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Future of Payments

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Independent publication by 31 / 05 / 2015 # 317 raconteur.net FUTURE of PAYMENTS How will the UK pay and go? It is a milestone year for the payments industry as customers seek greater flexibility over how they spend their money and various forms of payment compete for supremacy OVERVIEW NIC FILDES I t 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 swal - lowed up by Visa, its American sister com- pany, which could usher in a period of uncertainty if some of the banks that own the European company at - tempt 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 be - haviour and the pace of change at the tech- nical 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. Deloitte has predicted that 2015 will be a turning point for near-field communications (NFC) technology, something of a white el- ephant in the mobile phone industry. NFC, the technology used for Oyster cards on Lon- don's underground and buses, has been em- bedded 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 tech - nology 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 busi - nesses not only seek more flexibility, but also more control in terms of security and transparency. Statis - tics may mislead, but the evidence is mounting that consumers are voting with their feet when it comes to tra- ditional payment methods. More than two million Danes, for example, use an applica- tion called Mobile Pay, a Danske Bank app, that enables peer-to-peer money transfers and mobile p u r c h a s e s . 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. Pi - oneers 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 sig - nificant challenges remain. Simon Black, chief executive of PPRO Group, says pay- ment systems and technology can prove to be a hindrance to exports despite the rela- tive 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 smart - watches. 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 indus - try is evolving are likely to be just as signif- icant. 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 pro- vider there are certain questions small and medium-sized enterprises need to consid- er. 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 provid - ers, such as acquiring banks, security certifi- cate issuers, payment processors?" That might sound like a huge checklist and it is. URICA, a government-backed ear- ly-payments platform, has been set up to ensure suppliers get paid after invoicing to avoid a backlog of much-needed cash well- ing 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 evolv - ing 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 com - panies themselves to see that. Although this publication is funded through advertising and sponsorship, all editorial is without bias and sponsored features are clearly labelled. For an upcoming schedule, partnership inquiries or feedback, please call +44 (0)20 3428 5230 or e-mail info@raconteur.net Raconteur is a leading publisher of special-interest content and research. Its publications and articles cover a wide range of topics, including business, finance, sustainability, healthcare, lifestyle and technology. Raconteur special reports are published exclusively in The Times and The Sunday Times as well as online at raconteur.net The information contained in this publication has been obtained from sources the Proprietors believe to be correct. However, no legal liability can be accepted for any errors. No part of this publication may be reproduced without the prior consent of the Publisher. © Raconteur Media Distributed in Event partner STEPHEN ARMSTRONG Contributor to The Sunday Times, Monocle, Wallpaper* and GQ, he is also an occasional broad- caster on BBC Radio. DAN MATTHEWS Journalist and author of The New Rules of Business, he writes for newspapers, magazines and websites on a range of issues. DAN BARNES Award-winning business journalist, he specialises in financial technology, trading and capital markets. JOE McGRATH Editor of trading and technology magazine The Trade, he also writes for The Wall Street Journal and Financial Times. HAZEL DAVIS Freelance business writer, she contributes to The Times, Finan- cial Times, The Daily Telegraph and The Guardian. EDWIN SMITH Writer and editor, he contributes to publications including The Guardian, The Independent and The Sunday Telegraph. NIC FILDES Technology and com- munications editor at The Times, he was formerly with The Inde- pendent and Dow Jones Newswires. CONTRIBUTORS BUSINESS CULTURE FINANCE HEALTHCARE LIFESTYLE SUSTAINABILITY TECHNOLOGY INFOGRAPHICS www.raconteur.net/future-of-payments-2015 RACONTEUR Publishing Manager John Okell Digital Manager Jermaine Charvy Head of Production Natalia Rosek Design Alessandro Caire Vjay Lad Kellie Jerrard Managing Editor Peter Archer The evidence is mounting that consumers are voting with their feet when it comes to traditional payment methods CONSUMER AND BUSINESS PAYMENT VOLUMES MOST IMPORTANT FACTOR IN HOW YOU CHOOSE TO PAY Cash 48% 24% 10% 6% 6% 2% 2% 1% 1% Debit card Direct debit Credit card Bacs Direct Credit Cheque Faster Payments Service Standing order Other Source: Payments Council, May 2015 Source: YouGov/Centre for Economics and Business Research Other Don't know 2.8% 1.7% Speed of making payment 6.7% Ability to see my balance 7.7% Ease of making payment 25.7% Security of the payment method 55.5% It's a controlled mobile payments explosion 03 Mobile payments are expected to boom this year, but paying with a mobile device will take time to really catch on Meet 20 of the hottest payment companies 06 Payment outfits are proliferating in the battle for sector supremacy, but some stand out from the crowd Beware signs of long- term currency volatility 05 Volatility in the currency markets means companies would be well served to review their international payments policies Digital is on the rise, but cash is kicking 07 Most UK consumer transactions are destined to be cashless by 2016, yet notes and coins are still preferred by many

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