Over the last few years, open banking has emerged as a game-changer for payment technology. By opening up transactional data, open banking has revolutionised how UK consumers and businesses access banking and financial services, enabling far more scope for automated payments.
One of the key benefits of open banking is Variable Recurring Payments (VRPs). This allows money to be switched between a consumer’s own accounts on an automatic basis, for example, moving surplus funds from a current account into a separate savings account. A new development of this called ‘non-sweeping VRPs’ is on the horizon, which will enable the same for commercial payments. Ultimately, this is set to replace direct debits and standing orders, which have now been around for decades and rely on clunky technology. A move to VRPs allows for better security and more flexibility, as well as lower fees and no chargebacks – great for both business and consumers!
Saying that, nothing is without its downfalls and there have also been concerns around the dominance of US companies, like Mastercard and VISA, within open banking technology. This concern has strong roots in the European Union and prompted the Third Payment Services Directive (PSD3), which aims to foster competition amongst payment service providers by granting access to market competitors through mandatory APIs. By requiring businesses to provide APIs, they will be able to communicate with numerous banks and financial organisations, rather than relying on a handful of providers, improving competition and innovation within the sector. Although PSD3 won’t automatically be applied in the UK as it would have done when we were a member of the EU, a similar trajectory is anticipated.
Open banking is going to be a significant change for the future of payment technology, but some of the oldest processes in the game are also set to change given recent industry advancements. For years, optical character recognition (OCR) has been utilised to automatically enter information from scanned invoices into business systems by converting the image into text. Initially seen as the ‘nirvana’ of payment processing, 25 years later several complexities remain, and the process is still prone to error. Data extraction using Artificial Intelligence (AI) – rather than using pictures of data – will soon process invoices far more efficiently.
The future is bright and new developments are happening all the time as the finance industry begins to fully embrace the opportunities that new technology has to offer. Finance folk have typically been a conservative audience who like to stick to the status quo, but we shouldn’t shy away from the latest developments that could put us on the path to success!
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