieved.
This is just one example where combining open banking APIs with instant payments opens up opportunity in the retail banking space. Payment Initiation Service apps combined with open banking APIs and instant payments can help complete the whole process from initiation of payment request to settlement in seconds. So a retailer accepting a payment through a payment initiation service can be sure of payment settlement before releasing the goods. Retailers investing in this area will see returns not just in terms of a reduction in costs but also with the information gained through the use of these APIs.
But where does this leave the banks? Are they going to miss out in the new open banking, instant payments world?
Banks will still be on the receiving end of payment initiation requests so they will still have a big part to play.
Firstly, banks are required to make the payment instant. If a retailer relies on instant settlement to complete a process then banks will need good performance from their payments platform to retain the retailer as a customer.
Secondly banks can embrace the new world of instant payments and seek out new opportunities and new business models that it offers. For example, smaller businesses cannot afford the investment to become payment initiators in their own right or have lower payment volumes. For them, becoming payment initiators may not be very cost effective. In such a scenario, banks could offer a payment initiation service hub to their SME corporate customers to collect payments on their behalf which gets debited from the customer’s account (at whichever bank the customer has an account) and credited to the SME corporate account at the bank. This not only will improve loyalty of corporate customers but also allow the bank to have greater insight into the income, account, and purchasing habits of the corporate customer.
As an extension of a payment initiation service hub, when the payment initiation request fails due to lack of funds, rather than declining the payment, the customer could be offered a loan. If they consent, then the loan assessment could take place as part of the payment initiation session. The advantage of this to the bank offering the payment initiation service is that they become aware that the customer is interested in a loan before the customer’s primary bank does, allowing the bank to take the business from a competitor.
We are still at the start of the open banking / instant payment revolution. There is still work to be done. For example, not all API standards return payment confirmation messages to the payment initiation service. But for the banks willing to embrace the changes offered by instant payments, huge opportunities await.