By James Booth, VP, Head of Payment Partnerships EMEA at PPRO
2019 has certainly been a memorable year for the FinTech industry with the final implementation of the second Payment Service Directive (PSD2) and Strong Customer Authentication (SCA) continuing to set the agendas for online retailers, banks and third-party providers (TPPs). Now, as we look at the year ahead, we can expect to see the payments industry further evolve in-line with consumer demand.
The evolution of the UK market
The UK is very different from many other EU markets. Contactless payments, and payment methods tied to credit and debit cards such as Apple Pay, have become ingrained in the habits of the typical UK customer. However, this is a stark contrast to other markets across the continent, where only half as many consumers use card-based payment methods compared to the UK.
Consequently, I expect to see a change in how people carry out transactions next year, both online and in physical stores. The adoption of mobile payments will encourage the biggest shift in the payments industry in 2020. Those at the tail end of Generation Z (born post-1995) are now entering full-time work and have a far different outlook and expectation of the online world, compared to previous generations. Many younger people, including millennials, are relying more heavily on mobile payments and are far less likely to use credit cards compared to older generations.
One of the reasons for this shift in attitude is a perceived fear of debt harboured by younger generations. Rising student fees are plunging younger people into considerable debt before they’ve entered the workplace. Paired with a lack of capital, younger generations are facing increasing levels of debt and are avoiding added debt through the use of credit cards.
As a result of the decreasing number of credit card users, we are seeing a shift towards mobile payments linked to current accounts. This form of payment has already become a preference for Generation Z. It won’t be long before mobile payments will become the dominant payment method in the UK market.
The changing role of TPPs
Due to the market shift to mobile payments, how consumers carry out online payments and interact with points of sales (POS) will become more personalised than ever before. Payment methods such as Apple Pay, Klarna and many others will soon be available at all checkout points across the world to cater to all preferences. However, merchants shouldn’t just stop there. Data insights from recurring and loyal customers can be used to offer tailored promotions or product suggestions based on their shopping history.
To provide personalised shopping experiences many retailers and merchants are turning to third-party providers (TPPs). Many have already begun outsourcing the management of their checkout processes to payment service providers (PSPs), to provide expertise and access to relevant local payment methods (LPMs). Checkout pages that are hosted by TPPs negate the need for retailers and merchants to purchase and install payment gateways or secure socket layers (SSL) certificates, further reducing the cost-saving benefits to retailers.
This shift in how the retailer and TPPs work together will see the role of payment service providers drastically change – those that are unwilling to take on such responsibilities from merchants will struggle to survive.
Banks – how far will trust take them?
Banks have been integral to our lives for hundreds of years, but they are now under threat from upcoming online-only challenger banks, with mobile-first strategies. However, they do still possess a strong unique selling point; trust. Consumers share strong relationships with traditional banks and entrust them with their money.
However, as new challenger banks gain greater market share, fewer traditional and high-street banks will be required. Challenger banks are growing in popularity, largely since they are easy to access via mobile and set up for varying age groups. With younger people now reaching an age where they are entering workplaces, the number of online banking services available will inevitably rise and evolve to cater to the modern customer – creating a huge problem for high street banks. Even by next year, we expect to see more people move to alternative online providers like Monzo.
Consequently, I believe we are only a decade away from seeing a dramatic turn in attitude towards banking, as consumers turn to new challenger banks, who will take market share from traditional banks.
Banks need to wise up and fast, or they will become irrelevant. It still sounds far-fetched to think of a high street without a bank branch situated on it, but that could soon become a reality unless banks expand their offerings to provide a mobile-first experience. Soon enough, alternative banking providers will enjoy the same level of trust that banks currently enjoy. Being more transparent and more inclusive to offer simplified financial solutions by collaborating with FinTechs, are just some immediate steps that banks must take.
The issue that rumbles on – SCA and PSD2
Secure Customer Authentication (SCA), under PSD2, is just one of the biggest issues the e-commerce market faces today. PSD2 has dominated the headlines in recent years and will continue to do so for the foreseeable future, as some key hurdles remain to be overcome.
We’ve already seen the deadline to be compliant with the SCA requirements, as part of PSD2, extended to March 2021, beyond the original deadline of September 2019. The Financial Conduct Authority (FCA) stated that implementation in the UK would divert to a phased approach, over the course of 18 months, to meet the revised deadline. However, I would not be surprised if this deadline is extended again, beyond this date.
Merchants are expected to continue to push back against SCA’s full implementation, largely because many are still not ready to adopt its requirements into their payment and checkout systems, as per PDS2 guidelines. However, even if the deadline is extended further, the marketplace will continue to be a relatively safe place for consumers to conduct transactions, despite the threat of data theft or fraud.
However, I have full faith that the introduction of SCA is a hugely positive step forward to creating a truly secure payment ecosystem. People have increasingly fallen victim to payment fraud for the best part of a decade, and action must be taken. Yes, transactions may take slightly longer to carry out as the new SCA requirements will mean customers need to provide additional methods of authentication at online checkouts. However, the additional step will see sensitive data more robustly protected and reduce the payment fraud crime rate that has afflicted so many, for so long.