Tom Pope (pictured), VP payments and platforms at Tink, on the ‘spectrum’ of use cases Open Banking-enabled payments can solve.
1. Why have we seen such a difference in AIS versus PIS adoption?
When the PSD2 regulations were announced, account information services (AIS) was at the forefront in Open Banking, and perhaps that’s because banks were particularly keen to adopt it and use it for services for their customers. Tink was aggregating account data before AIS was really a thing. Before PSD2, we were already aggregating accounts in Sweden across different banks.
One of my big themes I always talk about is this idea that we have a spectrum of use cases. There are lots of bad experiences out there that we can solve. With AIS, we’re helping to solve things like aggregating account information, onboarding and loan applications.
What I would say is, there are ultimately more payments to be made in Europe than there are account information requests. If you look at where the growth is happening, why the growth is happening, and the reason why a lot of the industry is drawn to payments, there’s just an awful lot of volume there.
2. Can we say that PIS is now becoming the primary driver of Open Banking?
Coming back to that spectrum of use cases, I often use the example of the Amazon ‘one-click’ checkout experience. It’s a fantastically streamlined payment experience, most people don’t even realise they’re paying on their Amazon app. When you pay for an Uber, it’s so integrated into the app you don’t notice it – and that’s a great payment experience.
On the other end of the spectrum if you want to go and load an investment wallet, then often you have to go and transfer money using an account number, sort code and a long reference number. And you go into your banking app, and you type in those numbers, and the bank forces you to hop through 10 different screens. That’s a really clunky, painful experience and that’s something we can automate.
There’s a lot of volume in topping up accounts, and paying bills is another one. I think there’s going to be an explosion in the use of payment initiation services (PIS) for that over the next couple of years.
If you look today at Open Banking PIS, overall market volumes are still tiny by any kind of standard. We’ve got a customer called Kivra, which is a household name in Sweden and they are a bill payment platform. They don’t have the same direct debit payments that we have here. In Sweden, it’s done through platforms like Kivra or PostNord, that’s how you pay your bills or invoices.
Now, what Open Banking enables companies like that to do is provide a super slick user experience within the app – it’s completely digital with no redirects. We do more payments volume with Kivra than the entire UK PIS volume combined right now. The potential for those use cases to take over the rest of Europe and explode is huge.
3. Why is PIS beneficial to both businesses and consumers?
The main thing that any business ultimately cares about is the experience they offer their customers. Customer experience is king. Now, payments is not often thought about as a source of competitive advantage.
Uber turned it into a source of competitive advantage by making it so easy to order a cab, they took the concept of getting your wallet out in a cab away.
When businesses do get access to this technology, it is a leap forward for them and it’s a big way they can drive repeat business. For me, PIS is only ever going to be useful to anyone if it does that – if it streamlines the user experience and makes it so delightful for consumers that it increases the traffic and revenue for the merchant.
Sometimes, I think in payments we get excited about new technology for the sake of new technology. We forget that the new technology is value-less unless it’s better than what was there before. With PIS, in bill payment and in account top-ups it’s definitely better than the incumbent option.
4. What are some examples of successful PIS adoption?
A lot of the neobanks are starting to realise that Open Banking top-ups are low cost, with a great user experience. Revolut, HMRC and Transferwise are very successful examples.
But, again, a lot of these are quite small and we’ve got a really exciting roster of customers now that are starting to go live with this technology. One of them is PostNord, but there are quite a few more in the works.
If 60% of the adult population in Sweden experiences Open Banking through using Kivra, I think we’re going to get to a position by the end of the year where there are a lot more countries where more people are familiar [with Open Banking].
I read that about 7% or 8% of UK consumers have used Open Banking – I really hope by the end of the year that it’s 40%, 50% or even 60%. I think we are poised and we’ve been waiting for this moment for years. But I think we’re now at the point where there are some really big customers going live with use cases that are a dramatic improvement on the alternative.
5. What’s next for the payments industry and what other innovations can we expect?
We’re going to have a lot more Open Banking-enabled payment experiences coming because there are a lot of bad user experiences we can improve. Beyond that, we have to think about where are the problems we’re trying to tackle?
If I look at ecommerce, that’s working very well. A lot of people in the industry are getting excited about variable recurring payments (VRPs), and for good reason, it’s a potentially transformative technology. But we’ve got to ask, is it truly solving a problem for a merchant or a consumer, when often those experiences are already quite good?
I think we’ll see VRP used to replace things like direct debits, I’m less convinced that VRPs for ecommerce will become explosive in the next couple of years. I think that’s going to take a bit longer to iron out and work through.
Beyond that, the other really exciting thing is access to identity data and broadening the datasets. Maybe one really great way to improve financial inclusion is just to make it easier for people to login to their systems and validate who they are – reduce fraud and cost.
When you reduce those kinds of frictions, you’re helping the economy as a whole become more efficient and that only has to be good for economic growth and prosperity.
I think there’s a lot that banks in Europe can learn from some of the ways the Nordic countries have implemented PSD2 regulations and some of the good user journeys they have to offer.
We should never lose sight of the fact Open Banking regulation dictates standards, but it’s still on the banks to implement that in the best possible way. And the better the banks implement the standards, we’re going to see more adoption and penetration of Open Banking.
We have some hurdles to overcome in the short term around the core AIS and PIS use cases. We have to look at how the PIS features set can be expanded with VRP. In parallel, I’m hoping we see move forward on the identity management piece as well, because that’s going to have a significant consumer impact.
Main image source: Tink
