Open banking payments in NZ

Open banking payments in NZ

What is an open banking payment?

An open banking payment is when a consumer lets a 3rd party initiate a payment from their bank account.

For example, a business might let PaySauce to initiate payroll payments from their bank account.

That could be a one-off payment, or a recurring payment, or a variable recurring payment.

Example of a connection and consent screen

This sounds like a direct debit

Yes - open banking payments are conceptually similar to direct debits. But there are some important differences.

One of the crazy things about direct debits is that you can type in any old bank account number on the direct debit form… open banking payments enable you to verify the holder and account number before the payment is initiated.

Direct debits can cause the account holder to incur dishonour or overdraft fees if the account doesn’t have sufficient funds. With open banking payments, the available balance is checked before initiating a payment, so the consumer isn’t pushed into unexpected fees.

Open banking payments provide full control of the timing of the payment. And with bank account connectivity, you can offer round-up, sweeping, and other payment functionality that requires access to account data.

Importantly, for the consumer, there is simple visibility and control over the payment consent. A consumer can digitally revoke their consent at any time.

I take card payments, why should I consider open banking payments?

Let's start with pricing, because that’s normally the main driver.

We’ll use the example of My Food Bag (MFB), since they have some publicly available numbers (I’m adding some assumptions, so this is just illustrative).?

MFB reported $52m of revenue for the last calendar quarter of 2021. Assuming card fees of 1.5%, that’s an estimated $780,000 of card fees they’re swallowing each quarter.

If all 71,085 active MFB customers were using open banking payments instead of cards, the cost would be around $35,000, meaning an extra $745,000 of quarterly profit. That would be a ~8.7% increase to annual EBITDA (based on pro forma F22 results). Imagine an option to "link your bank account" like the current option to link your card.

No alt text provided for this image

In addition to pricing, there are a number of attributes that make open banking payments attractive relative to cards:

  • Reduce card fraud: You don’t have the issue of stolen cards. Open banking payments have “strong customer authentication” inherently built-in.
  • Reduce failed payments: Unlike cards, bank accounts don’t expire.
  • Reduce chargebacks: This is a feature of card payments that doesn’t apply to bank payments.
  • Faster settlement: The money lands in your account faster.
  • More inclusive: Your customers don’t need a Mastercard or Visa card, all they need is a NZ bank account.

Okay, where can I see open banking payments in action?

Here are some scenarios where we’re seeing adoption already.

Open banking payments in action in New Zealand

What’s next for open banking payments in NZ?

Open banking payments are a great fit if your product already has secure customer accounts. If that’s the case, you can offer customers the ability to link a bank account, just like linking a Mastercard or Visa card.

These verticals seem particularly well-suited to open banking payments:

  • Fuel stations: For consumers who purchase via the app.
  • Supermarkets: For online purchases.
  • Telco and energy providers: As an alternative to cards and direct debits.
  • Ridesharing apps: As an alternative to cards (and to enable daily payouts to drivers).
  • Investing platforms: As an alternative to direct credits for an in-app payment experience, immediate confirmation of payment initiation, and to avoid reconciliation problems.
  • Membership and subscription businesses: For gyms, SaaS, and other products with recurring payments.

Global trends - looking further ahead

Some countries like the US and the UK are much further ahead of NZ when it comes to open finance. So we can look at what’s happening there to inform potential pathways.

US

The US benefits from ubiquitous payment apps like Venmo and Cash App. Consumers have already connected their bank accounts to these apps, and use them frequently for peer-to-peer payments. These apps provide a foundation for merchant payment solutions like Cash App Pay, where a consumer can pay a merchant by opening their payment app and scanning a QR code when making an online or in-person purchase.?

New Zealand doesn’t have a ubiquitous modern payment app yet. But BUCK, Dosh, and Dolla have already made product announcements, and I expect that there’ll be at least 1 popular new payment app within the next 2 years. Further down the track, I expect we’ll see open banking payments tied to NZBNs and einvoicing.

The US also shows how fintech apps can leverage bank account connectivity for payments. There’s a common onboarding pattern for US-based fintech apps like Robinhood and Coinbase: first you complete an AML/KYC process, then you connect your bank in order to fund your account, then you’re ready to start using the product immediately.?

I expect that this pattern will be adopted by some of Sharesies, Hatch, Flint Wealth, Tiger Brokers, Easy Crypto, and other investment platforms and fund providers.

UK

Payments are the fastest growing use case for open banking in the UK. At the end of 2021, over 26.6m open banking payments had been made. But it’s the rate of adoption which is impressive - the volume of open banking payments increased by more than 500% in 2021.

I expect that NZ will follow a similar path, where there are a broad range of “read” and “write” use cases, but payments will represent the majority of open finance activity within the next few years.

Card companies

Visa and Mastercard recognise the threat and opportunity of open banking payments, and have started to make acquisitions and investment in this space. For example, Visa acquired Tink, and Mastercard acquired Finicity and Aiia. Competition regulators are paying attention to these transactions, and at least one acquisition has been blocked to prevent card companies from using their market power to lessen competition in retail payments.

Closer to home, Mastercard has become an “Accredited Data Recipient” in Australia, and has established an open banking consulting practice that is active in NZ.

Final words

Would you like to explore open banking payments in more detail? If so, let’s talk.

If you’re a developer and interested in accelerating the uptake of open finance, we’re always on the lookout for talented people.

Jennifer Harrison

??♀?Growth genie at your service! - My tradecraft is PR, media, marketing & comms - My focus is fintech, proptech and legaltech - My superpower is B2B sales enablement

2 年

Cracking article Josh Daniell - please see my DM. :-)

Andy Hamilton

Finding the path

2 年

And can someone like Icehouse Ventures use Akahu or do they need to use something like Dolla?

Andy Hamilton

Finding the path

2 年

Awesome! So how do we get say our Hockey Club or School or Golf Club to make the move to open banking payments? Josh Daniell

Row Laurence

Strategy consultant at BCG (Financial Institutions practice)

2 年

This is a pretty optimistic view of the world - I think if you dig into what's actually happening in the UK (and speak to a few VCs who are active in the space) unfortunately you'll find the picture isn't nearly so rosy...

Jason Roberts

Helping place the benefits of innovation and technology into your hands!

2 年

An excellent blog Josh, it has often been hard to ‘visualise’ what open banking payments look like in practice. Fundamentally we need to address income loss for some payments platforms in their support/adoption for partnering. Regulation, CDR and customer expectation (supported by great products ) are surely the way…

要查看或添加评论,请登录

Josh Daniell的更多文章

  • Akahu update

    Akahu update

    People are often surprised by what’s going on in open banking in New Zealand already, and the functionality that is…

    3 条评论
  • Open banking payments: important Commerce Commission updates

    Open banking payments: important Commerce Commission updates

    The Commerce Commission is considering setting rules for open banking payments. These rules would require banks to…

    24 条评论
  • The most boring product in finance

    The most boring product in finance

    ..

    13 条评论
  • Payee verification in New Zealand

    Payee verification in New Zealand

    There are two payee details that you enter when making a bank payment: Payee name. Payee account number.

    11 条评论
  • Open finance in NZ: Seeking regulation that enables rather than stifles

    Open finance in NZ: Seeking regulation that enables rather than stifles

    Akahu is an open finance platform, providing account connectivity with NZ banks and other financial institutions. The…

    9 条评论
  • Dealing with messy transaction data

    Dealing with messy transaction data

    Who’s Akahu? Akahu is an open finance platform. Through Akahu you can invite consumers to connect financial accounts to…

    4 条评论
  • What are consumer data rights?

    What are consumer data rights?

    Akahu is an open finance platform. We give Kiwis visibility and control over their data.

    21 条评论
  • Please build these open banking projects in New Zealand

    Please build these open banking projects in New Zealand

    Akahu is a consumer data portability platform. We empower Kiwis with control over their financial data.

    37 条评论
  • Open banking in New Zealand - the lay of the land

    Open banking in New Zealand - the lay of the land

    Akahu is a consumer data portability platform. We empower Kiwis with visibility and control over their data.

    32 条评论
  • Goodbye for now, NZ

    Goodbye for now, NZ

    My brand spanking new wife is taking up a diplomatic posting in Washington DC next week. Sadly, it's time to say…

    98 条评论

社区洞察

其他会员也浏览了