We recently caught up with Huw Davies, Chief Commercial Officer, Ozone API, which has been involved in the development of Open Banking from the very beginning.
Ozone API started by developing the sandbox and reference implementation for the UK Open Banking Implementation Entity (OBIE) – essentially the model example of how to build to the standard. From there, they created an API platform which helps banks and financial institutions around the world deliver great, standards-based open APIs which handle the complexity of open banking and open finance.
Huw Davies, CCO, Ozone API, has over 26 years of experience in payments and financial services, delivering transformational go-to-market strategies at both major corporations and startups. He has recently led the ecosystem growth at OBIE, driving adoption and usage.
Prior to this Huw has undertaken exec roles at Token (Chief Commercial Officer), HSBC (Global Head of Payments), MasterCard (Head of Emerging Payments) and Barclays. Huw also sits on the Advisory Board for the Payments Association.
Our discussion with Huw Davies is shared below.
Crowdfund Insider: Please tell us a bit about Ozone API and the challenges the company looks to address
Huw Davies: The Ozone API journey started when Chris Michael, Freddi Gyara and myself worked together as part of the leadership at the UK’s Open Banking Implementation Entity (OBIE). Open banking was driven by the regulator in the UK, and it was the first market to do it in a very structured way. Between us, we all had a clear view that the potential for open banking to change the world was massive.
However, this approach was completely new to banks, and they weren’t great at it. Many financial institutions went out and tried to build open banking APIs and spent way more than they expected. It also took far longer than they planned and a lot of banks struggled to do it in a way which worked effectively. We had this strong passion and view that open banking, done well, could be hugely transformational. But it needed to be built on strong technical foundations, which means banks and financial institutions delivering really good APIs that align with standards and work well for developers and end customers. Only through these solid foundations can the potential of open banking be unlocked.
We started by building the reference implementation for the OBIE’s UK Open Banking Standard, which we still provide today. Then we built out the technology to help banks implement their open banking APIs. As more and more standards emerge around the world, we support those standards. We aim to help banks and financial institutions deliver APIs that work really well, help them comply with regulations but go beyond compliance to make it a channel which enables them to serve customers in new and innovative ways, creating new propositions and revenue streams.
Crowdfund Insider: What is open banking and how has it developed?
Huw Davies: We are still in the early stages of the open banking journey, which started with banks but has evolved into open finance and is headed towards open data. The objective of open banking is to give customers more control and ownership of their data and accounts. Open banking involves banks, but open finance and data will involve a much wider range of players building propositions based on the consent-driven sharing of consumer data.
For years, we have had data protection regulations which state that the information a company holds pertaining to the customer should be accessible by the customer. The reality is that there has been no way of accessing this information. Open banking is finally creating a technical foundation that allows customers to manage and control access to their accounts and the information held about them.
The UK is the market that is furthest ahead in terms of a formal, structured implementation of open banking. Momentum is building well. We are seeing millions of customers use open banking daily to manage their money, as well as millions of payments each month and a huge range of use cases. These include people managing all their accounts in one place or gaining access to better and more suitable credit opportunities by leveraging the data in their bank accounts.
The true potential is enormous. Open banking and finance are about transforming economies, modernising financial services and tackling issues like financial inclusion. The foundations are now in place, and both consumers and businesses are seeing benefits. it will take some time to unlock all the potential, but we have made significant progress.
Crowdfund Insider: What are variable recurring payments (VRP), and what is the scale of the opportunity they represent?
Huw Davies: I have worked in banking and payments for 26 years. In that period, we have seen innovation moving from heavy cash usage to cards becoming the primary method of making payments, and then digital wallets like Apple Pay, Android Pay and Amazon Pay. We are now on the cusp of a transformation of payments on a scale greater than anything which has been seen before.
There are still issues around payments. There is friction, particularly when a payment is made for the first time, which could involve payees inputting a lot of information or agreeing to complex terms around a direct debit. Secondly, we still have a significant problem with fraud in payments, whether that’s payments being used in money laundering to fund crime around the world or fraud perpetrated using payments to steal money from individuals and companies. Open banking payments bring another layer of efficiency and security, which have traditionally been seen as polar opposites. They offer frictionless payments based on digital initiation in which no information needs to be provided.
They are zero-input payments, which removes friction. At the same time, open banking is based on strong layers of security and trust. The trust framework of open banking means payees can always be sure a trusted third party is initiating the payment, which has also gone through strong multi-factor customer authentication.
Variable Recurring Payments (VRP) allows open banking payments to work better, removing the requirement for a customer to be involved in every transaction. VRP offer the same security as traditional open banking payments but allows ongoing payment consent, which unlocks a huge amount of use cases, including subscriptions, one-click e-commerce, regular bill payments without the need to set up direct debits, or even intelligent supplier-initiated payments for businesses which enable them to automatically pay suppliers when they invoice within a set range.
VRP will make payments better in a world that is currently card-centric and provide an alternative to direct debits whilst removing the need for manual transfers such as supplier payments. They offer intelligent, secure and real-time payment initiation, which will transform payments across the board.
Crowdfund Insider: Why will VRP create a two-tier payments market?
Huw Davies: In the UK, the Competition and Markets Authority (CMA) challenged the nine biggest banks to implement open banking to drive a more innovative and competitive market. As part of this, these banks – which are called the CMA9 – were mandated to introduce VRP for sweeping by the end of July. Sweeping is the automated movement of money between accounts. This is a great bit of functionality that allows people to avoid overdraft fees automatically or sweep money into savings accounts to achieve better outcomes.
However, the CMA9 has implemented VRP and will leverage this to support a much wider range of use cases, which will create a commercial marketplace. The challenge is that the nine biggest banks – which already have a dominant market position – have implemented VRP and their smaller competitors have not. This raises the risk that they will be left behind, particularly if merchants grab hold of the VRP opportunity, which can mean better payment experiences, lower costs and more immediate settlement. There is a danger of a two-tier market in which only the biggest banks support VRP functionality.
VRP will generate new revenue streams for banks and exciting new payment propositions for merchants and third parties. They will scale and become significant over time. This is a seminal moment, so the challenger and second-tier banks must move quickly. There is a good opportunity for these banks to move quickly and make sure they don’t miss out. Ozone API provides the tools which allow banks to quickly expose APIs that enable VRP and then commercialise them.
When Apple Pay launched in the UK, Barclay’s was not among the first banks to support it, so customers voted with their feet. We must not end up with a two-tier market in which consumers are disadvantaged because they bank with institutions which do not have VRP capabilities. Our objective is to help them stand up VRP as quickly as possible, so they are part of this new payment revolution.
Crowdfund Insider: How is open banking progressing around the world?
Huw Davies: We are now at a point where we can say with confidence that open banking and open finance is a global phenomenon. It is driven in some markets by regulation, whether it is the Central Bank in Brazil or Mexico or open banking and open finance regulation in Saudi Arabia. Even when it is not being driven by regulation, it is still happening through market forces. In the US, for instance, there are many open banking propositions despite a lack of regulation.
One important question is how much of this is forced and mandated by regulations, and how much is created by market forces? In global markets, we are seeing regulators build open ecosystems based on learnings from countries like the UK.
We are working in a number of markets across the world, including Latin America and the Middle East, where we are seeing banks grasp the commercial potential much more quickly. We are having conversations with banks that are early in the process, who want to implement APIs quickly to meet regulatory requirements – but also want to go beyond compliance to build premium and commercial functionality. We are seeing a much faster move towards the commercial space that open banking enables, rather than a conversation about regulation and compliance we saw in established markets such as the EU, in which banks often regarded open banking as something to comply with rather than an opportunity.