From cash and cheque to chip and PIN and contactless, the payments landscape has changed dramatically over the past 50 years. Where once consumers had little choice in the options available to them, the near ubiquity of smart devices coupled with a wave of innovation has created growing demand for new ways to pay.
Speed, convenience and ease of use are now considered standard requirements when it comes to making payments, as Gregor Dobbie, UK managing director at leading payments technology provider Vocalink, a Mastercard company, explains.
“In the past, access to payments systems had been fairly limited, but the introduction of a range of new financial institutions and other payments providers into the market in recent years has transformed the status quo,” he says. “We now have far more compelling, competitive solutions, which not only meet, but drive evolving customer needs and expectations.”
One of the biggest payment transformations of the past decade has been the introduction of contactless, with almost two thirds of people in the UK now choosing to “tap and go”. For the first time in history, card payments overtook cash as the payment method of choice in 2017.
The appeal of contactless is easy to understand; in an age of rapid technological change where everything is expected almost immediately, it is a natural progression that money has merged with digital formats to redefine the payments experience.
After all, many of us run almost every aspect of our lives using our phones, including for payments and banking. And as the appetite for faster, more secure and flexible payment opportunities gathers pace, arguably the biggest disruptor will continue to be real-time payments.
According to Mr Dobbie: “The culture of instant fulfilment, which we see across so many other aspects of life, has naturally made its way into the payments industry. This global shift towards real-time payments has been one of the most exciting developments of the past decade.
“Instant payments can offer greater security, more visibility around payments and therefore tighter cash management, and a lower risk of failure.”
The potential for real-time payments is vast, including peer-to-peer, business-to-business and e-commerce. Examples where it can have a significant impact include insurance payouts, quicker access to approved loans, and payment of daily and weekly wages. The key to its success, as with any new technology, is ease of use.
Mr Dobbie explains: “Contactless and real-time payments have been groundbreaking in their nature, yet simple in their premise and intuitive in their use. As the industry continues to evolve and innovate, its solutions must remain easy to access. Anything too onerous runs the risk of failure.”
But as with most things, the simplest and most logical innovations are often the most complex to implement. New technology must strike a delicate balance between offering new and exciting opportunities, and seamlessly improving the customer journey with the utmost importance placed on always protecting and continually investing in the critical, national structure upon which so many are reliant every day.
This controlled approach is what Vocalink refers to as “thoughtful innovation”. It begins with a requirement for open communication throughout the financial ecosystem of clearing house, schemes, regulators, technology providers, payment service providers and banks. And it requires a willingness from all parties to work towards one unified vision.
Open banking driving innovation
This need to work together to benefit the end-user will only grow more pertinent with the advent of PSD2, the European Union’s revised payment services directive. Under the new rules, banks are required to open up their APIs (application programming interfaces) and customer data, with explicit customer consent, to regulated third-party companies. The proliferation of new players will create a sea-change for banks in Europe, introducing a new, more competitive playing field and fostering innovation on an unprecedented level.
This will undoubtedly present challenges for banks, not least the possibility of losing customers to third parties. But it also presents banks with an exciting new opportunity to retain, win and better serve their customers.
Mr Dobbie says: “Open banking means customers will no longer be tethered to their account-holding bank. It will make the industry more competitive, but it will also drive a faster pace of innovation, which will be great news for users. We will likely see more banks create their own digital offering, and there will be greater collaboration between the banking and fintech sectors to create engaging and customer-centric services.
“We are already working hard on improving the end-user experience in the open banking environment, relating to both payments and information access, and look forward to rolling those out as the services and ecosystem evolve.”
However, with increased innovation comes higher volumes of payment activity and the rising need for even greater protection. Vocalink has developed AML Insights, which has the capability to trace stolen and illicit funds, disrupt organised criminal-network activity and stop it in its tracks. This groundbreaking solution will deliver a significant step-up in fraud decision analytics to complement banks’ existing methods.
Not surprisingly, against a backdrop of growing innovation, security and customer centricity have become the leading watchwords.
According to Vocalink, a key step-change that will further improve the customer payment experience will be an image-based cheque clearing system, that promises to significantly reduce the waiting time for funds to clear. It is a process that is likely to prove particularly transformative for small businesses.
Mr Dobbie explains: “There’s a saying that small businesses can often only be two weeks away from bankruptcy and this innovation will allow for much faster crediting of cheque payments to accounts, enhancing a business’s liquidity and visibility. It’s about providing customers with greater choice and flexibility, and seeking to introduce new methods of payment that solve a specific problem.”
It’s important that our technology serves economic and social good
Innovation for social good
For Vocalink, developments in payments innovation should also have societal benefits. There remains an estimated two billion people in the world who don’t have access to a bank account and this runs the risk of exclusion from society.
To address the problem within Thailand, Vocalink built and launched PromptPay in early-2017 enabling the country to enter the world of real-time payments for the first time. Its success has been unparalleled, empowering Thai citizens to make instant payments and access state benefits in real-time.
Mr Dobbie says: “This milestone is significant in the country’s bid to address financial inclusion and sup-port the expansion of Thailand’s burgeoning digital economy. It’s important that our technology serves economic and social good.”
In the UK, Vocalink has facilitated a service with the Post Office to enable people to transact locally as if they were using a bank, in light of the recent trend to review the number of bank branches.
Mr Dobbie concludes: “There was still a requirement in some communities without access to a bank branch to be able to transact locally. For us, it’s about enabling the technology we have to allow people, especially vulnerable people, to bank the way they want to.”
While regulation and technology have a powerful role to play in innovation, customer experience and enhancing the customer journey will undoubtedly be the real competitive differentiator as we enter a new era in payments.
For more information please visit www.vocalink.com
Payment platforms launch innovation
Paul Stoddart, chief executive of Vocalink, a Mastercard company, tells how payment platforms are benefiting customers worldwide
Why should governments, businesses and consumers care about payment platforms?
Payments are a fundamental enabler for everything we do, from business to the way we conduct our personal lives, and have become a critical part of the financial ecosystem. Importantly, no two needs are the same and that’s why the design and delivery of a national payment platform is so important for governments, businesses and consumers alike.
It’s about ensuring that everyone’s needs, across all the various demographics, are met by the solutions we bring to market. The rapid adoption of technology has proven extremely powerful in making sure payment platforms are accessible to people across all areas of the globe. It’s also helped to meet growing consumer demand for certain processes to become digitised. Payment systems need to be fit for purpose and their design needs to reflect the changing times.
For governments, payment platforms will enable them to achieve their macro goal of reducing cash in society. Many central banks view the cash economy as expensive, inefficient and susceptible to financial crime. Our job is to ensure that payment platforms support both the customer pull and the regulatory push.
Who is leading the way in payments innovation?
There are various key players helping to drive forward innovation. Banks are great champions for innovation, as part of their goal is to increase engagement and interaction with their customers. Technology enables them to do this, as well as bringing new, targeted services to market. Overall, the financial services sector has been extremely supportive of innovation in payments, and is seizing the opportunity to create new revenue channels and streamline costs.
Payment system technology providers such as Vocalink are a crucial part of the equation. We are active in more than 200 markets and the power of that network is substantial. By bringing together our capability with Mastercard’s, we are able to drive innovation globally. The fintech community also has a leading role to play in enabling innovation to move from lab to mainstream. They make it accessible so people around the world can leverage developments in the most simple, efficient way.
It’s about ensuring that everyone’s needs, across all the various demographics, are met by the solutions we bring to market
How can payment platforms benefit the developing world and poorer societies?
The two greatest benefits offered by payment platfoms are access and inclusion. Despite advances around the world, it still remains difficult for many people to participate in the economy. Without a bank account or the facility to make payments, there’s a very real risk people will become excluded, and this is why developments in technology can have such huge social and economic benefits.
We also need to consider the identity factor. Being able to participate in a payments system supports identity management and helps people create a profile, which is both useful for their own future needs and for governments.
An example of this is Vocalink’s launch of PromptPay in Thailand, which has enabled the country to enter the world of real-time payments. Since it launched at the start of 2017, 21 banks have signed up and 631 million real-time payments have been processed, with the Thai government as a primary user. Even more impressive is that 44.5 million of the 68 million Thai population have registered for its services. Its success marks a huge milestone, not only for Thailand but globally.
What are the risks and barriers associated with new payment platforms?
As with the implementation of any new technology, the biggest risk remains cybersecurity. We invest in the most robust and advanced defences to protect our technology and services, but in a connected world security will always pose a risk.
In terms of barriers, the greatest hurdle is ensuring host countries have the adequate infrastructure to support payment systems. That includes good power, communications and datacentre availability. Without this, it can become very difficult to implement a successful payment platform.
How do you imagine a future driven by new payment technology?
The connection between bank accounts and identity is only going to grow in significance going forward, and I believe that a critical element of payment technology will be the ability to identify people robustly.
As a provider of payment services, we also need to be able to look towards a future where different forms of payments and means of exchange beyond fiat currency will become the norm. Cryptocurrencies will play a role to a certain extent, but we must be open minded to assets such as personal information and data being exchanged.
In a world of global trade and cross-border payments, our job will be to build a system that can assess the value of something and enable a trade to take place in which a part or all of that payment will not be in today’s traditional form. There are exciting times ahead.