With 2013 all but over CI has asked the industry’s top experts to share their predictions for the year ahead. The rise of the payments start-ups look set to continue with prepaid cards also important for many companies in 2014
Rachelle St Ledger, Commercial Director Retail & E-Commerce, PrePay Solutions
On-going changes in the payments sector will have a profound impact, not only on the way companies operate, but the payments practices of everyday consumers. Progress on this scale can take years to fully establish, but the development of payments technology over the past year has shown us some interesting trends as we move into 2014. Some of the changes ahead of us will be straightforward expansions of the innovations that are already gaining momentum; others will be brand new and can only be hinted at by the overarching trends.
Probably the most distinctive payments innovation that 2013 witnessed was the introduction of near field communication (NFC) payments from mobile phones. The rise of contactless payments without the need for a card of any kind, often known as the "mobile wallet", is still in the early stages with only a few mainstream products, but has already prompted predictions of "the end of cash".
While this still seems a very unlikely prospect, developments in mobile payments are having an immediate and significant impact on the payments landscape. One of the biggest mobile contactless payments launches of the year was that of EE’s Cash on Tap, a product facilitated by PrePay Solutions, which combines a phone app with NFC technology to enable payments from mobile phones in-store and online. Solutions like this one have the additional advantage of allowing customers to manage their account, check their balance, load more funds and monitor their transaction history whilst on the move. This mobile product launch was one of the earliest steps towards reducing the need for an equivalent plastic card.
Another big step forward in the payments arena stems from companies’ willingness to integrate their multi-channel gifting solutions. Where in the past, companies would offer a plastic gift card and sometimes an online "virtual gift card", as we approach Christmas 2013 many of the biggest retailers will instead integrate their whole offering into a multi-channel scheme. This means that any gifting or promotional product will be valid across all the channels.
Sometimes, the simplest innovations can be the most influential. One project we undertook during 2013 was to link Ticketmaster’s gift cards to QR codes so that consumers could instantly check the balance on their gift cards using a smartphone. It was a relatively simple measure, but nevertheless an innovation which quickly solved the widespread problem of keeping track of gift card values.
As we move into next year, the payments industry will build upon the successes of 2013. We predict that contactless mobile payments – and the integration of mobile devices as a tool for managing spending – will move into the mainstream, bringing us a step closer to a "cashless society". One of the more exciting elements of next year however, will be the rise and rise of multi-channel. The growth of shopping across different channels has continued apace throughout the past year and we will soon see a division emerging between those retailers that can keep pace with the market and those who are too slow off the mark.
Martin Ruda, Managing Director of The TALL Group of Companies
Every day there are over 2 million cheques processed within the UK and whilst this number is declining gradually, the simple fact is that some organisations and people prefer them as a payment tool. There is however no doubt that the current way of handling cheques is cumbersome to say the least and that there are many opportunities to gain further efficiencies.
In countries such as the US, Brazil and India the use of technology to facilitate ‘electronic’ or image based cheque clearing is increasingly well established and this has resulted in reduced costs and faster transfer of funds. Although clearing cycles differ from country to country the model involves capturing images of the cheques, both front and back, and digitising the code lines and relevant personalised and variable data.
The UK is sadly trailing behind, using a model that has not changed for decades and still requires the physical transfer of the cheque throughout the clearing system. However there is a gathering momentum for change, partly as a result of the Payments Council’s U-turn on the proposed closure of the centralised cheque clearings, originally slated for 2018.
The encouraging news is that the UK should benefit from years of learning, and some mistakes, that other countries have experienced in the implementation of image based clearing (the US ‘Check-21’ truncation is a good example), and the technology is now not only better, but also becoming cheaper. The key to the processing benefits on offer is ‘collaboration’, and this will be a challenge in a UK banking sector where legacy systems, risk aversion and a cautious approach to operational change is the starting point for such an initiative.
Building Societies, whose typical customer is familiar with cheques and is unlikely to let go easily, can gain real operational advantages from branch capture of cheque images, and a number of examples exist today, including Cheshire, Hinckley & Rugby, and Ecology Building Societies. To be ‘Image-Ready’, before truncation becomes a reality, can deliver immediate benefits to reconciliation, customer service, banking processing and AML record keeping.
Perhaps the finance sector can also take heart from the experience of some of our corporate clients? At The TALL Group we have developed a bespoke software application in anticipation of industry changes. Our "Checkprint Banking Assistant’ product follows the same principles of image capture in operation in the US and other countries and is currently being used by over 200 of our customers in house.
It is proving extremely useful for query resolution, record keeping and local or networked reconciliation to ledger systems.This means that the technology is already available and up and running in the UK and there is enough market intelligence to make image based processing happen sooner rather than later. With a new regulatory regime likely to impact the payments sector in the near term, (carrying a mandate to continuously improve UK payments systems) a ‘version’ of the international models will very likely be put in place.
David Hunter, Chief Executive at Ukash
The Prepaid Card category will finally get traction in Europe – mimicking US trends of circa 7 years ago. The category will get a further boost from retail banking fee inflation.
ATM’s will increasingly offer Cardless services – driven by mobile wallets, P2P apps, and a growing number of interesting use cases
Cash in circulation will continue to grow in US and Europe, but cash displacement will also continue
Banks will use AML obligations as a veil to choke off fledgling competitors from lucrative payments and money transfer business
Europe will follow the US and force regulation on Bitcoin Exchangers
Contactless will make significant breakthroughs – driven by merchants rather than wallets. London Transport being a good example.
Chris Dunne, Payment Services Director – VocaLink
The dominant themes of 2014 will be uncertainty, mobility and risk.
Following the passage of the Banking Reform Bill through parliament this year, it will become law in early 2014 and it heralds a fundamental change in the way that retail banking is conducted. For us the biggest change is the creation of the Payment Systems Regulator, under the auspices of the FCA, that will introduce economic regulation across all payment types. The regulator will have wide-ranging powers and it is expected to focus initially on opening up access to payment systems, researching the case for account number portability and also examining the ownership structure of the payment systems.
However it won’t be fully formed until the very end of next year or the start of 2015 and so we are now entering a period of uncertainty, which is compounded by the recent legislative package from the European Commission: the proposed update to the Payment Services Directive and the proposed interchange regulation. These will be the subject of intense lobbying and discussion throughout next year. The original Payment Services Directive had over five hundred amendments before it became law and the proposed update will probably go on a similar journey.
Mobility is the second big theme – mobility of customers as retail banks work hard to attract current account holders, with substantial advertising campaigns in the first few months of the year as banks seek to capitalise on customers’ New Year resolutions to sort out their finances, with the new Current Account Switching Service taking away the hassle and worry of moving accounts. We will also see increased mobility of payments with the launch in Spring of the Payment Council’s new mobile payment service; this will enable secure payments to be made directly to or from an account without the need to disclose the sort code and account number, by simply using a mobile phone number as a proxy.
Risk will be the third and possibly biggest theme. Cyber-security is becoming the number one risk factor in retail banking and we expect to see far greater scrutiny of system security and substantial investment in threat prevention and detection as a result. Threats from external actors have always been present but the rise of highly organised, potentially state-sponsored activity allied with increased processing capability means that the threat has never been greater.
There will also be increased focus on the risk of major technical failure in core retail banking systems. These systems operate at massive volume with high reliability, but failures do happen and the focus next year should be on mitigating the impact of failures to the customer on the street and also to ensuring that systems can quickly and effectively recover from outages.
So we are entering another busy year, with a healthy mix of opportunities and challenges and we expect to see the industry emerge more robust and more competitive than ever before.
Adrian Kamellard, Chief Executive of the Payments Council
On New Year’s Day 1985, Ernie Wise made Britain’s first mobile phone call, kick-starting what is widely seen as one of the most innovative industries there is.
It’s worth then, taking stock of innovation in payments over the same period – the LINK ATM network, debit cards, cashback, online banking, PayPal, chip and PIN, Faster Payments, contactless and account switching have all been introduced in the UK.
Each of these innovations has served to increase consumer choice and 2014 should increase it further still, as the field of mobile payments approaches mainstream consumer consciousness. Nowadays if people pay by cash or cheque, most of the time, it’s because they want to. The payments industry no longer offers just two or three payment options; the result is, potentially, the most consumer-driven payments market in history.
According to Ofcom, more than half of UK adults already own a smartphone and over three quarters of new handsets sold are smartphones. We are increasingly comfortable using these devices for much more than making calls – the 10 million people who already access their accounts via a mobile device are set to be joined by many more.
Payment solutions are no longer provided solely by banks and building societies. The relatively young mobile payments market has seen a boom over the last year, whether peer to peer or contactless, with smaller start-up companies competing with established players in the market. While there has already been plenty of innovation in the field of mobile payments, we believe that 2014 will be the year the mobile payments market steps out of its infancy and follow the trend of demand.
The Payments Council’s mobile payments service, launching in spring 2014, is the first service with the potential to link up every bank account in the country with a mobile number. The service will make it possible to securely pay using just a mobile number and financial institutions representing about 90% of UK current accounts have already committed to offer the new service. Discussions are continuing for more to join – any Payment Service Provider with access to Faster Payments or LINK will be able to participate in the mobile payments service.
We commissioned research with more than 5,000 UK consumers to understand the appetite for a mobile payments service. The research confirmed that consumers see the benefits of the service with one in three smartphone users saying that they are "definitely" or "extremely likely" to sign up for the service at launch.
Paul Thomalla, SVP EMEA and Managing Director, ACI
From a retail perspective, the next twelve months will see banks increasingly trying to walk in the shoes of their customers to gain a better understanding of their experience, and how they can create products to meet these needs. As there are never-ending developments in technology that consumers not only want, but demand, we will see more mobility made available across the board. With Google Glass and the iPad Air, hardware is getting to a level of sophistication that requires more advanced applications. This is why innovators in our industry are looking to develop and create new mobile services for customers already invested in the technology.
Yet as a consequence of this, there will be more entry points for the consumer to use products, meaning banks will need to get their infrastructure right so that no matter what touch point the customer has, the bank has a consistent view of their experience to deal with their issue quickly and efficiently.
In Europe, direct debits have already cemented their place in the market. Yet worldwide, there is space for less paper billing. Despite being available for over a decade, eBilling still only accounts for 20% of bills worldwide. We think 2014 is the year when adoption will surge in other markets, as many consumers are realising the benefits of eBilling.
We will see more transactions carried out in the cloud as increasing numbers of banks make the move to host their websites on external servers. The elasticity of the cloud will give them a greater amount of flexibility to upscale. The vanguard for this move toward more technology could be emerging economies, where there are less legacy systems in place. And less legacy systems mean these economies can roll out projects far more quickly than developed or established economies. We expect to see some really innovative developments coming from economies like the Middle East, which has already begun embracing mobile banking and real-time payments.
As the one year anniversary of the Durbin Amendment in the States approaches, we expect a trickle-down effect. With retailers gaining newfound control over making their own payment decisions, more retailers will be able to make efforts to own their customer data and use it in ways that encourage loyal and repeat consumer engagement.
In terms of the global banking transaction market, the end of quantitative easing will play a key role. Liquidity will be crucial and the concept of cash being king will play a big role for those banks able to use their funds wisely.