The last few years have witnessed a huge change in the way we make payments.
At a recent speech at Trinity College Dublin, Tim Cook CEO of Apple proclaimed confidently that the next generation will not know what money is.
They will also not know what cheques are if a proposal by the Payments Council goes ahead, stating that by 31st October 2018 cheques will be abolished due to a dramatic decline in their use. The fact that banks still make money from the anarchic three-day payment cycle that accompanies the use of cheques is one reason that calls are being made for banks to modernise or die.
Technology is evolving at a faster rate than ever before and the payment sector is by no means getting left behind. First Capital Cashflow, a Direct Debit solutions provider, has been asking experts in the payments sector what their predictions are as we move into 2016.
Five key trends emerged…
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- Banks must evolve if they are to survive
A Bank, according the Oxford Dictionary definition, is “a financial establishment that uses money, deposited by customers, for investment, pays it out when required, makes loans at interest, and exchanges currency.”
While this definition remains relevant, how we use a bank is certainly changing.
Nowhere is this more obvious than in the development and widespread use of online banking apps, which have revolutionised what we expect from banks. It is no surprise that many challenger banks and third parties have emerged as a result, adding a new lease of life to the sector and becoming an integral part of the nation’s financial landscape.
So what will the next stage of evolution be?
Mike Laming, Lead Technologist at Adaptive Lab, has predicted that “software companies, with banking licenses, are going to redefine what it means to be a bank… they have the freedom to reimagine from the ground up what a bank should be.”
This will be made even easier come 2017 when the second generation Payment Service Directive comes into play. A further blow to the core banking services, the directive will require all banks to open up their Access to Accounts (XS2A) leaving the door wide open to new entrants into the payments marketplace.
An Open API adoption is already high on the UK Treasury’s agenda, and while this is great news for consumers and businesses, traditional banks will now have to work a lot harder to compete against third parties.
Innovation, Integration and Instantaneous will be the buzzwords for banks come 2016.
2) The continuation of contactless
Speed and ease are not are just key for banking. Unless you have been living under a rock for the last year or so, you will have heard of Apple Pay and its various cousins. Mobile payment, Contactless and eWallets were big news in 2015 and this will continue into 2016.
Research by Payments UK found that 771 million “Faster Payment” transactions were made in 2014 and this figure is predicted to rise to 1.94 billion by 2024 due, in part, to the ever increasing number of mobile apps that have now been developed.
Remi De Fouchier, SVP of Gemalto, commented that: “mobile payments are here to stay… new apps and solutions are popping up on a regular basis. To date over 150 have been launched or piloted worldwide…ignoring mobile commerce and mobile payments isn’t a viable option.”
Having said that, it will not happen overnight. John Cooke, Commercial Director Card Services at allpay Limited warns that “change in payments is usually very slow…contactless has been around since 2008 and it’s still not accepted in most supermarkets.”
However, John does acknowledge that this will change over the coming year, predicting that “all debit cards should be contactless by the end of the year.”
Ray Brash, Managing Director of PrePay Solutions concurs, claiming: “Contactless is obviously the word of the moment when it comes to payments. With the limit having increased to £30 at terminals, contactless will take off further as customer demand for convenience grows.”
Looking to the future, we can be assured that the use of contactless and mobile payment will be used for ever smaller transactions, becoming a regular form of easy payment that was previously the reserve of cash.
3) Fighting fraud with fingerprints
A key concern for many consumers and businesses is the impact increased data sharing and use of technology will have on security. Data breaches far too frequently made the news in 2015 and so it will be interesting to see what measures and regulations will be put in place in 2016 to placate fears.
Way back when magnetic strips were replaced by EMV (better known as chip and pin), fraud cases dropped dramatically, however, this did not address all card security issues, especially during CNP (card not present) transactions.
The next step on from EMV is already being used by the likes of Apple Pay, and that is biometric authentication. Fingerprints will always remain unique and, unless a terrible accident occurs, they cannot be lost or forgotten like PIN codes and security questions.
However, the issue with CNP fraud cases will still be present. This is where the need for ‘Big Data’ will kick in. Being able to analyse transactions in real-time should allow abnormal purchases to be identified quickly and accurately. It is access to this data, and development of the technology required to maximise its potential, that will be the next step in cyber security and regulation over the next few years.
A research report published by Infosys entitled ‘Payments Strategy- Renew the Old, Ring in the New’ commented that: “IT will play a key role in this space as both a backbone enabling monitoring and compliance and also providing next-generation analytics solutions that can detect and prevent fraud attempts.”
Mark Prior-Egerton of The Logic Group agrees, claiming that tokenisation will remain the only solution: “At their heart, many of these payment methods will still be based on card data and securing that is vital. The key to this is tokenisation which allows card data to be encrypted whether payment itself is made via a smartphone, wearable or even your fingerprint.”
4) The customer will STILL always be right
The desire to create a seamless, easy-to-use payment solution is resulting in great steps forward in terms of UX.
Thanks to the likes of Uber, the expectations of customers have been raised to a level most dated e-commerce solutions never even dreamt of, and when placing these innovating giants against the more traditional offerings, it highlights just how far the industry has come in a very short space of time.
Marching ever forward, one slick and clean platform will now not be enough to satisfy consumers, as the Infosys report explained: “Customers now expect a Netflix-style experience across channels, in which they can pick from one channel what they left in another channel.”
This omni-channel experience is destined to be the next big thing for the payments sector, allowing bank, card and virtual payments to be accessed via one easy-to-use system. It is hoped that this kind of approach will eliminate the administrative burden currently facing businesses and consumers alike, resulting in a ‘friction-less’ and less confusing payment solution.
5) Cash will remain king… for now
Admittedly, this could be seen as one of the most unexpected trends on this list.
Despite banks losing relevance, contactless evolving, big data solving security issues and innovate tech revolutionising UX, cash is still king… for the majority of consumers anyway.
Statistics from the Bank of England show that the number of banknotes in circulation is now higher than ever, increasing from 1,895 million in 2004 to 3,239 million by the end of February 2015. Production has also increased from 469 million in 2006/7 to 843 million in 2014/15. According to Payments UK, over 18 billion cash payments were made in 2014, accounting for 53% of transactions. Surely this shows that the need for cold hard cash is in no way on the decline?
Peter Moore, CEO of Consolis commented: “To ignore cash is to ignore vast swathes of the population and the businesses that cater to them. For example, convenience stores and small, independent cafes and retailers still rely on cash as the cornerstone of their businesses… cash is still king [for many] that rely on these corner shops and cafes for their everyday needs. We should not ignore the large number of small businesses that rely on cash transactions to stay afloat.”
However, this is not to say that the evolution of payment technology is by any means superfluous. For the B2B sector specifically, it is of great importance that the payment industry continues to innovate and become more receptive to digital technology.
According to statistics from Bacs, recovering late payments costed SMEs almost £11 billion in 2014. As of July this year, £31.3 billion is still owed to those 99% of small businesses that make up the UK’s economy, hindering growth and reducing profitability.
This is why the payments industry has to step up, and fast! A reliance on antiquated payment systems is costing us dear.
Commenting on the research, Mike Hutchinson from Bacs had this to say: “Our figures show that while the late payment landscape is improving in terms of the totals owed, it is at a cost, and a very real one, with SMEs having to dip into their pockets to chase money they are owed. We urge businesses to look at automated payments like Direct Debit to reduce the time and money that companies are spending to recover payments due to them.”
In conclusion, there is much to look forward to in 2016 in terms of innovation in the payments sector. A need to move with the times, evolve and adapt to changing customer expectations, business demands and comply with regulation will drive forward change, but we can rest assured that despite all this talk of ‘new trends’, money will continue to make the world go round, how it is transferred.