XU: GoCardless has recently raised $95m in funding. Can you tell us more about it?
DB: In December 2020 we announced a $95m Series F funding round, led by Bain Capital Ventures. This came off the back of 46% year-on-year growth for GoCardless despite a challenging economic environment. It brings the total we have raised to-date to $240m.
We will use the funding to accelerate our open banking strategy, combining the latest technology with our global bank debit network.
XU: Why is GoCardless so excited about open banking?
DB: We believe open banking is gaining momentum around the world, particularly in our home market, the UK. According to recent data from the Open Banking Implementation Entity, a non-profit body created to coordinate the rollout of open banking, 294 regulated providers were in the ecosystem as of December 2020, of which 102 have live offerings in the market. Additionally, over four million open banking payments were made in 2020, up from 320,000 in 2018.
In Australia, the newly announced Consumer Data Right and recent developments within the New Payments Platform also indicate open banking is on the rise.
Given the maturation of open banking around the world, we plan to release features within the GoCardless offering this year to help merchants and consumers take advantage of these developments.
By combining open banking with our existing bank debit network we’ll be able to offer a unique way to take recurring payments: open banking payments will deliver the speed and visibility required for instant payments, and bank debit payments will continue to improve cash flow and eliminate the need to chase unpaid bills.
We’ll be able to target businesses that we haven’t been able to serve up until now - for example, digital subscription services that require a faster way of collecting payments - by using open banking to take an immediate upfront payment and then collect subsequent payments via direct debit.
We will also expand into the e-commerce market with open banking. This will provide consumers a simple and secure way to make bank-to-bank payments to merchants they use regularly, and offer businesses a lower-cost alternative to card payments.
XU: So, what does open banking actually mean for businesses?
DB: There are a variety of different ways businesses can use open banking.
Businesses using open banking instant payments will see a material improvement to their cash flow. Currently, many are unable to use bank-to-bank payments to collect from their customers. This is because they need instant payment confirmation for certain transactions, such as when providing a service outside of their regular scope of work. Companies will only want to start on a project, for instance, after they know the project invoice has been paid.
Bank-to-bank payment methods, such as bank debit, currently do not allow instant payment authorisation. As a result, small businesses use more costly options, such as cards, which also relies on the customer to initiate the payment. This means businesses often pay high transaction fees and end up spending valuable time and money chasing late payments.
The introduction of instant open banking payments, however, will give small businesses a low-cost alternative to cards. What’s more, by combining open banking payments with the GoCardless bank debit network, merchants can use a payment system that allows them to pull money from a customer’s account each time an invoice is due - putting them firmly in control of their payments and reducing the risk of bad debt.
XU: How will Xero customers be able to use Open Banking?
DB: We are currently working with Xero to ensure businesses using GoCardless for Xero can access open banking features as soon as possible. The first will be verified mandates, or the ability to ensure customers setting up a new mandate to pay are, indeed, who they say they are. This will help to reduce fraud for both businesses and their payers. Other features, including open banking instant payments, will be released later this year.
Ben Johnson, Director of Financial Partnerships at Xero: “Open banking is gaining momentum around the world and the benefits it is expected to bring to businesses, from lowering costs to improving cash flow through immediate payouts, are significant. We’re excited to see GoCardless focus their product development in this area, and as an important payments partner to Xero we’re exploring how this might benefit Xero customers”.