Tech Talk: Step change

Open Banking is set to redefine banking. How will that affect business travel?

Open Banking – two words most people would not expect to see next to one another in relation to the financial world. Aren’t banks more, well, closed?

Not anymore; the Open Banking guidelines became law in January, as part of the EU’s Payment Services Directive 2 (PSD2), and ushered in a new set of open API (application programming interface) standards for most of the UK’s major banks (see panel, p29).

Overall, Open Banking does two things: it lets bank customers and businesses share their bank account data securely with third parties, and it encourages innovation.

Previously, the UK’s Competition and Markets Authority (CMA) argued that larger banks did not have to compete hard enough for customers’ business and, in consequence, innovation for smaller financial services providers was stifled.

As Victor Trokoudes, chief executive of money-saving app Plum, says: “For too long, banks have been guarding customer data instead of using it in a way that benefits them. In fact, banks in the UK have been so defensive that most of them had clauses in their T&Cs that prevented people from sharing their data.”

The resulting innovation stands to impact the business travel sector, according to Daniel Greaves, senior marketing manager, payments, at Amadeus. “Open Banking will encourage the entry of new players into the space… and more products on to the market,” he says.

Expense solutions
A new wave of ‘added value’ providers can now tap into the growing trend of digital payments as they seek to better interpret our transactional history and data, and shake up the way we pay digitally. “Today, there are more than 235 different methods of payment – some are cards, but a lot are PISs [payment initiation services]. Rather than type in your 16-digit card number, PISs make it smoother than a credit card experience,” says Greaves.

Meanwhile, the earlier Interchange Fee Regulation (IFR) led to multilateral interchange fee (MIF) caps, which effectively lowered the interchange fee (the fee paid between banks for the acceptance of card-based transactions). This has meant personal credit cards being used on business trips now have fewer perks and shorter interest-free periods. As a result, companies will increasingly provide staff with corporate cards. Open Banking will now “shift the balance towards centralised spending”.

“Think about the business travel experience today,” Greaves continues. “The flight is paid for by the employer, but the hotel by myself, plus other on-trip expenses. I can be out of pocket, and there is the time spent doing expenses. With more digital, centrally made transactions, the traveller benefits with better control, better visibility on spend, incentives to keep spend on policy, and so on.”

According to a recent Barclays report, Open Banking: A Consumer Perspective, “Open Banking has the power to revolutionise the way we manage our money, shop around and buy things. For SMEs, managing cashflow and receiving payments should be cheaper and easier.”

However, organisations will need to adapt. “As well as ensuring more defined pre-approval procedures are in place, another challenge TMCs and organisations face is how to integrate those services, to make them available to staff and later reconcile data,” says Greaves.

“It is important TMCs look at how payment apps could improve the experience for corporate travellers. It is still an emerging space, so there are few global, established players; but being able to offer a streamlined payment for travellers for items like hotels could be a very attractive service offer. At Amadeus, we integrate alternative methods of payment.”

Cashing out
Open Banking is also part of a wider global movement. As well as a regulatory framework, it reflects the growing trend of countries moving towards a cashless society: in Sweden, banks no longer provide ATMs; Singapore’s Smart Nation initiative puts achieving a cashless economy as a key goal; Citi is getting rid of cash in its Australian bank branches.

India is an interesting case in point. The government removed 500 and 1,000 rupee notes in 2016 (which made up 86 per cent of cash in circulation). While this was in part an attempt to fight corruption, the aim was to convert India into a cashless economy. To do this, it launched the ‘India Stack’ scheme to improve the country’s digital capabilities. According to, the technology stack offers a similar set of APIs that allows governments, businesses, start-ups and developers to use a “unique digital infrastructure to solve India’s hard cash problems towards presence-less, paperless and cashless service delivery”.

But Open Banking has raised questions about security – with fears over new types of fraudulent apps that trick the user into granting permission for their bank accounts to be accessed. Some payment apps in India have been attacked by malware designed to steal users’ passwords.

In Europe, PSD2 has imposed strict anti-fraud mechanisms. Nigel Edwards, senior vice-president and head of Europe, at operations management and analytics company EXL Service, says: “New fraud reporting standards may require payments providers to implement more customer verification measures – therefore strong compliance may result in the opportunity to create a more streamlined customer journey than competitors who don’t achieve good enough fraud protection.”

Moreover, new entrants to the UK market must also be regulated by the Financial Conduct Authority.

Just as the UK adjusts to PSD2, Amadeus’s Greaves believes there’s more to come. “Europe will soon begin working on PSD3 for the further opening up of banking,” he says. “The UK government is very forward-thinking and the payments industry has been at the centre of that innovation. We’re talking about Open Banking now, but it’s been an area of intense innovation over the past five years.

“What PSD2 does is regulate the activity already happening… steer the framework to make it easier to develop these services. Open Banking provides a level of comfort. We have all this incredible innovation, so companies must now ask: ‘How do I harness that? Who do I partner with?’ They must think years ahead.”

Open Banking is designed to empower the customer. TMCs will need to adopt a similarly open approach to payments to meet their clients’ expectations.

What is Open Banking?
Open Banking Limited was created by the UK’s Competition and Markets Authority (CMA) in 2016 to draw up software standards and industry guidelines that drive competition and innovation in UK retail banking. Open Banking is an organisation governed by the CMA and funded by nine UK banks and building societies: Allied Irish Bank, Bank of Ireland, Barclays, Danske, HSBC, Lloyds Banking Group, Nationwide, RBS Group and Santander.

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