Insight: Fueling payments democratization and innovation with Open Banking

As the global financial ecosystem continues its transformation, few forces are as adjuvant as Open Banking. More than just a regulatory mandate, it is a powerful enabler of an innovative, inclusive and interoperable payments future.

Leading with the spike in real-time account-to-account (A2A) payments between finance and retail, streamlining of cross-border transactions has started gaining traction between regions and the groundwork for the integration of central bank digital currencies (CBDCs) has begun in full earnest.

While as a US consumer we continue to love our credit cards and the rewards that come with it, A2A payments in our region is projected to surpass $200 billion in volume by 2027, according to McKinsey. There is much to adopt from the UK, EU, and India’s success with their AISP (account information service providers), PISP (payment initiation service provider) and UPI (Unified Payments Interface) style Open Banking.

Here and now: A2A payments

Consumers have a long-standing trust in cards or pass-through wallets for digital payments. But Open Banking is shifting this behavior. A2A payments is becoming the viable chosen alternative for e-commerce checkout, top-up and withdrawals, bill payments and subscriptions, B2B payments, payouts and refunds.

Pay by Bank in the UK, Swish in Sweden, UPI in India, Pix in Brazil, and SEPA Instant in the EU are the large-scale successes in this area.

A2A payments come with lower fees compared to other digital payment methods. Funds transferred directly between accounts, resulting in near-instantaneous settlements. Authenticated by a consumer’s online banking credentials, they reduce the risk of fraud. Open Banking enables a seamless payment journey for consumers, often with streamlined processes and reduced data entry. A2A payments improve online checkout conversion rates due to their ease of use and security. Direct transfers reduce the likelihood of chargebacks and fraud, streamlining processes for merchants as well.

The Next Frontier: Cross-border payments

The traditional mode of cross-border payments involved multiple intermediaries, thereby making it costly, complex to operate, time-consuming and inaccessible to small and medium businesses. With ISO20022 came enhanced transparency, enriched data, and the potential boost to interoperability between banks. Real-time payment rails have bought respite on settlement timelines. But legacy infrastructure remains a problem for financial institutions, particularly due to risks and costs that may come with moving to a new system.

Swati Dublish of Innova Solutions

Open Banking, paired with ISO 20022 and real-time payment rails, can disrupt this space, by enabling greater transparency, data richness, and access to account-level payment infrastructure.

Collaboration across jurisdictions is key. Initiatives like the G20 cross-border payments roadmap and regional API standards are laying the foundation. While SWIFT will continue to be relevant for high-value transactions, emerging cross-border capabilities are providing an alternative for low-value transactions. Fintechs like Wise (erstwhile TransferWise) are already leveraging Open Banking infrastructure to offer FX-optimized, near-instant cross-border transfers—cutting into the remittance and B2B payment space.

Not as distant as it seems: Programmable payments & CBDC

Open Banking provides the foundation for programmable payments by enabling access to necessary data. Programmable payments then leverage this data to create more sophisticated and automated payment experiences. This finds relevance in consumer, business and government payments – automated savings based on triggers like salary arrival, pre-authorized payments with final settlement controlled by a third party, such as trade financing.

CBDCs and Open Banking are interconnected. A programmable digital currency issued by the state requires an interoperable ecosystem to flourish. That is exactly what Open Banking offers: secure access, standardized APIs, and a competitive innovation environment.

Programmable CBDCs initiated via Open Banking APIs for tax payments, welfare distribution, or cross-border settlements hold immense potential. Combining programmable logic of CBDCs with the connectivity of Open Banking could unlock new policy tools, reduce fraud, and drive financial inclusion on a scale.

Adoption is slow

Lack of global Open Banking standards, different API protocols and compliance rules across jurisdictions, business model conflicts, and low consumer awareness are the top challenges slowing adoption.

A call for collaboration

Open Banking is the platform, with payments as the proving ground. The future of payments is open, instant, and immersive across borders, businesses, and consumers. It is time for traditional players, fintechs, regulators, and infrastructure providers to lean into collaboration.

• Banks evolve their business models by embracing A2A payments and embedding them in customer journeys
• Fintechs disrupt the status quo by innovating responsibly; bridging domestic and cross-border gaps
• Regulators foster interoperability and trust, paving the way for CBDC experimentation
• Global networks align standards to ensure seamless experiences across borders

Let us reimagine payments not as plumbing—but as a strategic lever for growth and resilience!

Swati Dublish is vice president BFS Solutions at Innova Solutions

Swati is speaking at Open Banking Expo USA. Catch her on the Main Stage at 2.25pm, discussing payments democratization and Open Banking innovation. Find out more here.

Learn more about Innova Solutions’ participation in Open Banking Expo USA: Innova Solutions at Open Banking Expo USA