How Open Banking Recurring Payments are turbocharging innovation, time and time again

In recent years, financial services have undergone a seismic change. 

When Open Banking was introduced back in 2018 it democratised the industry, releasing the financial data of consumers from the banks’ ownership and into the hands of the consumers themselves. With banks in the UK required to let customers share their transaction data with authorised third-party providers (TPPs), innovation was supercharged. For the first time, users were empowered to access a range of alternative financial services and payment offerings from forward-thinking FinTechs liberated from traditional operating constraints.  

What started out as the preserve of the early adopter has now become decidedly more mainstream as a new breed of digitally demanding customer has emerged, one who expects instant, intuitive and convenient solutions to meet their requirements, both in their consumer and professional lives.  

Fintech-powered, Open Banking-enabled innovations now represent a very real alternative to traditional means of making and collecting payments and not just for static, one-off transactions.  

With this in mind, let us introduce you to the Open Banking Recurring Payment, the next evolution of Open Banking’s payment initiation and one which promises to have a transformative effect on the way we transact, not just once but on a regular basis. After all, can you ever have too much of a good thing? 

Meet the recurring payment regulars 

For years, Standing Orders and Direct Debits have been the established means of collecting regular payments such as mortgages, rent and utilities. They may be the stalwarts of the recurring payments space but they are not without their limitations. Both are prone to error as customers have to manually enter their bank details, and that’s assuming they’ve remembered to set it up in a timely manner in the first place. There’s also an increased chance of drop-off or abandonment during the payment process, because the customer has to leave the supplier’s ecosystem to set up the instruction or mandate.  

Thanks to the rise of the subscription economy, it’s becoming increasingly common for eCommerce companies and other businesses to hold a customer's payment credentials, such as a credit or debit card number, on file together with other information necessary to authorise a recurring transaction. But, the recurring card payment or Continuous Payment Authority Collection model can result in a clunky, error-prone experience during set-up with customers having to manually enter or otherwise provide their card details.  

What’s more, debit and credit card payments are not ideal for the businesses that receive them. They tend to be expensive – for each transaction, a percentage of the value may be charged. It can add up to a significant loss of revenue for companies that process large volumes of payments. Businesses will need to chase customers to update their details when cards expire or are cancelled and card payments  are slow – it can take up to three days for funds to settle in the recipient’s account. It's why we're reimagining card issuing programmes, but that's another story!

Recurring payments, reimagined 

Fortunately, Open Banking is paving the way for a new generation of recurring payment services. It’s led to the creation of Payment Initiation Service Providers (PISPs) – third party organisations, like Modulr, that can initiate payments on behalf of customers. 

A novel way of securely instructing payments through an API, Payment Initiation (aka Open Banking payments) is an instant, cost-effective alternative to accepting card payments or bank transfers. Operating separately from the traditional intermediaries like card schemes and acquirers, Payment Initiation enables businesses to redirect end users directly to their bank or building society so they can make payments smoothly and efficiently.   

For the customer, it only feels like three steps at checkout: they choose their bank within the merchant’s page, they’re redirected to their banking app and authorise the payment, then they’re directed back to the supplier’s completion page. They don’t need to go through the hassle of finding their cards around the house or manually entering payment card details, sort codes or account numbers. 

Open Banking Payments offer the customer more control than direct debits; enabling the transfer of money to a third-party account but flipping the payment authorisation model from a pull to a push.  

Until recently, Payment Initiation has been used for ad hoc payments – such as account top-ups - but Modulr clients can now use this Open Banking innovation to empower their customers to grant a long-held consent for the purpose of instructing recurring payments on their behalf, without the need to authenticate each individual payment. There are two types of Open Banking powered recurring payments: Standing Order (fixed amount) and Variable Recurring Payment (VRP) - we'll bring you more details on when we plan to release the latter soon!

Initiate to innovate 

For businesses that take recurring or subscription payments- and let’s face it - recurring payments are quickly making their way into almost every industry, this exciting iteration of Open Banking’s Payment Initiation promises to accelerate innovation in payment experiences and facilitate the creation of new types of financial services for customers.

Payments can be embedded into an app or website in a variety of ways, as part of a single customer journey, and be initiated via SMS, an email invoice or even through a QR code used at point of sale. This streamlined and intuitive experience can help to build customer loyalty and reduce abandonment or drop off. It’s the CX of the future, and companies that offer it first could have a competitive advantage. 

With their wide applicability, Open Banking Recurring Payments will help businesses across many sectors to not only monetise their long-term relationships but also to delight their digitally demanding customers with innovative experiences, time and time again. 

Comparison table: Continuous payment authority, Direct Debits, Open Banking recurring payments