Open Banking: Learning Lessons from Asia

With the implementation of PSD2 in Europe, Open Banking payment solutions are starting to be rolled out across the UK and Europe.

But while the core Open Banking payment solutions are live, there is a long way to go until we see the widespread adoption of Open Banking as a payment method, particularly with use cases outside the e-Commerce environment. This is where the UK and Europe should turn an eye to the East: if Open Banking is to become a ubiquitous payment solution to rival cards, European players would be wise to study the payments innovations across Asia.

Of course, it’s not possible to evaluate Asia as a single entity. Throughout the continent, varied regulatory strategies and differing starting points means payments have progressed in different ways. As a result, we will explore the Open Banking and payments developments on a country-by-country basis.

while the core #OpenBanking payment solutions are live, there is a long way to go until we see the widespread adoption of Open Banking as a payment method Click to Tweet

Which progressive markets should we be watching?

India’s Open Banking ecosystem began with the introduction of the Unified Payments Interface (UPI) in 2016. Today, Open Banking payments are growing at a rapid pace, with UPI now enabling payments to be collected from 60 banks.  Merchants and service providers using UPI as a payment method include some of the biggest names in the country: PayTM (mega-App), Flipkart (ecommerce) and Redbus (transport).

Singapore has also matured rapidly with its Open Banking infrastructure. Starting groundwork as early as 2014, the Monetary Authority of Singapore (MAS) has driven innovation with a comprehensive, non-mandatory governance framework. This has led to banks opening access to their own data through APIs. Local banks like DBS and OCBC are some of the global leaders on Open Banking, and their customers can now access banking services and payments through a variety of platforms and marketplaces.

Meanwhile, Hong Kong’s Monetary Authority launched the first phase of its Open Banking framework in January 2019. The staged rollout started with APIs to enable new product applications, and will extend to account information and payments. Already these APIs are being integrated into 3rd party Apps, with the Octopus card (HK’s answer to the Oyster card) continuing to grow its ecosystem by enabling its customers to apply for a credit card directly through the app, while sharing data with the underwriting bank.

One country which is often touted as a market leader is China, who are undoubtedly further down the line when it comes to instant, invisible, and free payments. Giants like Tencent and Alipay have driven incredible growth in ecosystem-based payments, particularly by enabling and powering payments to micro and small merchants without expensive card technology. The comparative lack of legacy financial infrastructure has enabled these innovators to gain a foothold much quicker, with solutions focused on the underbanked.

Giants like Tencent and Alipay have driven incredible growth in ecosystem-based payments, particularly by enabling and powering payments to micro and small merchants without expensive card technology Click to Tweet

So what can Europe and the UK learn from these developments?

Firstly, the UK and Europe could expand Open Banking payments, by looking to alternatives like QR codes for certain face-to-face use cases. Indeed, China has seen the rise of QR codes which enable users to scan the code to purchase items at a store without using card details. This has led to significant growth of non-cash payment in environments where card devices are just not feasible.

While some would view QR as a retrograde step for the UK and Europe, with smartphone penetration projected to reach 80% by 2022 in the UK, we may do well to investigate the opportunity that QR codes present to the merchant and consumer to enable Open Banking within a face-to-face environment. Small corner stores, coffee shops & small restaurants, hairdressers, market stalls, charities, sporting clubs could all benefit from low-cost Open Banking solutions to support them in an increasingly cashless world.

Secondly, the UK needs to enable a faster authentication and checkout approach in order to enable Open Banking to deliver a better customer experience. To achieve this, we need a framework to enable a merchant or PSP to identify and authenticate customers, rather than relying on the banks. In India, this is done using the Government’s Aadhaar biometric IDs, so the PSP authenticates customers providing some flexibility around how or where this is done in the customer journey.

the UK needs to enable a faster authentication and checkout approach in order to enable #OpenBanking to deliver a better customer experience Click to Tweet

In the UK, banks are responsible for authenticating customers and, while most have moved to biometric authentication on mobile devices, for some banks the payment can be cumbersome. Those who still bank with one of the major high street banks may even find that to authorise a payment for the first time, they need to wait for a call from the bank in order to receive a one time password – a far cry from best in class. A shift towards enabling PSPs and merchants to authenticate the customer at a different point in the journey would enable faster, frictionless customer experiences.

Thirdly, the closed ecosystems or “mega Apps” like Tencent, Alipay and PayTM have driven some of the fastest payment Asia. These ecosystems are the types of environments where the greatest benefits from Open Banking can be extracted, with the potential to leverage both open data and payments to optimize the customer’s experience.

As Amazon continues to grow the breadth of its services in Europe, and other players look to mimic the mega ‘Apps of the East’, Open Banking solution providers should look at how they can best support these ecosystems with integrated data and payment capabilities. This would enable a customer within an App to share their data to receive better, more targeted products and, where necessary, seamlessly transfer funds from a linked underlying account into the App or a 3rd party. 

Finally, the UK could take India’s lead in its approach to infrastructure, particularly its pricing. India has a centralised, competitively priced core real-time payments capability, with a series of overlay services to provide additional functionality. For Open Banking transactions, the price paid for the underlying transaction is equivalent to ~£0.009 per transaction; this is significantly below the cost of the Faster Payments Scheme in the UK. The faster the UK can deliver the New Payments Architecture, with a more cost-effective service provider, the better off Open Banking will be.

What is Asia learning from Europe?

When it comes to the UK and Europe, there is still plenty to do to make Open Banking a complete success story. With that said, there is already a very solid foundation for innovation to progress, in large due to the strong regulatory framework that has been implemented in Europe, and particularly in the UK. 

When it comes to regulation, Asia could, therefore, look to adopt a model more akin to that of the UK and Europe.

Whilst the Monetary Authority of Singapore did not make it mandatory to share banking data, they are strongly encouraging organisations to develop Open Banking initiatives. In 2016, they published a comprehensive framework on governance, implementations, use cases and design principles for APIs.

The problem with the non-mandatory approach is the difficulty for third parties to integrate into multiple banking systems. For example, a merchant in Singapore would need to integrate into DBS’ “PayLah” open banking payments, as well as OCBC, and Standard Chartered in order to provide services to a broad set of the population. Despite only a small number of banks, this is still significantly more challenging than in the UK environment where merchants can integrate into one TPP to reach all consumers.

As mentioned earlier, in China, we are seeing the emergence of ecosystems integrating payments, wallets and a large range of other services. This ecosystem growth has aided the rapid adoption of new payment forms, but as wallet balances continue to grow and flows are incentivised to remain within the ecosystem, there are questions as to whether this is good for long-term competition. It begs the question, how easily would consumers be able to view their Alipay wallet balances and trigger payments from another App without relying on the Alipay payment infrastructure? At some point, China may benefit from a more comprehensive regulatory approach to Open Banking, in order to enable access to the underlying account and payment infrastructure and maintain competition. 

At the end of the day, we really do need the best of both worlds. There is much that Europe and the UK can learn from Asia and their innovations in the payments space. But equally, Asia’s lighter touch regulatory approaches could be strengthened to provide better services and competition for consumers.

there is much that Europe and the UK can learn from Asia and their innovations in the payments space. But equally, Asia’s lighter touch regulatory approaches could be strengthened Click to Tweet

Nick Raper, Head of Nuapay UK. Nuapay is a pioneer of Open Banking and the industry’s leading Account-2-Account payment environment. Building upon the trust, scale and experience of our parent company Sentenial – who securely processes over €42 billion every year as an outsourcing provider to many of the world’s leading Banks. Nuapay has worked tirelessly to reinvent what’s possible from a modern banking and payment solution. Raper was previously Director of Strategic Planning Group, American Express. He spent 9 years at AT Kearney where he was a Principle.

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