With multiple high street banks, including HSBC, launching sweeping for open banking users recently, we have been reflecting on the wider open banking story here at Missive HQ.
The Second Payment Services Directive, or PSD2, brought about the some of the biggest changes in the history of payments in Europe. Its aim was to increase competition in a market famed for its high barriers to entry and dominated by a handful of incumbent banks and card schemes. Rising account-to-account (A2A) payment volumes and the almost 300 regulated providers already listed on the Open Banking Implementation Entity’s website show that, while progress has been slower than open banking evangelists may have hoped, the legislation is achieving its goal.
As such, it is no wonder that it was widely reported that incumbent financial services providers were nervous about PSD2’s impact on their organisations. Many initially saw the regulation as not just an expensive exercise in compliance, but a fundamental threat to their business model.
The power of B2B comms
To their credit, these views have evolved somewhat. High street banks have, to varying extents, come around to open banking. This is largely because they now understand that they still have a role to play in a more open financial ecosystem: the trusted guardians of data. And where did this understanding come from? The Third Party Providers (TPPs) themselves, who clearly communicated that they saw their opportunities in partnering with financial institutions, not displacing them.
So now, despite a slow start, incumbent banks are partnering with TPPs on providing additional services, and even launching their own value-add solutions powered by open banking. This demonstrates the power of B2B communications.
It’s tempting to reflect on the above and think that open banking providers have won the banks’ hearts and minds; even wonder if they can pull focus away from bank-targeted communications. However, there is a new challenge in play.
Enter variable recurring payments.
Variable recurring payments (VRPs) will enable customers, whether consumer or business, to connect to a payments service provider (PISP) to allow them to make a series of payments within agreed parameters on their behalf. This offers more control and transparency than existing alternatives, such as Direct Debits.
TPPs want to start offering VRP services to their customers, but they need all the banks to not only be on board, but using standardised APIs and infrastructure. Otherwise it’s simply not scalable.
The challenge is that UK banks have not been mandated to offer VRPs where funds are moved between multiple individuals or businesses; just where funds are moved between multiple accounts belonging to a single entity.
The deployment of Video Assisted Referee (VAR) technology is a good analogy (can you tell we have also been talking a lot about the upcoming world cup here at Missive HQ?)
VAR is good for football when it is done right. Indeed, according to the Premier League, VAR’s introduction in the 2019/20 season increased the percentage of correct key match decisions from 82% to 94%.
However, when referees apply VAR inconsistently (who else watched the Newcastle / Crystal Palace game?), significant issues arise. Despite having all the right technological foundations in place, each referee is applying it differently, meaning VAR is unable to live up to its potential.
To bring it back to open banking, and paraphrase Alan Shearer: “VRP is not the problem, it’s how it’s being deployed.”
So here we are again. Maybe not all the way back at square one, but TPPs certainly have their work cut out. They need to convince banks that the return on investing in non-sweeping VRPs will be worth it – and that standardised infrastructure is a necessity.
The TPPs at the forefront of this coming revolution will be those that combine behind-the-scenes lobbying with external comms; those that can, once again, win the banks’ hearts and minds. Fintechs need to double down on PR and comms that not only educates banks on the opportunities presented by VRPs, but inspire them with the possibilities. Feel free to employ our VAR analogy if it helps!
Is your marketing and communications strategy around VRPs successfully reaching decision makers at financial institutions? Contact firstname.lastname@example.org to learn more about how communications support could take your brand to the next level.