EXCLUSIVE: “The Layer Cake” – Brian Hanrahan, Nuapay in ‘The Fintech Magazine’

Open banking hasn’t disintermediated legacy providers to the extent they feared – not yet. As more players build layers of services on top of the data banks hold, Brian Hanrahan, CEO of Nuapay, shares how they can they ensure their slice of the action

Payments made on open banking rails in the UK hit 68.2 million transactions in 2022, according to the Open Banking Implementation Entity (OBIE).Was that a lot, or a little? Well, it was an increase of 167.5 per cent on the year before when 25.2 million transactions were recorded. But it was a drop in the ocean when compared to the two billion debit card transactions made in Britain during January 2023.

The slow uptake of open banking payments predicated on the revised Payment Services Directive (PSD2), which came into effect across Europe in 2018, has been much commented on. But they are clearly building momentum in the UK and (albeit even more slowly) in Europe.Elsewhere in the world, similar digital account-to-account (A2A) payments enabled by fast and frictionless systems are also gaining traction.

The Worldpay Global Payments Report 2023 reveals the value of worldwide A2A transactions topped $525billion last year and is projected to grow by 13 per cent on a compound annual growth rate basis until 2026, demonstrating the potential size of the market.In Europe, banks were at first mistrustful of a system that threatened to relegate their role to being that of a mere utility payment provider. But Brian Hanrahan, chief executive of Nuapay, is convinced that open banking can instead ensure banks remain relevant amid competition from a far bigger threat posed by the world’s technology giants.

“Banks can have a more important role on identity… It’s good from a monetisation point of view, but it also keeps them relevant”

Nuapay, which along with its parent company Sentenial was bought by Australian payments firm EML Payments in 2021, already offered solutions for Direct Debit – an early, non-spontaneous form of A2A transaction for regular payments – long before PSD2. Nuapay has even used open banking now to update that old stalwart.

Called e-Mandates, customers signing up for a recurring payment are authenticated by their online banking website or banking app. Unlike the traditional Direct Debit onboarding process, there is no manual inputting from the customer – thereby reducing the risk of errors. Added to that, there is better fraud protection, the process is streamlined, and the first payment is received in real time via bank transfer. The product won the Best Use of Open Banking for Payments award at the Merchant Payment Ecosystem Awards in Berlin in April.

Nuapay’s key focus going forward is its infrastructure for open banking payments, which enable clients to move money not just inside, but between 30 European countries.Hanrahan says: “A big part of what we do is provide technology for banks, payment service providers and fintechs who white-label that technology and distribute it to their business clients.

“A number of the major UK high street banks are white-labelling our platform, so while you think you’re logged on to the bank, you are actually, behind the scenes, connecting to us. Or a major card acquirer, or payment services provider can take our solutions for Direct Debits and open banking and provide them to their suite of merchants across Europe.“We’ve built a large part of our business on the back of regulatory change.

“The shifts going on now, such as the roll-out of instant payments in every domestic currency and the introduction of open banking, are huge trends. Our role is to simplify access to that. Our clients and partners connect to Nuapay with one integration, and we then connect to 30 countries with their various standards. We shield our clients from that complexity.”

The new account-based payments’ potential for lowering cost by removing the middlemen is a key reason for interest in the technology, as is greater speed and potentially increased security.

Instant A2A payments already work well for peer-to-peer transactions between family and friends, and have in many cases replaced writing cheques for paying a tradesperson. Beyond that, the OBIE’s Open Banking Impact Report says recent A2A transaction growth has been driven by the government allowing tax bills to be paid via open banking rails, while charity donations, the settlement of credit card bills and loading digital wallets via open banking are also boosting use.

More work is needed to make A2A payments the system of choice for retailers, though. It’s an area currently underpinned by card-based systems, but the Joint Regulatory Oversight Committee set up by UK regulators, including the Financial Conduct Authority, is making progress on formalising functional capabilities, dispute processes to protect customers, and a funding model that can sustain the businesses involved in providing infrastructure.

The UK government encouraged the adoption of domestic instant payment rails in much the same way.The committee is seeking to set up open banking payments as an alternative to card payments and it specifically named retail payments as part of that ambition.In the open banking context, it’s not just about payments, of course.

Hanrahan says: “We now have account information available across many jurisdictions and it’s particularly useful for lenders’ credit risk assessments and other affordability assessments. But now we’re moving on to what are called commercial or premium APIs where banks can be more proactive to monetise data and go beyond what the regulations force them to do.

“We have discussions going on with a number of banks around whether they could provide age verification data, or address verification with the consent of the consumer, for instance.”

In his opinion, this is where banks can play a more important role. After all, they invest an awful lot of money in establishing the identity of their customers. “There’s a precedent in the Nordics and Europe for that federated identity asset to be leveraged,” says Hanrahan. “For the banks, it’s good from a monetisation point of view, but it also keeps them relevant. And it digitises the whole economy. There have been significant estimates of GDP impact from that approach being rolled out.”

“We’re moving on to what are called commercial or premium APIs where banks can be more proactive to monetise data and go beyond what the regulations force them to do“”

Hanrahan argues that since open banking rules forced banks to provide API access to customer data for third parties – which is not mandated the other way – they should embrace it and innovate.Although he acknowledges that the technology that wraps around a bank account, built by other industry players, needs to be monitored by banks, “I don’t think the idea of being put into a utility role is too much of a threat,” he says.

Rather, open banking can only be a positive for them… if they innovate on top of it. “Payments in many countries were drifting away into wallets, into Alipay and so on. If you don’t innovate around the customer experience on the bank account people will move to more convenient methods, including with the Big Techs.”

BORDERS? WHAT BORDERS?

A2A payments in a single jurisdiction is one thing, but moving them across borders is often where the concept fails.

“Very few players operate effectively across multiple borders, even ‘global’ banks will have dozens if not hundreds of different payment systems in each region,” says Hanrahan.“If you think about the ubiquity of a Visa or Mastercard payment card, and how seamlessly they work in every geography, that is quite a thing to replicate in instant payments. An operator that can build consistent technology over lots of underlying variation will have an advantage. And we do that in specific regions.”

Given open banking’s underlying complexity, Hanrahan says collaboration is an industry trend that will favour businesses such as his own. Because, while global banks and leading fintechs have the financial clout to continually modernise their technology stacks, smaller players struggle and so need to be selective around which services they provide directly, and which they buy in.

For businesses that become Nuapay clients, they can take advantage of the automated integrations the fintech has with billing engines, membership and subscription management systems and accounting packages.

Leveraging payment regulation and integrating such systems almost always improves efficiency, says Hanrahan, enabling them to move staff from manual processes to more strategic work, and has a big impact on error and decline rates, ‘which is good for both the consumer and the biller’, he says.“Take the successful neobanks and challenger banks that we work for, they’re a bit like a swan on a lake. They’re paddling ferociously with a complex underlying infrastructure to give a seamless glide for the customer. We’re very much in the business of helping these players operate and achieve the high standards that people increasingly expect.”

This article was published in The Fintech Magazine Issue 14, Page 28-29