We were first with real-time clearing of payments with Faster Payments, near-ubiquitous contactless payments nationwide and a 21st-century payment systems strategy involving the whole community.
But if you are unemployed due to sickness for example, you can’t open a bank account easily. If you’re one of the 500,000 UK startups that set up each year, where the entrepreneur may not have funding yet, accessing banking services is near impossible.
And if you’re a regulated payments company launching a new service for small and medium-sized enterprises (SMEs), you can’t open an account to hold client funds easily via any major UK bank.
Because while the UK has a supportive regulator, outstanding paytech talent and risk-friendly investors, world-class payments is not accessible to three main constituents.
Firstly, it’s shocking that many consumers don’t have access to financial services to make their lives better. Banks are closing branches nationwide. The Financial Inclusion Committee discovered that the annual poverty premium paid by those who are financially excluded is £1,300. Over a lifetime of 80 years, that’s more than a £100,000 penalty for being poor. And the Financial Inclusion Monitoring Report 2015 highlighted that 1.5 million adults in the UK don’t have a bank account.
Secondly, the UK’s five million SMEs are not able to access the latest technology, often because they don’t know an alternative is available or because the banks do not allow access.
Finally, there are flaws in the traditional system. Despite being regulated entities, for example, most payments companies must do their banking with another bank. The other bank is not set up to do this flexibly or cheaply and is often competing directly. This channel conflict isn’t conducive to a mutually beneficial relationship or to having the best products designed to meet the needs of customers.
Many regulated payments companies don’t fit with the risk profiles of the big banks, so services are being withdrawn with little or no notice. This derisking threatens companies and countries.
The UK’s fintech companies can provide the answers. But the banks tend not to know what to do with their solutions. The Revised Payment Services Directive or PSD2 is designed to force banks to adopt open banking by allowing third parties access to customer data via secure application programming interfaces. It also sets out to reduce the influence of the payment schemes. However, the legislation is in danger of reinforcing the dominant role banks play with consumers because they are still at the core of the transaction.
The Emerging Payments Association (EPA) is dedicated to overcoming access challenges. We’ve already influenced the Bank of England to open its real-time gross settlement accounts to non-banks.
We’re also developing a way for payments firms to demonstrate they are financially inclusive, through an accreditation kitemark supported by BACS.
We’ve lobbied government to appoint a minister for financial inclusion. In July, MP Guy Opperman was appointed as the first minister for pensions and financial inclusion. And we are exporting our experience to parts of the world where financial and economic exclusion is currently a massive economic drag on society. Three new EPA communities, in Africa, Eastern Europe and China, are launching shortly. This will enable us to show leadership in moving money efficiently for everyone.
But more needs to be done. We need to give consumers access to a quick-and-easy payment sign-up process for all. Accounts should have jam-jarring and segregation of funds, simple and transparent fees, and lower costs.
We need to give businesses access to flexible, cost-effective payment accounts that allow them to trade globally, use customer data and remove the financial management burden. And we need to give regulated payments companies access from banks that want to service them enthusiastically rather than reluctantly.
In tomorrow’s world of payments, enabling access is everything. With the government’s support and co-ordinated action across the community, the UK can lead the world.