OPEN FOR BUSINESS

As Nationwide prepares to launch its first business account aimed at SMEs, Director of Payments, John Hutton, looks forward to the Open Banking journey

After more than 170 years in financial services, Nationwide is making its first foray into business banking – with an account targeted at small and medium enterprises (SMEs).

The building society is boosting competition in a sector traditionally dominated by big banks, where just five providers control 85 per cent of the market.

To help it do so, Nationwide has applied for up to £50million from the Royal Bank of Scotland State Aid Alternative Remedies Package, which was set up by the UK government after the financial crash to help stimulate innovation in the SME banking market.

As a mutual, which focusses on delivering benefit to its stakeholding members rather than profits to shareholders, Nationwide will seek to serve the UK’s 5.7 million smaller and micro businesses, instead of larger organisations, with its new account. So it will target sole traders, tradespeople and owner-managed businesses, rather than startups and big corporates.

“It’s a really exciting opportunity,” says Nationwide’s director of payments John Hutton. “There will be some real benefits to expanding into this market for both customers and Nationwide, with our ethos and our core values.”

Alternative payment services, which are predicated on Open Banking, are key to this business offering, giving SMEs access to what Hutton describes as a ‘whole ecosystem of products’.

One example is payment request service Ordo, in which Nationwide has already invested an undisclosed sum through its Venturing Fund. Ordo connects businesses with their customers via a payment request platform that does not require bank details. Businesses can use the system to send a smart request to a customer and the recipient can then make an account-to-account payment in real time through the platform, without having to reveal their personal details.

Security is a top priority for Ordo so, in addition to not having to share bank account details, the biller will always receive payments with the reference they provided with the original smart request. They can also send the customer an invoice attachment as part of an end-to-end encrypted message.

Launching later this year, the service aims to improve cash flow for SMEs and help customers stay on top of their finances, while also protecting against invoice and payments fraud.

Speaking at the time of its investment in Ordo, Nationwide’s deputy CEO Tony Prestedge described the partnership between Society and startup as a natural fit for a brand that helps its members manage their money better.

Hutton believes that real-time payments such as those offered by Ordo will prove key to the industry in future. At present, there is the UK’s Faster Payments scheme and a near real-time processing window of up to two hours. But looking ahead, he expects to see card transactions becoming real time, too.

“It’ll use that single proof rail mentality that we’re trying to build with the new payments architecture – and, of course, with the RTGS (real-time gross settlement) changes as well, with the Bank of England,” says Hutton.

Automation will also become increasingly important, he adds. Indeed, it has been used throughout the centuries to improve cumbersome processes. But it’s not all about the technology for an organisation like Nationwide. Hutton makes clear that there is a balance to be struck between automation and personal contact.

“We want to automate in the right way. It’s about finding the balance, the right blend,” he says. “So we’re investing a lot in our branch network to ensure we still have that personal contact for our members, as well as automating some processes in the background that make their experience better.”

He also expects an ever-growing number of new entrants to the payments industry, many of them targeting the low-value/high-volume type of transaction where margins may be small but the business model is instead built around owning the customer journey and leveraging the data that flows from it.

“I see some of the really large tech companies getting into this space to develop solutions whereby it’s not just about the purchasing of something on a website, it’s about owning the payment journey,” says Hutton.

“There’s a huge amount of opportunity for the future of payments in that space.”And, with investments like Ordo, Nationwide looks set to help fill it.