There's a new way to pay. Retailers love it, and so do the government and financial regulators, but can you trust it? Welcome to which money. Hello, I'm Lucia Ariano, and joining us this week we have Which? Senior researcher and writer, Kiara Cavalieri. Hello, Kiara. Hello. And also Senior Policy Advisor here, Which? Tony Herbert.

Hi Tony. Hello. Well, thank you both for joining us today. Shall we start from the top then? This is a new payment for buying things online. It's called. Pay by bank. It was honestly completely new to me before I started researching for this episode. So, Kiara, what can you tell us? Basically, it's just a way to make a payment directly from your bank account instead of using a card.

Mm-hmm. And how does it differ then, from what we might be used to? So bank transfers or paying by a card? It's a bank transfer, so it's a way to pay the company directly. You click pay by bank at the checkout and it directs you to your bank's website or app, and you can make the payment from there. Now, as someone that wasn't familiar with this term, pay by bank before the show today, sat with you and, and Tony, uh, just before our offer air, you literally showed me how it worked and I think.

That really helped me figure out what it was we are talking about. Tony, could you just talk us through, um, the example you gave me, so you are on your Amex app and you want to pay off your bill. How do you do it? Yeah, sure. It's really quite simple. So what you would do if you wanted to pay off your credit card bill via pay by bank, you go into your credit card app, open it up, choose that you want to make a payment, specify the amount, choose the bank from a list, so your bank.

So I chose Nationwide, for example. It then whisks me across to the nationwide app, which I then authenticate with my biometric fingerprint. Mm-hmm. Immediately it is pre-populated saying, do you want to make a payment of X to pay off this credit card? If you do, again, you authenticate it. That's it. All done takes you back to your credit card.

App confirms payment nice and smooth. Should take 20, 30 seconds. I mean, this sounds. All very high tech. And actually using that example, I think I've probably used pay by bank before or what's known as open banking, which this is a type of, so we're gonna get onto the pros and cons. I mean, let's start with some.

Pros, perhaps not for us, but why say do retailers like it? Well, I mean, the big answer is cost. It's cheaper. So when you make a card payment, be it debit card or credit card, there's a whole range of kind of middlemen in the middle, passing on your, your money across to the retailer. What open banking payments do is kind of.

Get rid of those middlemen. So the payment goes much more kind of directly. So it costs merchants a lot less to accept payment by pay by bank. So that's the first thing. Cost. It's also quicker. I think it's, it's an immediate transfer. So retailers get their hands on the money much more quickly. That's quite a good thing.

And then thirdly, I'd say. There's some evidence to suggest that paying in this way increases retailer, what they call conversion so people don't drop off. So if you are paying for something with a card, sometimes you are putting in your card details or you haven't got it with you, or you mistype it, that kind of thing.

With this, because it's pretty seamless, you can do it all through. If few taps on your phone, people don't drop off. They make that transaction. So it's really quite a compelling case, I think, for retailers. Mm-hmm. And I mentioned right at the top of the show too, that. Government and financial regulators are into this as well, so what's their reasons for being so keen on it?

Well, I think it's fair to say that both government and regulators have kind of struggled for some time with kind of grappling with the power of the two big card companies, visa and MasterCard. And so I think what the regulators and governments see in. Open banking payments in pay by bank is a potentially a viable competitor to cards.

Mm-hmm. So they're looking to, for it to kind of introduce this competitive spirit to drive innovation and perhaps to drive costs down as well, which would ultimately, we hope. Benefit consumers as well, but we're a bit more cautious as you'd expect from us, at which, and one of the reasons is about safety and security.

So can you talk to us about that? Yeah. So although we are fans of Pay Buy Bank, there are some shortcomings and they. Specifically come if there were to be some problems or difficulties experienced with a purchase. Now, there's two main areas where this could be an issue. The first is where you buy something and what you get isn't as described, or it doesn't come.

The second is where the company you buy from goes bust. Now, in both of those cases, if you struggled to get your money back, but you'd paid with a debit card or a credit card, these would come in and have an obligation to help you get a refund for the amount you've paid with pay by Bank. These protections simply don't exist at the moment.

Mm-hmm. So is there anything in their place. I suppose consumers can always rely on the kind of the statutory protection, so things like the Consumer Rights Act. So we would always say in the first instance, if you've got a problem with a purchase, go to the retailer, see if you can sort it out. But problems start to arise where if they're not playing ball, if they don't want to refund you, you might have to go to the small claims court, which can be quite onerous for an individual.

Consumer might not. Be worth your while. So that's about it really at the moment. So it's a bit of a kind of a glaring gap I would suggest for these purchase protections, and particularly I think where the company might go bust. Mm-hmm. So that's a bigger risk, I think if you are. Paying for something, but you're not going to consume it immediately.

So if you are buying, I don't know, like flight tickets, paying for a holiday, festival tickets, something you're gonna consume some way down the line, there's a risk that they might not deliver. If that company might go bust, you'll be left on your own at the moment and if you paid by bank, whereas if you'd paid specifically by credit card and also by debit card, you would have some protection.

They would be obliged to come in and try and. Get your money back. And I suppose here just to spell it out, we are talking about charge back, which is your debit card protection. You're, you're nodding at me, Kiara, and section 75, which we love at which don't we, so it would be a shame not to have those protections.

Yeah, absolutely. So section 75 is really strong, powerful protection charge back less so, but really important and a really useful tool for a lot of consumers when they use a debit or credit card. And because you're not making a car payment, you're making a bank transfer, so you lose. Those car protections.

And it's really important for consumers to understand that before they use it. And what about then if we bring in fraud and scams? How do your protections fare where scams and, and fraud is concerned? So I think the picture is brighter for fraud protections because you still have protection against unauthorized fraud that's under the payment services regulations.

So they'll apply whether you've used a card or a bank transfer. There's also the new authorized push payment fraud scheme, which protects you against authorized bank transfers where you've been tricked into sending money to a scammer. So I think we are less concerned about the fraud protections and much more concerned about the purchase protections, those car protections that you lose.

And we mentioned before the show started, and I think it's quite interesting how this might work in person because you were saying that actually there are examples where you can use pay by bank in person. I think Holland and Barrett you might have mentioned earlier. Yeah, we've heard of a few, not so many, but we've heard of a few, um, instances where people have been using pay by bank in the wild.

Mm. So we had. One member get in touch with us because she had paid for a secondhand car. Mm-hmm. Using one of the pay by bank providers, and actually she did so without realizing that's what she'd done. So I think it's not always as obvious as you might think that you are using it, but essentially if you are redirected to your bank's Apple website, you are making a bank transfer, you're not making a car payment.

And so that's when you need to think about whether you need those protections, those car protections. Mm-hmm. And also really importantly, if you are being asked to scan a QR code, which flips you to your bank's Apple website, you need to be really sure about where that's coming from. We know that there's lots of scams being hidden in these QR codes, so just be really extra cautious, especially.

While this payment's in its infancy and people aren't so aware of what it looks like or what it should look like, mm, I think the main message is that you need to be absolutely sure that you are going to your app, your bank's app, or your bank's website. So it should be the app that's on your phone, or it should be the website that you are familiar with.

Make sure you know it's URL, it's web address. And if anything looks suspicious, just don't bother. Get outta there. 100%. And it's a great point about QR codes, that's why I wanted to mention it because paying for anything with a QR code kind of rang alarm bells for me. Given all of the, your work actually Kiara on scams in that area, and I suppose we have talked about it already, but could we just have a quick overview then of, of what you think needs to change to protect customers in this area?

Yeah. Yes, certainly. So. We want these transactions to come with. Basically an appropriate level of purchase protection. They've been talked about for quite some time since open banking was back in its infancy. There's been a number of official reports called for it, but we haven't really seen any progress.

And actually the need is becoming much more critical as we're starting to see pay by bank expand into all sorts of retail environments. So we'd like to see the regulators. Get a firm grip of this and propose how they will introduce some purchase protections so that consumers can benefit from this, this new payment method, which, you know, we like the fundamentals of, but we just want to see a bit of protection added.

I.

Now we've rightfully been very cautious so far, and I'm pleased that we've covered all of the protections and what needs to change. But you know, our listeners might be wondering, okay, so how might this benefit me, Kiara, what are the benefits of us using pay by bank? So I think it's fair to say that the big benefit it has over car payments is that you are not.

Handing over any details. So when you make a payment, you're either adding your pre stored car details or you are adding them in manually, and it means that there's an opportunity there for them to be stolen or leaked, or for you to put them in wrong. So I think when it works, it's great. So you flip directly to your bank's app, the payment details are preloaded, you authorize it.

Usually with your fingerprint or whatever you're used to using to authenticate payments and you're done. You've not had to give Rhine air or whiz air or whoever else your car details, which is a good thing. As we said, obviously we do have some question marks over the lack of purchase protections, but the actual payment method itself is really secure, and I suppose given how, you know, it sounds so techie, it's all very kind of online using mobile, using a computer.

I suppose this is gonna be excluding some people who aren't using, you know, online banking or, or app banking. It does. It does. I think we all know that innovations these days are pretty focused on digital customers. Having said that, I think we mentioned it earlier, we have seen a few examples of people being.

Asked to use this in real life, but like you said, it usually flips you to your online bank account or your mobile bank account. Lots of people use at least one of those, but yes, absolutely there will be lots of people who can't use this. And if you're used to buying your goods online, I guess if you are not particularly digitally savvy, it's just another thing for you to contend with.

Hopefully this is. An additional choice. It's not gonna replace other methods of paying, but you know, if, if it's cheaper for retailers, we, we could see that it becomes the default option for many, which could be a concern. And thinking about open banking broadly and pay by bank, as we've mentioned, it's so techy.

And even just going through the example that we went through earlier, to get my head around the idea that you'd go, that I would go from my say credit card app and that would take me to my. Current account app, it feels very techie and maybe there are concerns over your data and how your data's being shared.

Is that legitimate? Is that something that people are concerned about? It is, but the reassuring thing is that for any of these retailers to be offering it, they've got to have a partnership with a regulated provider. And those regulator providers, we call them third party payment providers, they are heavily vetted and they themselves then heavily vet the retailers they work with.

That's as things stand now. Mm-hmm. It's obviously in its infancy and that's why it's mostly really established retailers that are using it. So the likes of Rhine Air and Holland and Barrett, um, a few others. So at the moment, there's ways to make sure you're doing it safely. You can check various registers.

There's one at Open Banking Limited, that's open banking.org uk mm-hmm. Where there's a directory. Basically, you can see which firms are regulated to offer open banking payments and make sure that you're using someone legitimate. There's also the Financial Services Register, which will tell you the same thing.

So we would tell people to check that before they, before they use it for the first time. And we've talked a lot about, as you just said, you know, it being in its infancy. So what's to come then? Tony, do you wanna start us off here? What do you expect? Uh, for the future of open banking and pay by bank? Wow.

Yeah, so. I think lots of people, particularly in the payments industry, are quite excited what the future holds. So at the moment, open banking payments are limited to kind of one-off payments. Mm-hmm. So you make the transaction that's done. There are developments which would allow you to make something snappily called.

A commercial variable recurring payment using open banking. I kid you not CVPs. Now what this is, it's basically an open banking payment that repeats Mm. So it's heralded as a competitor to direct debit potentially, or card on file payments. And what this would allow is it would let the. Consumer set an amount, a kind of a frequency and a length of payments, and then off it would go.

So they're thinking this could be used for payments to your energy provider, for example. So that's one development that I think we will start to see quite soon. They will be piloting this with certain sectors, probably starting later this year. So we're looking at energy providers, we're looking at local and central governments, and also some financial services providers.

So that's one thing to look for in the future. And then we've also talked a little bit about whether we start to see this becoming more prevalent out in the retail environment. When you go to shop, will you. Be able to pay for it via checkout. Mm. I think we might start to see more of that. Yeah. Scanning a QR code certainly feels like more effort than just tapping your card.

I think that's right. It is. It is a bit clunky. Um, some people have suggested that to get round this potentially pay buy bank, could in future be inserted into your. Online payment apps. So your Google Pay, your Apple Pay and could be used that way, that's some way off and is quite contentious. Well, they're gonna have to come up with a different name to the direct debit, uh, competitor.

Uh, the competition to the direct debit. But that's also I. Very interesting. And Kiara, is there anything that you'd like to add or, you know, any final thoughts of things we've covered or maybe not covered today? I think the broad message is that we're not trying to scare people off this. We are just trying to make sure that they understand what protections they have or rather don't have when they use it.

And also just to reassure them that if they're using open banking for payments or to share their bank account, a, they should do so securely. As we said earlier about checking those registers to make sure that it's an authorized provider, a regulator provider, but also to remember that the power. Is yours to revoke consent.

So if you want to stop sharing your data or you want to cancel a recurring payment with a provider, just go to your app. You can do it via your app or via your online bank account. And that's the key to this, that you should be able to control how and when you share your data, how and when you stop a recurring payment.

And one last question for any listeners maybe wondering, because I'd certainly know. I am. Could this be the number one payment method anytime in the near future? Possibly. I think we've seen a lot of airlines really taking this on board, less so in the rest of retail. To be fair, I hope that it doesn't become the default.

Mm-hmm. But I think we'll see more and more places offering it. When I was researching this project, I saw more, you know, every few weeks being added. So I think it will increase. It's a hard one to call because I think it depends. There's like clear incentives for businesses, but I think less so for consumers if people are quite used to using their cards and prefer the security of knowing they've got section 75 and chargebacks.

But if that changes and pay by bank does have the same level of protection, then I can't see why it wouldn't become just as popular. I would just say I'd agree with all of that. I'd just say it's got an awful long way to go. Mm-hmm. I think the latest figures are there was. 31 million open banking transactions in March this year.

Sounds like a lot, but in February this year, there were 2 billion debit card transactions. So it's a drop in the ocean at the moment. It's increasing, it's increasing rapidly, but it's got a long way to go to be a real competitor to the cards. Well, it's been a really, really interesting episode. Thank you both so much for joining us today.

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