Merchants, payments and the open banking ecosystem

A major focus for the entire merchant payments ecosystem in the coming year, will be the new threats, opportunities and players in the emerging open banking world. Starting with the U.K.’s move to open banking in January (the implementation of the Competition and Market Authority’s “remedies”, or the “CM9”) and moving ahead with PSD2 across Europe, the ability for trusted organisations to access consumer bank accounts to not only obtain transaction information but also to instruct payments, will inevitably change the landscape.

There are new opportunities for acquirers to become broad-spectrum merchant service providers (MSPs) to facilitate interaction between the open banking infrastructure and the merchant community. This very appealing vision of the future (for merchants) will draw them towards a once in a generation change at point of sale. Merchants can easily afford to incentivise customers to switch to account-to-account “instant payments” and at the same time offer considerable customisation based on customer account data.

Merchants definitely need some help, and it’s not all about payments. A recent Consult Hyperion survey found that more than 90% of merchants want to use PSD2 to reduce card fees, three-quarters of them also want to use it to reduce the impact of fraud and data breaches. An Accenture survey last year also found that half of the retailers they surveyed want to use customers’ bank account data to provide special offers and customised services at POS.

Apart from anything else, we expect to see a resurgence of interest in the “decoupled debit” proposition whereby platform-provided strong authentication to retailer apps will allow them to bypass the existing card infrastructure (with some projections indicating that a third of European card volume could disappear in the coming years) and perhaps even the physical POS itself. It’s easy to imagine self-scanning around the supermarket and hanging up the scanner at the end, to see the store app popping up on the customer phone with the total, prompting touch ID to confirm, and the merchant instructing an instant payment from customer account to merchant account.

As a customer, the instant payment proposition seems just as familiar as a debit proposition: customer walks out of the merchant and the money walks out of the customers account. The fact that it never goes near the existing rails isn’t something a customer knows nor cares about. This, as is often pointed out (by me), is a great opportunity for new players (eg, Google, Apple, Facebook and so on) to join the ecosystem. These are players with a business model built on data, not merchant service charges, and thus the business models in the ecosystem will reorient. This was one of the key themes picked up at last year’s Merchant Payment Ecosystem conference in Berlin, and I wrote at the time that my impression was that some of the big plays coming would be big data, analytics and machine learning.

Having said that the existing rails may be bypassed, open banking also provides an opportunity for the schemes to reinvent themselves and their propositions. (As we think that the UK is about to become an interesting, exciting and unpredictable laboratory experiment in open banking, it seems to us that Mastercard’s work with VocaLink should be a focus of industry attention in this regard.) After all, a payment scheme isn’t just a data switch that connects consumers, banks, merchants and retailers. If it was, there wouldn’t be any. Rates, rules and rights are fields in which Visa, Mastercard, Amex, Discover et al have decades of experience to leverage through both their existing relationships and the new ones that will arise.

The retailers themselves, especially the millions of small retailers, will also benefit from this transition because a variety of new products and services will spring up to help them to manage their bank accounts, funding requirements and general financial services needs. I’m no expert on small business financing but the ability to see the details of a retailer’s bank account will surely lead to new opportunities for specialist financial services providers.

All things considered, 2018 is going to be a pretty interesting year and we are very much looking forward to learning about the new possibilities at Merchant Payment Ecosystem 2018 in Berlin. If you want to meet me or our Principal Consultant in the POS field, Gary Munro, at the the event then just drop us a note and we’ll see you there.

Dave Birch
David G.W Birch is Director of Consult Hyperion, the secure electronic transactions consultancy. He is an internationally-recognised thought leader in digital identity and digital money; named one of the global top 15 favourite sources of business information (Wired magazine) and one of the top ten most influential voices in banking (Financial Brand); listed in the top 10 Twitter accounts followed by innovators, along with Bill Gates and Richard Branson (PR Daily); named one of the "Fintech Titans" (NextBank), voted one of the European “Power 50” people in digital financial services (FinTech Awards) and ranked Europe’s most influential commentator on emerging payments (Total Payments magazine).
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