Despite it’s name, Open Banking is not directly, instantly available to everyone. Adding protection to consumers was one of the driving factors for its inception. It does however provide a framework for innovation and for individuals and small businesses to take advantage of APIs.
Hawala is a traditional system of transferring money used in Arab countries and South Asia, whereby the money is paid to an agent who then instructs an associate in the relevant country or area to pay the final recipient.
Most of the UK has eight permanent bank holidays. Photo by Estée Janssens.
Most of the UK has eight permanent bank holidays per year: New Year’s Day, Good Friday, Easter Monday, May Day, Spring Bank Holiday, Late Summer, Christmas Day and Boxing Day.
However, Scotland also has 2 additional Bank Holidays : St. Andrew’s Day on and 2 January.
Northern Ireland has two extra public holidays : St. Patrick’s Day on and the Anniversary of the Battle of the Boyne.
To mark the Queen’s Platinum Jubilee there will also be an additional bank Holiday on June 3rd 2022.
Payments on weekends and bank holidays depend on which Payment Scheme your bank or senders bank uses. Photo by Estée Janssens.
Most of the UK has eight permanent bank holidays per year: New Year’s Day, Good Friday, Easter Monday, May Day, Spring Bank Holiday, Late Summer, Christmas Day and Boxing Day.
Faster Payments
Payments using Faster Payments can be made and typically clear in about 10 seconds. The can be made on all weekends and bank holidays. These are typically one-off payments made when you use online or mobile banking.
Standing Orders
Although Standing Orders are often sent via the Faster Payments scheme, they still operate only on weekdays. Standing Orders falling on a weekend or bank holiday will be sent on the next working day.
Direct Debitsand Credits
Direct Debit and Credits are processed by most banks using BACS.
Since BACS only run on business working days, this can affect the payment dates. BACS usually takes 2 business days to complete, so if a payment is due to go out on a Saturday, it will instead be made on the Monday.
For credits to you account such as payroll, most providers will adjust the submission date so that you get your payment early.
Direct Debitsand Creditson Bank Holidays
BACS is also unavailable on bank holidays so payment dates can also be delayed.
E.g. Monday 31 May 2021 is a bank holiday in the UK, which means that the process for debiting/crediting payments due on the following Tuesday and Wednesday in both cases will need to start a day earlier than normal.
For example, if any Direct Debit or Direct Credit payments are to be debited / credited on Tuesday 1 or Wednesday 2 June 2021, then the latest submission dates are Thursday 27 and Friday 28 May 2021, respectively.
I am often asked “can you put a hold or reserve money on a Bank Account”. The purpose being that the merchant then wishes to decide to bill the user at a later point and wants guaranteed payment. I.e. to know that these payment will clear if requested in the future.
This sounds an easy task and something that all Banks and debit cards should be able to offer. After all credit card companies offer this service.
The reason for this not being possible is not a technical one but a legal one and more importantly a fundamental definition of what a Bank Account actually is.
If you think about what a Bank Account is and is legally defined as, it’s actually a record of what a Bank owes you. It’s actually a contract to state that it will return this money to you.
A Bank Account is a record of what a Bank owes you.
So the problem with reserving funds comes when you try to state how much money do they actually owe you. For example if the Bank owes you £10,000 and but let’s say we want to reserve £2,000, how much does the bank actually owe you?
You might instinctively say well the bank owes you £8,000 as I have £10,000 but £2,000 of this is reserved. But hold on, either I have £10,000 or I have £8,000 which is it? Make up your mind. If I have only £8,000 then my balance is £8,000 and not £10,000 so it is effectively transferred already. Which it legally has been if this is reserved by someone else.
So in summary reserving ownership of funds is actually the same as transferring the ownership of funds since this is all money the Bank owe you. Legally a Bank Account is a record of an obligation of how much money they pay you.
This is the reason you cannot reserve funds for later payment or billing.
The solution for merchants who wish to make sure they will get payment to this is use an Escrow service.
Want to know the difference between CHAPs and Bacs? How much can I transfer using Faster Payments? How long does a cheque take to clear? What is the Link Scheme?
Open Banking for Small Businesses Photo by: Гоар Авдалян
Small Businesses and Open Banking
3 Million customers in the UK have used Open Banking. Despite this many small business owners have not heard of Open Banking.
Why is this? Well it’s mostly because banks don’t want you to know about the benefits!
What is Open Banking?
Open Banking is a secure way to give Third Party Providers (TPPs) access to your financial information.
Open Banking was created to protect customers and spur innovation in Banking and Financial services. Open Banking provides a number of benefits to small businesses.
Benefit 1: Accounting Imports
If you use Xero or other similar accounting packages you may already be using Open Banking in your small business.
Open Banking is what powers and secures these financial management tools access to your banking transactions.
There are also a number of innovative Financial Management tools being developed on top of Open Banking. These are known as Account Information Service Providers (AISPs).
Benefit 2: Payment Matching
Authorised Payments Institutions can initiate payments from your customers (with their approval) to your account. The payments are made directly by bank transfer from your customers account straight to your account.
These payments can be initiated with a reference chosen by you, on the date you chose, with the amount you choose.
This vastly improves your matching and reconciliation process, reducing time and effort on your bookkeeping.
In the UK These bank payments usually clear in around 10 seconds so can be suitable for POS style checkouts.
Benefit 3: No Chargebacks
If you are a business taking credit and debit cards there are some huge improvements available for your business in moving away from card payments to direct bank payments.
Chargebacks are payment reversals triggered by Customers who wish to reverse a Card based payment. Sometimes known as Section 75 these leave the Merchant spending hours arguing and proving they deserve the customers original payment.
With Bank Payments there are no chargebacks.
Benefit 4: Reduced Costs
As well as savings on costs incurred from fraud and chargebacks, small businesses can save by reducing their merchant services fees, as there is no need for Card Readers and POS Terminals.
Savings can also be made on individual payment fees too. With Open Banking there are often reduced merchant fees due to the reduced Fraud and absence of acquirer, MasterCard and Visa fees.
Open Banking can support very large payments too often at reduced fees when compared to Card based payments.
Benefit 5: Improved customer experience
Since its launch in 2018 the vast majority of Banks now offer a very slick Mobile Banking approval process.
While online banking payments often need a card reader and your personal login details, Mobile banking initiated payments use biometrics including face ID an thumb prints to secure and simply approve access and payments.
Unlike Paypal, which has recently had to introduce SMS text messages to approve card payments, Open Banking payments can be approved using your Mobile Banking app. This is because your Mobile Banking app has built in 2 factor Authentication using device identifiers and Face Id, thumbprint or pin.
Summary
In summary Open Banking makes for a slick, efficient payment experience that can save you time and money accounting for your payments, leaving you more time to spend with your customers.
Robin Morris @ Paydog.co.uk
Paydog Ltd is fully Authorised Payments Institution FCA no 934908
Paydog.co.uk offers immediate and recurring payment links and QR codes to SMEs powered by Open Banking.
In 1997, as a recently graduated student, I visited India with a friend. We were trying to catch a train to our next destination. Travelling by train in India at the time we met some amazing people, mostly families going to meet other extended family for various celebrations. The ticket office at the station was open, there were no queues, we had the money, there were seats available on the train – the train was actually in the station ….
….but we weren’t allowed to buy a ticket. Tickets (for this specific interstate journey) were only allowed to be sold for the following days travel. You could not Buy a ticket to travel today! Those were the rules put in place, based on some policies (presumably to make sure noone overbooked)
Other than the obvious frustration of not being able to travel that day, what was worse was no-one in India at the time seemed to think this was a problem, or that things could or should be improved
Thankfully, India has been transformed and innovation is rife with individuals who know things can and should be better
23 Years Later…
With ‘Open’ Banking and Payment Services Directive 2 initiatives and implementations across Europe the same frustrations .
According to the European Payments Council “The Objective of PSD2 are to make payments safer, to increase the consumer protection, foster innovation and competition while ensuring a level playing field for all players, including new ones”
Subsequent lobbying by industry incumbants has meant:
Existing Banks get automatic accrediation – hardly a level playing field!
Credit and Debt Cards remain as insecure as ever – most of us have given our our CVV to many providers online or over the phone or at restraurants etc.
Cards and telecoms are excluded from many of the provisions of PSD2 – protecting the incumbant Network providers
Implementation delays and Banks dragging their feet in meeting regulatory deadlines
Even UK Open Banking – one of the most open and innovative in europe still advises new entrants can take 3-12 months to get regulated
Having worked in finance and technology for many years we believe it is possible to properly meet the PSD2 Aims and Objectives for consumers
Our Mission
Offer individuals and small companies access to the same opportunities as large finance organisations
How
We aim to be the Amazon Web Services of the finance world
Federated not controlled
Extremely low cost of entry
Optimise for Volume not Scale – Pay for what you use
Low Friction, Automated Self service and intuitive to use
Technology for communication not control
Build a community
Make it compelling
Minimum Viable Product
Listen to customers
Agile : Fast and Good not slow and perfect – responding to change over following a plan
What
Paydog has started by registering as a TPP – Third Party Provider – AISP and PISP to allow access to accounts.
