Open banking: Why are we still talking, when everyone else is doing?

Friday, 17 November 2023

Technology company Akahu says it has developed a “confirmation of payee” system banks could use to stem the scam crime wave that’s costing customers hundreds of millions of dollars a year.

Banks are accused of failing to protect customers from fraud by not having systems to check that account names and numbers match, before allowing payments to go through.

It’s a weakness in bank payment systems being exploited by scammers, who con people into thinking they are transferring money to the likes of Citibank to invest in a high-interest term deposit, when they are in fact sending money to completely unrelated mule accounts.

In September, under pressure from mounting criticism from fraud victims, banks vowed to develop the technology, but have given no timeline for when that is likely to happen.

Now, Ben Lynch, the founder of Akahu, which is 37% owned by Westpac’s Red Bird Ventures, says in just two months it has created a tech service that banks could deploy next week to stem the rising “scamdemic”.

On Monday, the Ministry of Business, Innovation and Employment released figures for International Fraud Week revealing the customers of 11 of the largest banks and other financial services companies lost $198 million to scammers in just a year.

Lynch said Akahu’s confirmation of payee technology has been trialled by one bank, and others were considering trialling it too.

Should all banks sign up to the system, it would be verifying the account name and number entered by the person making the payment against data held by the bank at which the account was held looking for an exact, or a close match.

If there was no match, the person trying to make the person trying to make the payment would be sent a warning message.

The system is already being used by the Dolla payments app, but it is currently working on incomplete data held in Akahu’s records.

“I came up with it when it was in the media a couple of months ago”, he said.

“Dolla is just the first customer for this service, but we hope banks will plug into the service,” he said.

“There’s no need for 15 banks to each build their own solution. It doesn’t make any sense,” he said.

New Zealand was lagging behind the United Kingdom and the Nordic countries in deploying confirmation of payee services, Lynch said.

The launch comes as Payments NZ, which is owned by the big banks and oversees the interbank payments system, published a “whitepaper” on open banking.

Open banking is the name given to describe a technology-driven revolution in banking built on secure API portals.

These APIs allow third party tech companies like Akahu to communicate securely with their customers’ banks, if their customers give them permission to do so.

An example of this working was Sharesies’ September deal with Māori open banking start-up BlinkPay​ to help investors who have accounts with Westpac or BNZ to get money out of their bank accounts, and invested in shares more quickly, said Steve Wiggins, chief executive of PaymentsNZ.

Another example is Dolla.

Wiggins said Akuhu had shown him its confirmation of payee system.

“Their test results at first glance are looking pretty good,” he said.

“They’re already doing trials with some of the smaller banks. That in itself is a good indication,” he said.

Payments NZ’s whitepaper was timed for release four years after Payments NZ established an API Centre to develop the secure API portals for companies like Akahu to plug into.

Early industry work on open banking facilitated by Payments NZ was guided by strategic objectives including speed to market, and simplified partnering.

There have been accusations made that banks have been dragging their feet over open banking, which some see as a threat to them.

Wiggins admitted: “There are bits that have been very successful, and bits that have been a qualified success.”

“Where it has been difficult is the partnering between the banks and the third-party fintechs.”