Open Banking payments have doubled in a year; The evolution of digital payment methods; Sending instant payments is complicated;

In this edition:

1️⃣ Open Banking payments have doubled in a year

2️⃣ Elon Musk’s X has licenses in multiple U.S. states to process payments, including crypto

3️⃣ Robinhood to buy back Bankman-Fried’s stake from US govt for $605.7 million

4️⃣ Sending instant payments is complicated

5️⃣ Financial data access in the EU: Now vs. Future

6️⃣ Money on Autopilot

7️⃣ The evolution of digital payment methods

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News

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Open Banking payments have doubled in a year, with more than 11.4 million payments processed in July 2023

Open Banking payments have doubled in a year, with more than 11.4 million payments processed in July 2023, buoyed by the introduction of ‘Pay by Bank’ options by the UK Government.

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Elon Musk’s X has licenses in multiple U.S. states to process payments, including crypto

X, the Elon Musk-owned social media platform formerly called Twitter, has obtained payments licenses from several U.S. states in recent months — including a currency transmitter license in Rhode Island earlier this week.

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Robinhood to buy back Bankman-Fried’s stake from US govt for $605.7 million

The shares of Robinhood were seized and subsequently transferred to the custody of the U.S. government after Bankman-Fried’s FTX and Emergent filed for bankruptcy protection last year. Bankman-Fried has pleaded not guilty to criminal fraud and conspiracy charges stemming from FTX’s November 2022 collapse.

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Klarna cuts losses and sees “huge opportunity” in generative AI

Swedish fintech giant Klarna is turning things around following a bruising 2022, which saw its valuation cut by 85% and the company lay off 700 employees. In the second quarter of 2023, its losses decreased by 77% on the same period last year.

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Insights

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The evolution of digital payment methods

The evolution of payment methods is reshaping the way we pay, but how do merchants handle this constant change on a global scale?

The past few years have seen an explosion in alternative payment methods (APMs) available to consumers, driven by rapid advancements in technology, growing consumer expectations for seamless experiences, and increased awareness of data privacy.

With a myriad of options like digital wallets, cryptocurrencies, and mobile payment apps, consumers now expect the flexibility to choose how they pay.

For large merchants, managing such a diverse ecosystem of payment methods can seem overwhelming.

However, there are strategies to ensure a smooth integration and management of these options, ultimately providing the best customer experience:

Partner with a reliable payment orchestration provider: A well-established payment orchestration platform can handle hundreds of APMs on a global scale, providing merchants with a unified platform for easy management, reduced operational complexity, and region-specific security features.

Prioritize popular APMs: Focus on integrating the most widely-used APMs in your target market, while also keeping an eye on emerging trends to stay ahead of the competition.

Optimize user experience: Seamless integration of APMs into your existing checkout process is crucial. Design user interfaces that cater to various preferences and devices, ensuring a frictionless payment experience for all customers.

Prioritize security and compliance: As you adopt new payment methods, be vigilant about maintaining strict security standards and staying compliant with relevant regulations to protect your business and customers.

Stay agile and adaptable: The payments landscape will continue to evolve. Be prepared to iterate on your payment processes and adopt new technologies as they emerge to stay relevant and competitive.

By proactively managing the integration of alternative payment methods, large merchants can unlock new opportunities, provide better customer experiences, and stay ahead in the rapidly changing world of commerce.

Source Ali Ahmed

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Sending instant payments is complicated

The case for implementing instant payment send for financial institutions is compelling. It is, however, a bit more complicated than RTP or FedNow receipt. Managing settlement liquidity for receipt of payments is relatively simple. Money comes in, balances go up, and periodically you draw down excess funds. Sending, on the other hand, reduces balances. If you send more than you receive, even over a short period, you could deplete funds which requires you to top-up balances. Receipt settlement is mostly passive, while send settlement liquidity must be managed actively — even on weekends. The good news is that financial institutions can outsource settlement to a correspondent, bankers bank or corporate credit union if they don’t have the means for 24/7 liquidity management.

Business and technical implications are also different. RTP or FedNow receipt is a single implementation. It requires integration with multiple systems, including DDA, transaction posting, general ledger, online banking, reporting, and Fed or TCH networks. But once implemented, all customer accounts can receive instant payments.

Consumers pay bills, transfer money between accounts, send money to friends and family, and make purchases online or in stores. Businesses have payrolls, supplier payments, expense reimbursements, loan payments, tax payments, bulk disbursements, and many industry-specific variations.

Large corporate customers have different payment needs than small businesses. Furthermore, financial institutions make a lot of payments, such as loan disbursements, deposit payouts, trust disbursements and their own bills. Financial institutions have multiple in-house and outsourced platforms for customers to initiate payments.

These may be provided by a variety of vendors. In many cases, there are separate platforms to support consumers, small business and large corporate segments. There may be additional dedicated systems for payment origination by the bank itself, subsidiaries or for fintech lines of business.

Soure Finzly

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Financial data access in the EU: Now vs Future

The European Commission unveiled legislative ideas for a framework for financial data access in addition to the Payment Services Directive (PSD3) and Payment Services Regulation (PSR) measures.

By updating the outdated PSD2, these suggestions want to give consumers more options for payment service providers while still enabling them to conduct secure electronic payments within the EU.

Here’s a summary of the key points:

1. PSD2 becomes PSR1: Shifting payments rules to the Payment Services Regulation (PSR1) will harmonize the payments market across member states.

2. Better APIs for open banking: PSR1 introduces rules on API performance and functionality, aiming to improve consistency and reliability.

3. Streamlined authentication at checkout: PSR1 prohibits obstacles to open banking, ensuring a seamless user experience for payments.

4. Direct payment system access for fintechs: PSR1 grants non-banks access to payment settlement infrastructure, promoting competition and innovation.

5. IBAN and name matching for fraud prevention: PSR1 extends requirements to match payee account details across different payment methods.

6. A merger of e-money and payment institutions: PSD3 combines the licensing and authorization regimes of PSD2 and EMD2, simplifying the framework.

7. Re-authorization for payment firms under PSD3: Firms will need to seek re-authorization within 24 months to ensure compliance and consumer safety.

Exciting opportunities lie ahead for payments and open banking in the EU, fostering innovation and leveling the playing field.

Source RFS, Panagiotis Kriaris

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Money on Autopilot

Thanks to generative AI, the much-discussed topic of “self-driving money” finally has a chance to achieve its potential. Imagine a platform that can move your money to optimize your balance sheet. In the past, this wasn’t possible from a technical standpoint, as products were stuck in “read only” mode. They could generate information or analysis, but couldn’t take action on your behalf — which is arguably the most important step.

Post-generative AI, we’re in a new world for consumer financial platforms. LLMs, and specifically multi-modal prompts like GPT-4, can process and output both text and images. This enables consumer robot process automation (RPA), which will allow fintech apps to operate on a user’s behalf. This massively opens up the universe of potential user interactions with personal finance products in terms of both inputs (what the product can analyze) and outputs (what the product does for the user).

As one example: Google’s Bard is able to ingest a screenshot of your investment account balance, “read” the starting and ending values (as well as deposits and withdrawals), and calculate your investment returns benchmarked to the broader market. Bard has only been live for four months, so we expect this functionality to get more and more sophisticated over time.

As a result of this, we expect to see startups finally deliver on the vision of financial automation, with products that serve as “autopilots” to help consumers:

- Save and spend

- Make investments

- Plan for retirement

- Manage debt

- Prepare/file taxes

And more!

Alongside autopilots that optimize your assets within a category (e.g., analyze and rebalance your stocks across brokerage accounts), we may even see the rise of the first great financial super app in the U.S. This would serve as an autopilot across all of these product categories, allowing for a 100% “hands free” management experience, which can route money between your existing apps and accounts. Essentially, this becomes an AI accountant and wealth manager for the masses, which not only sets you up for success, but automatically re-allocates your money as your life changes.

Importantly, consumers wouldn’t have to change providers — they could continue to use separate apps for investing, saving, spending, etc., with the autopilot providing an optimization layer across these apps.

Successful companies here will look different than anything we’ve seen in consumer finance before. Most notably, they won’t rely on consumer engagement to deliver value. In fact, the best products will have incredibly fast and smooth onboarding and a “set it and forget it” motion, with success measured on how much of their wallet or portfolio a user hands over to them over time.

Source a16z

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