2023 was another important year for payments. The proposal for PSD 3 made headlines in June, there was a lot of focus on Open Banking and VRPs (Variable Recurring Payments), and there were some high profile interventions from regulatory bodies. But beyond the headlines of 2023, what will be the themes moving into 2024? We take a look at our payments crystal ball to find out!
In the UK and EU, there has been a boom in embedded finance for the past few years. In part, this has been driven by regulatory support for an 'agent' model for EMIs (Electronic Money Institutions). In this model, a regulated 'principal' EMI holder enables its 'agents' to effectively leverage their EMI licence as a reseller. The onus is on the principal to ensure that sufficient controls are in place, including reconciling safeguarded funds. This is proving challenging for some embedded finance providers and the FCA even had to get involved with one provider in Q4 2023.
It seems likely that this model will come under more pressure from regulators in 2024, so it's important that principals work on improving their controls over the coming months to ensure they can continue to bring on new business. It is also possible, but less likely, that regulators will expect more ownership from agents when it comes to controls.
The proposal for PSD 3 came in June 2023. The proposal was broad and encompassed changes across multiple facets of the payment lifecycle - including reconciliations. Deep in the proposal, under Article 9's Safeguarding Requirements, was the following passage:
The EBA shall develop regulatory technical standards on safeguarding requirements, laying down in particular safeguarding risk management frameworks for payment institutions to ensure protection of users’ funds, and including requirements on segregation, designation, reconciliation and calculation of safeguarding funds requirements.
Further details are slim at this stage, but 2024 offers an opportunity for the initial conversations on safeguarding reforms and standardisation to take place.
There are over 200 payment methods globally, and new payment methods seem to be appearing every other month. 2023 was the year that VRPs gained momentum, but Open Banking as a proportion of overall payments is low.
FinTechs, retailers and other high transaction businesses are increasingly looking at Open Banking payments as one of a menu of payment methods that they offer their customers. The UK is still heavily reliant on cards and wallets, whilst other countries in Europe prefer local payment methods - such as iDEAL in the Netherlands. Businesses looking for high conversion and acceptance rates will continue improving this menu of payment options, primarily by leveraging multiple payment providers in different markets. Reconciliation complexity can sometimes slow down this process, but with automated reconciliations in place, supported by a company like Equali, businesses will be able to optimise their checkout quicker and without causing complexity or risk in the back office.
Is 2024 the year that you optimise your reconciliations? If you want control and visibility over your payments, contact us for more details about how we can decrease complexity, reduce risk and minimise reconciliation costs.
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