Andrew Cregan, Policy Advisor (Head of Payments Policy), British Retail Consortium
New and innovative ways to pay have been coming on the scene for years, some making a more successful splash than others. Solutions like Amazon’s one-click, and partnerships such as that of Uber and Stripe, have broken new ground in convenience and seamless payments. Options like ApplePay and the proliferation of wearable devices mean that savvy consumers can now be seen paying for goods and services with their phones, their watches, even rings. Yet many of these innovations are merely an extension of card payments – operating on the same rails and, for retailers, attracting the same high costs of collection.
Following the revised Payment Services Directive (PSD2), there is much anticipation over the impact that Payment Initiation Service Providers (PISPs) and Account Information Service Providers (AISPs) could have on the market. It’s early days for these open banking solutions but many retailers hope that they will prove useful disruptors to the hegemony of card payments – which accounted for 76 percent of all retail spending in the UK in 2017. Open banking, more than any other development, has the potential to drive down costs for retailers over the long term – indeed that was a clear intention of the EU in introducing PSD2.
Some industry observers saw that the introduction of Strong Customer Authentication (SCA) – another prong of PSD2 – would be the catalyst that spurs businesses and consumers towards the widespread adoption of PISPs to avoid friction at the checkout. However, the potential disruption that SCA could have delivered when it comes into force in September has resulted in delays that give card solutions time to close the gap.
"Retailers work together before it’s too late to ensure that this rare opportunity to reduce costs, increase control and enhance the consumer experience in payments is not lost"
Open banking solutions not only have a long way yet to go before making a dent in the retail payments market, but there is some way to go still in developing its functions and protections to those that exist for the more established payment channels. The Open Banking Implementation Entity (OBIE) have this year been working on a solution that will allow refunds to be processed via this nascent payment method, but the extensive consumer protections that exist for cardholders such as charge backs and Section 75 are not yet mirrored here. PISPs also lack the ability to take on card payments in more fundamental ways – most lack a physical form, whilst contactless card payments have now become a fast an essential for millions of consumers to conduct everyday activities from buying a coffee to boarding a bus.
If open banking solutions manage to overcome these obstacles and develop a compelling offer, attractive to both consumers and businesses, then the final great chicken and egg dilemma is likely to remain for some time. Merchants at large can be reluctant to start accepting a new payment method if it isn’t backed by a critical mass of users, yet it’s difficult to achieve that critical mass of users without merchants getting on board. With more than 30 PISPs registered with the Financial Conduct Authority in the UK it is tempting to wait and see which solutions emerge most popular, yet without steering that choice retailers could be losing the opportunity for open banking to achieve its full potential altogether. Retailers work together before it’s too late to ensure that this rare opportunity to reduce costs, increase control and enhance the consumer experience in payments is not lost.