Through The Grapevyne

Ep 7: Europe gets instant payments and the US wants a bite of the Open Banking cake

It's been a bumper week for payments and Open Banking news out of Europe and the US. Let's get stuck in.

2 years ago • 4 min read

Instant euro payments… finally! 

On Tuesday, Reuters announced a draft law by the European Commission which would require European banks to offer instant Euro credit payments.  

The draft states: ‘Payment service providers (PSPs) that provide credit transfers in euro will be required to offer the service of sending and receiving IPs in euro. The requirement would cover 24 hours a day, 365 days a year.’

Due to be published next week, PSPs across Europe will have six months to get ready to receive and a year to send instant euro payments. 

So, why is this such a big deal? Until now (fingers crossed) the means to instantly transfer money has not been mandated to the banks resulting in slow and costly transactions for merchants and consumers alike. For example, when making a card payment the funds won’t arrive in the merchants account for days.

What does the law mean for merchants? Instant payments will be made universally available and no longer come at a premium cost. In most cases instant payments will be free of cost or as much as a regular SEPA credit transfer. So European merchants can save more on every transaction while receiving funds on the same day.

Karl MacGregor, Vyne CEO states: ‘The industry has been crying out for this news. The European Commission's initiative to make available instant euro payments will put more pressure on high-cost payment providers. Open Banking powered account-to-account payments accompanied by instant payments will bolster the position of challengers amongst established payment methods, ensuring every merchant and customer gets more competitive, instant payment experiences across Europe.’ 

But we mustn't get our hopes up, the EU has long sought to create competition in an incumbent dominated market to little or no end. For example, the European Payments Initiative hit troubles after a mass exodus of bank members. Let’s hope this law breaks the bad history and cements the future of European payments. 

The US wants a bite of the Open Banking cake

On the infamous Money2020 USA main stage, Rohit Chopra, Consumer Financial Protection Bureau (CFPB) Director this week announced that the CFPB is publishing a proposed ‘more decentralised and neutral consumer financial market’ across the US. 

Chopra made it clear that this wasn’t to be a parallel of UK and European standards, ‘while not explicitly an Open Banking or open finance rule, the rule will move us closer to it, by obligating financial institutions to share consumer data upon consumer request, empowering people to break up with banks that provide bad service, and unleashing more market competition.’ But it’s a step in the right direction. 

What does this actually mean? CFPB wants to enable consumers to access their own financial information, such as transactions and account information and share it with the businesses they trust. This will open up use cases such as account switching for utilities providers, account aggregation to manage all bank accounts in one place and affordability checks to truly understand what consumers can afford. 

As the US moves fashionably late into an Open Finance era, what can be learned from the UK to ensure that the CFPB’s goal becomes a reality? Karl MacGregor, Vyne CEO says: ‘The US are in an enviable position. They can learn from the mistakes the UK and Europe made. Regulatory applications shouldn’t be a barrier to entry. Banks should be held accountable to timelines. Both consumers and businesses should benefit from the legislation.’   

What’s next? MacGregor continues: ‘The next logical step would be payment initiation. The US could beat the UK and EU by standardising and mandating repeat payments and subscriptions through consent and trust tokens to create seamless payment experiences. Thirty-six percent of UK Open Banking API calls are payment initiations with the demand for fast, cost-effective and secure payments only increasing in the minds of merchants and consumers. If the US captures the addressable market for repeat payments, they’ll be empowering businesses to bypass expensive payment methods and consumers to easily remain in control of their outgoing recurring payments.

Another benefit of extending this rule to payments is that it would level the payments field creating more competition against exorbitant scheme and interchange fees that US businesses and consumers have been forced to carry for decades. Businesses will be able to retain more cash and increase cash flow, while consumers get seamless, more secure payment experiences.’ 

Good luck CFPB, we’re rooting for you. 

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