The coming months are set to be a busy time for the payments industry, as 2017 is expected to be a game-changing year as a range of new providers and technologies come to the fore.
The market will be particularly active in the UK, where efforts to open up the banking system to more players are expected to bear fruit in terms of encouraging competition and innovation, with more payment services providers gaining access to key systems.
But while this may make traditional banks uneasy at the prospect of more providers looking to grab the attention of consumers, it could also open up many new opportunities for collaboration and innovation, and ultimately provide customers with a higher quality of service.
Open banking increases access
The UK Payment Systems Regulator’s (PSR’s) annual Access and Governance of Payment Systems report projects that 2017 is expected to be a “record breaking year” when it comes to access to payments systems.
It forecast as many as ten new providers could gain access to the interbank payments systems before the end of the year, with these organizations able to benefit from improved processes that have streamlined and reduced the costs associated with these initiatives.
For instance, in 2015, it was estimated that payment service providers would need to invest between £2.5 million ($3.12 million) and £4 million upfront for access to the market. However, more recent joiners have indicated their upfront costs for accessing the interbank payment systems are in the region of £1.2 million to £2.5 million.
This has helped the UK banking and payments sector see several new milestones recently, such as Raphaels Bank, Metro Bank, Starling Bank, ClearBank and Monzo becoming the first new joiners to Faster Payments since it launched in 2008. The PSR said it also expects ClearBank, Raphaels Bank and BFC Bank to gain indirect access to the UK’s payment systems this year.
What it could offer the industry
The increased competition this could provide is likely to be welcomed by consumers. Hannah Nixon, managing director of the PSR, said: “Better access to payment systems can open the door for small fintech firms and challenger banks so that they can compete directly with the high street banks on a level playing field.”
She added that this will not only give customers more choice, but also create opportunities for them to take advantage of a “wide range of new and innovative personal banking and payment services”.
Traditional banks may view this as a threat, but it could open up many new opportunities, particularly when it comes to the sharing of data and collaboration with other financial institutions and fintech providers to better serve customers.
For example, a recent report by Payments UK suggested that the introduction of the Open Banking API and the EU Payments Services Directive 2 could lead to the creation of new types of multi-bank ‘dashboards’ that are able to collate customers’ information.
“Opening up payments data could yield better deals on utility contracts, gym membership or even supermarket shopping,” the organization said, as well as making it easier for consumers to conduct activities such as transferring money between accounts or securely carry out mobile banking via third-party apps. Mobile banking via third-party apps is truly sublimating the payments process into the real services the consumer is carrying out.