Talk of open banking has been rife for some while now. Bank APIs have been published and, according to Bottomline’s fifth annual Business Payments Barometer, 59% of businesses say they are ready for it. But the report also shows that enthusiasm for APIs has waned by 8% over last year. Is the hype fading?
Gavin Maclean, Head of Cash Management and Payment Product for Global Transaction Banking at Lloyds, described 2018/19 as an “intense period of preparation” for open banking. Despite there being a “very public” and “long awaited” focus on getting ready for the necessary regulatory changes, what has followed, he said, “has been the modest or perhaps slow emergence of new services built upon open banking”.
Actually, he continued, “we are still in the period where many new services will be tried, and only some will succeed”. Businesses may feel that the notion of open banking no longer has the intense focus of 12 to 18 months ago but MacLean has “cause for some optimism” and refuted “the end of the story for open banking”.
Indeed, there are now over 200 third-party providers on the open banking directory, over 100 of which are registered to provide payments services. With “some very notable names actually making their first payments” via this mechanism, competition amongst providers for new services “is really starting to heat up”, noted MacLean.
But with all the changes in the payments space is there “fatigue amongst businesses”, as conversations around confirmation of pay, request to pay, open banking, AML5, PSPs and ASPs vie for attention, asked event moderator, Bottomline’s General Manager of Payments, Ed Adshead-Grant.
MacLean accepted the “constantly busy agenda”, fuelled by advances in technology and regulatory change, and sees the rate of change only increasing. Banks have a job to do to ensure clients are up to speed. “We have always got to look on regulations as an opportunity to innovate and improve what we have,” he commented. “But we also have to help businesses pick out the advantageous parts, and the commercial edge that they can obtain by adopting these new services.”
At the SME end of the user spectrum, Adshead-Grant asked, does it feel like there is a “wonderful rush of opportunity”? “I think eventually we might get to that stage,” responded Dan Bellis, Senior Policy Advisor at the UK’s Federation of Small Businesses. But with fewer resources at this level, he admitted that “it can feel quite overwhelming” when members are trying to understand the long-term impact of different products and regulations.
Naresh Aggarwal, Associate Policy & Technical Director, Association of Corporate Treasurers, thinks part of the challenge when driving open-banking uptake, at least for the treasury community, will be in solving how open banks “prise them away from things they have built and spent a lot of time embedding across their core infrastructure”.
It is, he believes, “really hard to find a compelling business case” for businesses to adopt some of these solutions. “Treasurers I speak to are working long days just keeping the wheels turning. Now we are talking about adding something new in the mix.” For him, education is the key to greater adoption. “But it will be a challenge to explain the benefits of investing time and energy in changes, when treasurers already have many other things to face in the here and now.”
With the real-time payments option beginning to emerge in the business space, Adshead-Grant commented that last year’s Payments Barometer indicated some 37% of respondents as planning to adopt some form of instant payment within their businesses in the next 12 months.
This year’s numbers don’t add up. Regular real-time payments usage among respondents remains somewhat flat, with 53% in 2019 and 50% in 2020. Even then, a number of respondents indicated that their companies only use real-time payments to fulfil routine requirements such as making payroll payments (45%), paying taxes (46%), or paying regular invoices from suppliers (48%).
MacLean was “slightly surprised” at the lack of headway in sentiment towards instant payments. He remains sanguine. “Although the number of businesses citing an expectation to adopt instant payments is down, actually we still see a very healthy growth trajectory amongst instant payments, particularly here in the UK,” he commented. “I think the businesses who are adopting it will find that, when they have done so, the list of competitive opportunities that it enables just grows and grows”. It’s likely too, he added, that the pandemic will force businesses to consider their agenda for change, many prioritising solutions that can best support recovery and growth.
In the payments space, fraud risk is never far away. As faster payments limits rise, is the scene set for faster fraud? With 88% of SME respondents to the survey unable to recover more than 50% of their fraud losses, how big a problem is this for businesses, Adshead-Grant wondered.
Bellis believes that too many SMEs see losses due to fraud as an acceptable occupational hazard. These businesses often do not have the personnel nor resources to manage payment fraud. “An innocent-looking email that comes in for an invoice that looks vaguely familiar means it is all too easy for that business to end up paying it, especially when staff are overwhelmed by a plethora of other tasks that require immediate attention.”
Industry statistics show that one of the fasting growing forms of fraud is via authorised push payments (APPs), up from £300m in 2018 to £456m in 2019. Whilst developments like APPs increase the speed with which payments can be sent, Bellis warned all businesses to make sure that adequate protective measures are in place to ensure that the right person is being paid on the right invoice. For that to happen, he said the industry needs to make it easier for smaller businesses to understand these mechanisms. “There is perhaps more we can do in the background to help, as opposed to placing additional burden on them.”
Even for larger corporates, where fraud can be more easily written off as ‘just a cost of doing business’, Aggarwal noted that despite the likelihood of continual investment in resources, fraud remains a significant challenge. The problem, he said, was not necessarily one-off large amounts but smaller sums taken on a regular basis that are very hard to trace. With responsibility for payments often being spread across many centres and functions, he urges stakeholders within organisations to reach out to each other to collaborate and educate.
From the banking perspective, particularly on APP and ‘invoice-diversion’ fraud, digital confirmation-of-payee is “a good tool” if not a “silver bullet”, said MacLean. As per Bellis’ suggestion, bringing some of the anti-fraud measures that banks have embedded in their payment systems into the foreground – where businesses are actually carrying out payments – and then giving them more insight and control “can only be a good thing”.
Don’t ignore the future
With new conditions having emerged ‘post-Barometer’ with the pandemic, the panel explored some of the wider considerations for business payments. Bellis argued the case for a “fundamental change in the culture when it comes to late payments”. There is, he said, a “plethora of reasons why late payments occur, and it’s something that we have to get out of if we are help businesses survive”.
Change can be facilitated through increased payments data transparency, he believes. “We’d like to see payment statistics put within companies’ annual report, so that effectively they go through independent auditors and we know the payment performance of these companies.” Big businesses, he suggested, should lead the way on this.
For MacLean, COVID-19 has “upped the technological ante”, accelerating the need for adoption. “Businesses right now urgently need to review their processes and methods for accepting and making payments,” he said. “We are starting to see, through some of the data in the bank, that COVID-19 is causing an acceleration of some of the trends seen over the last few years, away from cash towards electronic payments and ecommerce.”
From the corporate angle, Aggarwal urges treasurers to follow what is going on in the payments space, understanding how shifting trends will impact them. Ultimately, he sees payment services moving away from being a simple utility, and heading towards the kind of “richness of interaction with customers” that provides real advantage. “There are some exciting areas where payments are really delivering an opportunity for change, and businesses need to understand a lot more around what works for them,” he concludes. Of course, for treasurers, finding the time to attend to all of these developments might be the biggest challenge.