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December 19, 2017

New ‘open banking’ rules to drive speed and innovation

A new set of competition rules – known as 'open banking' – being introduced across Europe could benefit retailers, with the potential to provide faster services to customers and drive increased competition and transparency.

A new set of competition rules – known as ‘open banking’ – being introduced across Europe could benefit retailers, with the potential to provide faster services to customers and drive increased competition and transparency.

The opening up of banks’ networks to non-bank third parties – known as PSD2 – will let consumers transfer funds, compare products and manage their accounts outside of the banking environment. Set to be introduced in January, the ‘open banking’ will give retailers the opportunity to accept payments directly from a consumer’s financial institution without the need for an intermediary, as well as let them access a consumer’s financial data if the consumer consents to share that information.

Ultimately, the move could drive significant in-store innovation, allowing retailers to tailor products to meet consumer demand, research from Accenture Strategy has shown.

“The regulations in Europe are intended to create more competition for incumbent banks from fintechs and retailers, and therefore more options for consumers,” says Alan McIntyre, a senior managing director at Accenture.

“The big question is whether consumers will be willing to share their financial data with outside companies, which they’ve typically been hesitant to do because of privacy and security concerns. However, if retailers use their loyalty programmes to incentivise customers to initiate payments directly through their sales channels, the first place that banks will likely feel the impact is in the decline of debit-card transaction.

The goal of the initiative is to drive increased competition, innovation and transparency across the European payments market while enhancing the security of internet payments and account access.

One way in which retailers will access customer data from banks in a secure and controlled setting is through application programming interfaces (APIs). While APIs would enable retailers to reduce or eliminate card transaction fees, they would also let banks offer additional services, such as point-of-sale loans or identity verification, directly through third parties.

Through APIs, retailers say they would access customers’ financial information so they can tailor products, initiate payments directly with banks to negotiate better transaction fees, reduce fraud, and generate relevant point-of-sale offers and discounts based on consumer spending habits.

The research found that nearly one-third of the retail companies surveyed will be able to plug in directly to banks to obtain consumer information and initiate payments by the January 2018 PSD2 deadline requiring banks to provide access to third-party providers, and nearly 90% of the retailers will be able to do so by 2019.

“If retailers want to truly evolve the in-store consumer experience, they will need to add innovative options, such as allowing customers to pay automatically as they leave the store using biometric authentication,” says McIntyre.

Jeremy Light, who leads Accenture’s payments practice in Europe, adds: “Open Banking is an opportunity for retailers to provide a better customer experience through flexible payment initiation and faster refunds, and to increase cash flow by bypassing card networks and fees and reducing fraud and chargebacks.

“Ultimately, retailers will have to determine whether they will get significant value by creating their own payment capability, such as a purchasing app combining payments and commerce, or if they are better off partnering with an intermediary that can create a universal capability connected to the banks to continue ensuring frictionless payments in this new environment.”

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