James Stubbs, Financial Crime Systems Manager, summaries the key points and insights shared on our recent webinar with DirectID on ‘The future of account verification’, focusing on our use case of class action claimant compensation award payments
Our recent webinar with DirectID discussed how we have been working together to leverage the power of open banking to complete account verification checks, focusing on our class action payout use case.
I was joined by James Varga, CEO & Founder of DirectID, and Pete Janes, CEO & Founder of a Shieldpay, to talk about the historic challenges the sector has faced when tackling account verification and talk through the partnership DirectID & Shieldpay formed to leverage open banking - the first partnership to ever do this for litigation settlements.
During the session we talked about the historical challenges of account verification, the evolution of open banking and how the technology directly solves for some of the key pain points both law firms and claimants experience during the compensation award payment process.
I wanted to summarise our conversation to give you a quick snapshot of the key points James and Pete went through, but you can find out more and hear them explain the use case in further detail by rewatching the session here.
Open banking: the basics
We began the session by asking James Varga to give an overview of what open banking is and share some insight on the development and uptake of the system in the UK and globally.
James started by explaining the origins of the system: “Open banking came from a piece of European legislation called PSD2, the Payment Services Directive, which was established five or six years ago”. The legislation was passed in 2018 for all EU member states (including the UK) to enforce higher standards of security for online transactions. Open banking was one of the key components of this directive, designed to give power back to the consumer to control and manage their own financial data. The directive set out to encourage more innovation and competition in the financial services market.
At the very heart of the system is consent. As James said, it is a “read-only, consent-driven method of sharing bank statement data directly from a bank” to be able to prove information, provide accurate details, and do this in a “nice structured, automated, convenient way”.
Open banking for account verification
Traditional bank verification is cumbersome, slow and highly inefficient. It relies on individuals to source documentation, send it in and then have a team of people going through each paper to validate and match information. Pete said that “in the old days a law firm could take many weeks, if not months, to get people on boarded and then transactions out”, he explained that “the inefficiency in the process is due to human error”.
With open banking, however, James told us that if there aren’t any errors or concerns raised in the process, the account verification process can take seconds. An individual only needs click on a link, provide consent to share their bank account number, sort code - or any internationally recognised account numbering methods such as IBAN/ SWIFT, - directly from their bank accounts and the platform will match the data to confirm account ownership and the person’s bank account information.
The use case: open banking for account verification of class action claimants
Pete explained that the main driver to sourcing an open banking partner was to support Shieldpay with conducting account verification checks on mass.
When faced with our first -class action deal, Shieldpay “had to raise our game very quickly”. The main difference we found between the transactions we had managed historically is the volumes of payees in the transactions. We went from “maybe tens of payers and payees on either side from M&A to, in some instances such as admission scandal case that we did this year, or the big airline data breach last year, there's tens of thousands of payees on the other side - we found out very quickly that our existing ways of working just weren't fit for that world”.
As this was the first time a digital payments provider had been used for a litigation payout, we needed to identify the challenges and pain points and solve for these. We needed to “take in the feedback, learn from it, iterate and continue to progress [the process]”.
The aim of partnering with DirectID and leveraging their open banking platform was to both increase efficiency and improve user experience to ensure their funds are paid out “securely and in a timely manner”.
By using DirectID, we have been able to streamline our internal processes. We now have cleaner data, spend less time on manual checks and have decreased the number of claimant enquiries we need to manage.
From the claimant’s perspective, they are now able to click on a link, complete their bank verification check in seconds and receive their compensation in their bank account within hours.
Looking at the end-to-end compensation award disbursement process, Pete said “a key goal for us is to be one of pioneers of [digital compensation payouts] and explained that “tools like open banking attached with a regulated, reputable fintech, over time, will displace the need for checks in class action lawsuits.”
A global opportunity
The UK has continued to uphold the legislation post-Brexit and has been a major driver of innovation and adoption of the technology. James shared that “we're in excess of 6 million people that have used open banking today [in the UK] and we're processing hundreds of millions of bank statement transactions as an industry every month”.
But, looking further beyond the EU and the PSD2 mandate, open banking has been growing and being adopted in other regions. From James’ perspective, “open banking has gone from strength to strength, It’s very much a global trend”.
James referred to the stat that there are “about 65 countries now around the world that are embracing open banking”, including the USA, Canada, countries within Asia and Africa.
With this growing opportunity for a more open, world-wide, financial system, Pete suggested: “What we will see eventually is essentially payments without borders. [We will be] able to provide a one stop shop regardless of if the end claimant is US-based, UK, Latin America, etc, we can service that through someone like a DirectID, and other payment partners that we're working with.
Next steps in the open banking journey
We rounded off the webinar by asking James and Pete to look into the future. They discussed the above opportunity for international transactions but more generally on the state of the open banking ecosystem, they were both very positive. James said: “at a high level, [open banking] is just going to get broader across the world, and deeper in terms of the richness of data and what you can do with it.”
In response to a question from the audience around barriers to adoption of open banking, Pete explained that “this is not only a technology challenge, but this is also a massive behavioural shift for the end recipient of the funds to be able to trust it but also to understand”. He made a comparison to the adoption of using credit cards online for e-commerce transactions and the high levels of scepticism around it in the 90s: “No one really trusted it and obviously for any of us now, it's part of our everyday lives. I think the more [open banking] is leveraged, the more it's utilized, and the more very big names adopt it, we’ll see exactly the same.”
James added that at this point we need to make sure using the technology is still a choice for the consumer. We need to give those who are uncomfortable with online banking (and in disbelief the process can be so easy) the option to use it or go “old school”. However, he did point out that we are “inching in on that 20% critical mass” with adoption increasing month on month and “general awareness is building pretty quickly”.
If you want to know more about our partnership with DirectID, you can find out more here. You can also learn more about how we work together to verify claimant bank account information by rewatching the full webinar, or listen to the conversation on our podcast 👇