It was the best of times, it was the worst of times… this quote from Charles Dickens could sum up the payments market in 2015.
On one hand, consumers appear to be warming to alternative forms of payment with wave-and-pay and mobile wallet services starting to gain ground in the UK. On the other, some of the emerging names in the sector – notably Weve and Monitise – have skidded in the rush to become the de facto standard for mobile payments. PayPal has parted company with eBay and Visa Europe looks set to be swallowed up by Visa, its American sister company, which could usher in a period of uncertainty if some of the banks that own the European company attempt to stymie a deal.
All of which paints a tough backdrop for any company hoping to tap into the future world of payments. Questions about security, consumer behaviour and the pace of change at the technical level are surmountable, but picking the right horse looks more difficult than it did a year ago. With Apple and Samsung set to join the long list of companies offering payment systems, placing the right bet may never be harder.
The evidence is mounting that consumers are voting with their feet when it comes to traditional payment methods
Deloitte has predicted that 2015 will be a turning point for near-field communications (NFC) technology, something of a white elephant in the mobile phone industry. NFC, the technology used for Oyster cards on London’s underground and buses, has been embedded in smartphones for years, but it was miles ahead of consumer behaviour. Only 2.5 million people with a NFC-enabled phone used it to make a payment in 2014. Deloitte believes the number will boom to 30 million a month this year.
Add to this the prospect of wearable technology such as the Apple Watch being used to wrist-swipe payments at the till and the picture gets even muddier.
Nevertheless, 2015 is still shaping up to be a defining year for the payments industry as consumers and businesses not only seek more flexibility, but also more control in terms of security and transparency. Statistics may mislead, but the evidence is mounting that consumers are voting with their feet when it comes to traditional payment methods.
More than two million Danes, for example, use an application called Mobile Pay, a Danske Bank app, that enables peer-to-peer money transfers and mobile purchases. This is more than a third of the population, prompting to the claim that Denmark is leading the way to becoming a cashless society.
That presents an opportunity, as well as a challenge, for any company. Lee Perkins, managing director of Sage UK, says: “The world of business has learnt a huge amount from the consumer payments landscape. Pioneers such as Apple Pay have accelerated the pace for the payments sector and agile businesses will soon follow suit.”
Sage is responsible for paying more than one in four people in the UK, but is having to pivot its accounting software into the cloud to keep up with innovations in the consumer market. If a small-business owner can use an iPhone to make personal payments or buy items, it is a natural next step to want to pay employees and suppliers using a similarly convenient method.
Payment technology should open up huge opportunities for small businesses, but significant challenges remain. Simon Black, chief executive of PPRO Group, says payment systems and technology can prove to be a hindrance to exports despite the relative ease with which a company can set up a website to sell their goods. He notes that half of all online transactions are paid for using iDEAL, not Visa or PayPal, meaning many alternative payment types are essential for merchants to grow conversion rates.
“Looking ahead, the plastic format of a payment card will ultimately be replaced by mobile devices, both smartphones and smartwatches. While that future scenario is still some years away, what we will see over the next 12 months is the early adoption of using smartphones to pay, in particular through the launch of Apple Pay,” Mr Black says.
Yet while Apple Pay will undoubtedly dominate the headlines, more humdrum concerns about how the payments industry is evolving are likely to be just as significant. For small businesses, just managing their payments from an increasing number of platforms and sources can cause a huge headache.
URICA chief executive Lindsay Whitelaw comments: “When choosing a payment provider there are certain questions small and medium-sized enterprises need to consider. Such as what is the contract term? How quickly will I receive funds from my sales? Is the method of payment safe, secure and stable? What is the ‘real’ monthly cost? Are there any hidden fees or additional services that require me to pay to third-party providers, such as acquiring banks, security certificate issuers, payment processors?”
That might sound like a huge checklist and it is. URICA, a government-backed early-payments platform, has been set up to ensure suppliers get paid after invoicing to avoid a backlog of much-needed cash welling up in the system. It is used by the likes of Norton Motorcycles to keep money flowing through the system, something even more important at a time when the number of ways to get paid expands every day.
Payments is one of the most rapidly evolving sectors in the world and, in a global economy, choosing the right approach to payments infrastructure could prove to be a matter of life or death for British businesses. You only have to look at the payments companies themselves to see that.