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Future of Payments

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02 | FUTURE OF PAYMENTS 31 / 05 / 2015 | RACONTEUR raconteur.net Battle for hearts – and minds The payments sector is fragmented as no one technology has achieved widespread adoption by businesses that may be unaware of the options and how they work N ame a search engine. It's fairly likely Google will spring to mind. Name a place to buy books. And so on. Name a payment provid - er. Where to stop? The payment tech market is so densely populated that it almost seems impossible for any payment technology to achieve ubiquity. Moreover, there might be a wealth of in - formation available, but it's often so frag- mented and confused that it's hard to see where the consumer would start to under- stand – or choose a provider – and, moreo- ver, whose job it is to help or educate them. One of the principal pitfalls is the cost in- volved in adopting new payment technolo- gy. Research from retail IT support organi- sation Vista Support found that half of UK retailers shun contactless payments. In the poll, 60 per cent said the cash limit for con- tactless transactions is too low and 50 per cent said they have no plans to install con- tactless payment technology. The reasons given were cost and disruption of installa- tion. Some 14 per cent said they were put off by the financial burden of maintenance. Another problem is the sheer range of technology on offer. Twenty per cent said they would install contactless payments, but 73 per cent were planning to install tablet technology. Forty per cent had plans for digital signage and nearly a 32 per cent are opting for in-store wi-fi or mobile phone apps. Deloitte predicts that by the end of 2015, some 5 per cent of the 600-650 million NFC-equipped (near-field communication) phones will be used at least once a month to make contactless in-store payments at retail outlets. Payments are built on a complex eco - system requiring the proactive effort of multiple parties. In each transaction there can easily be five or six different parties involved to process the payment, not even including the retailer. Andy Povey, business development direc - tor at Gateway Ticketing Systems UK, which provides ticketing for some of the UK's lead- ing attractions, such as the V&A Museum, Houses of Parliament and Kew Gardens, says the company is rolling out contactless payment technology across its client base. "We have seen an interesting reluctance in uptake," he concedes. "The challenge comes from knowing who can provide you with the best hardware, installation costs and ongoing fees. There is no one place to compare these providers in the way we are so used to comparing other business and home utilities. Getting the best deal can be daunting. "The challenge [for customers] is trust - ing the security behind the payment. Con- sumers can find it difficult to grasp a new technology and even those who regularly use contactless payments can be suspicious of just how secure the new payment method actually is." So whose job is it to educate? While pay - ment companies can provide some guid- ance, the payments themselves are gov- erned by the credit and debit card provid- ers. This means, says Mr Povey, there are a number of sources to contend with for good-quality information. "With different payment providers also comes differing information on hardware, installation in - formation and user fees. This can mean that you only get one point of view from the provider you currently use for regular card payments," he says. Simon Black, chief executive of the PPRO Group, an integrated solution provider en - abling international electronic payment processes, says it's partly about common platforms. "For online shopping we have effectively a global commerce platform – the internet. But we don't have a global payments platform. In North America and the UK, Visa and MasterCard have very high penetration, but then even in Western Europe the picture can be very different. Germany is a good example of this, where the fastest growing online payment method is actually via an invoice." For in-store payments, where mobile and contactless payments could be used, dif - ferent countries and regions are at varying stages of development in their card infra- structure alone, says Mr Black. "For example, to accept a contactless pay- ment requires an up-to-date card termi- nal. Contactless is the 'missing link' in the virtual wallet's equivalent to the evolution of man. Once you are used to tapping or waving your card, it's a small step to waving your phone or your smartwatch. Beyond the speed and convenience of contactless pay - ments, there will be more benefits to your virtual wallet. No more paper receipts, plus all spending itemised and categorised in one easy-to-use-application," he says. Mr Black predicts that by 2025 most people in the majority of countries will have a virtu - al wallet on their phone. "It's simply a case of market evolution before a tipping point is reached in terms of consumer acceptance, the right infrastructure and environment, and the product and pricing being appropriate." It's possible that the biggest challenge, however, is consumer behaviour. Mr Black adds: "We don't change our habits unless we are forced to – for ex - ample, wearing seat- belts – or unless there is a compelling benefit – mobile phones went to full adoption incredibly quickly for such a new technology. Consumers tend to adopt new products or services quickly if they're simple, intuitive and compelling, without needing extensive education. In the case of contactless, in London it required the card-issuing companies to issue contactless cards, retailers to upgrade their terminals, and the card schemes MasterCard and Visa to invest only a relatively modest amount in communication and education. "The biggest driver though was a very clear benefit aimed at the right market. In London, as with any of the world's major cities, there are millions of workers short of time who are making many small, daily purchases, such as coffee or sandwiches, and the notion of tap-and-go is as simple as it gets." Eric Van der Kleij, head of Level39, Eu - rope's largest tech hub for financial tech- nology, says payment technology com- panies are growing fast by developing value-added services to transactions which help increase loyalty, improve service and create clever marketing. "Companies that are more efficient at onboarding customers will be able to win a piece of the pie, but this isn't the whole story," says Mr Van der Kleij, "Things like Alipay and Facebook [which offers free friend-to-friend payments through its Mes - senger service] have utterly disrupted the business model. "Facebook could afford to run the equiv- alent of a new bank for free – that's where you might see a giant emerge." One of the principal pitfalls is the cost involved in adopting new payment technology of retailers worldwide believe consumers want a broader choice of payment tools of UK retailers want to keep up to date with online payment options Source: PRO Financial 2014 93% 81% UBIQUITY HAZEL DAVIS Source: Deloitte Global Mobile Consumer Survey, UK edition, May 2014 WILLINGNESS TO USE MOBILE IN-STORE PAYMENT OPTIONS 50% 17% 25% Would you use your mobile phone with an in- store payment option? No Yes, regardelss of the amount Don't know Yes, but for small payments only 8% COMMERCIAL FEATURE 2008 2009 2010 2011 2012 2013 2014 20 40 60 80 100 2003 2004 2005 2006 2007 0.50 1.00 1.50 2008 2009 2010 2011 2012 2013 CHEQUE TRANSACTION VOLUMES (billions per annum) GROWTH OF FASTER PAYMENTS (millions per annum) Personal transactions Business transactions Standing orders and returns Forward-dated and DCA payments Single immediate payments Cheques Cards Credit transfers Direct debits SNAPSHOT OF PAYMENTS INDUSTRY EVOLUTION (payments mix) WPR 2005, 2010, 2014 and predictions for WPR 2020 Source: World Payments Report 2014 Source: Faster Payments white paper: A vision for a new access model, 2014 PAYMENT SERVICES MIX IN EUROPE 0 0 2008 2011 2012 Cheques Cards Credit transfers Direct debits 38% 42% 43% 27% 26% 26% 27% 26% 26% 8% 5% 5% Source: World Payments Report 2014 12 % 2005 2010 2014 2020 Convergence in e and m-payments: new products mix 3 0 % 40% 18 % 16 % 52 % 1 8 % 14% 6 1 % 8% 13 % 1 7% THE FUTURE OF UK PAYMENTS IS HERE The UK's payment ecosystem is changing rapidly with the evolution of the Faster Payments Service and introduction of Remote Deposit Capture presenting opportunities for financial institutions and challenger banks Travers Clarke-Walker Chief marketing officer International group, Fiserv FASTER PAYMENTS The Faster Payments Service (FPS), which was introduced in the UK in 2008, is now gaining momentum with customers, making five-day clearance periods a thing of the past for many. The UK market has been restricted by the fact that only the 11 most established high street banks are able to make use of the system. This limits access by other payment ecosystem players, such as challenger banks and financial technology companies, which have to gain access to the scheme via current members, and service is not always in real time. Regulators are working to address this and the Payment Systems Regulator has announced a new access model while working with different payment service providers to help clear all access hurdles. "This new model should alleviate some of the bottlenecks within the system, whether around greater transparency in how solutions and gateways get certified for Faster Payments transactions or the costs associated with supporting those t r a n s a c t i o n s ," s a y s Travers Clarke-Walker, chief marketing officer in the international group at financial technology firm Fiserv. Mo s t sig ni f ic antly, the new access model will allow other players to have access to FPS, helping them to compete on a more level playing field. This is especially important for the so-called challenger banks that have emerged over recent years as an alternative to the traditional institutions. "It will allow challenger banks to focus on differentiating themselves from those high street banks through customer service and product design, versus being limited due to lack of direct connectivity with FPS," says Mr Clarke-Walker. Many banks, including traditional players, challenger banks and building societies, are now working with Fiserv and taking advantage of the new access model to get a direct connection to the Faster Payments network, he says. "We are seeing a high level of appetite for alternative access to the Faster Payments Service among financial institutions, especially challenger banks, since we launched our Agiliti solution," he says. "Agiliti provides comprehensive sof tware and infrastructure designed to address the evolving UK banking and regulatory environment. Its value proposition supports core bank processing plus many of the surrounding needs to support existing retail or challenger banks." Agiliti will also include a Faster Payments connection which allows banks not already on the network to gain access. "This development allows challenger banks a number of options," says Mr Clarke-Walker. "If the bank had an existing relationship with an agency bank, they can continue or they can connect directly and put the cost- savings against other priorities to make them more competitive. "The high street banks clearly acknowledge the increased level of competition that is coming with this new access model, and are actively thinking and experimenting with a variety of digital solutions to defend their position in the marketplace," he says. REMOTE DEPOSIT CAPTURE One way in which financial institutions can help drive greater utilisation of Faster Payments and electronic payments in general, is by providing greater utility to the growing legion of mobile banking users. The ubiquity of mobile devices globally is changing the way people interact with businesses, banks and each other, which is a game- changer in the payments environment. One payment type gaining traction in the UK that leverages mobile devices in banking is mobile or Remote Deposit Capture (RDC), which is the ability to capture a cheque image and convert it into an electronic payment digitally. "We recently supported a pilot for a bank in the UK and are working with high street banks to set themselves up to accept remote deposit through mobile phones. This is very similar to how we enable banks for RDC in the United States and Australia," says Mr Clarke-Walker. "Cheque capture is a smart way to help bridge the gap between those who want the cheques to be further digitised, so they can be processed in real time as a Faster Payments transaction, and those who still prefer to handle a paper cheque." For challenger banks, cheque capture should be part of their standard offering, while the potential exists for existing banks to gain efficiency in operations by the introduction of a remote cheque capture strategy. This technology could contribute to an upsurge in mobile and digital banking, enabling branches to focus on relationship-building rather than acting as cheque post offices. By focusing on delivering solutions for the way customers are already using mobile devices, banks can benefit from increased transactional activity which directly correlates with greater customer loyalty. In a new cheque clearing model, using the Faster Payments Service and enhanced mobile banking services, credit is transferred between trusted parties. Payers can be advised when cheques are presented for payment and, if a cheque returns unpaid, an enhanced service would enable the payer and payee to communicate and fix the problem quickly, minimising rework and exception processing. Banks are perfectly able to create this new order; they will need to localise best practices in RDC from markets such as the US and Australia, and marry them to their existing Faster Payments workflow. "The UK is a global leader in the upgrading of payments system infrastructure that is commonly used to move money," says Mr Clarke-Walker. "This will result in greater cost efficiencies and transparency in how money is moved. Financial institutions need to be ready as these changes will help transform the UK banking landscape and they will increase the level of competition from a variety of fintech organisations looking to redefine modern banking practices." The examples provided by Faster Payments and RDC highlight the changing banking landscape where traditional and challenger banks in the UK must have a comprehensive digital payments strategy to ensure their customers can operate when and where it suits their life. Fiserv has already delivered real-time payment networks in the US and is currently working with SWIFT to roll out the National Payments Platform in Australia. To find out how Fiserv can help your business, visit www.fiserv.com Financial institutions need to be ready as these changes will help transform the UK banking landscape COMMERCIAL FEATURE 2008 2009 2010 2011 2012 2013 2014 20 40 60 80 100 2003 2004 2005 2006 2007 0.50 1.00 1.50 2008 2009 2010 2011 2012 2013 CHEQUE TRANSACTION VOLUMES (billions per annum) GROWTH OF FASTER PAYMENTS (millions per annum) Personal transactions Business transactions Standing orders and returns Forward-dated and DCA payments Single immediate payments Cheques Cards Credit transfers Direct debits SNAPSHOT OF PAYMENTS INDUSTRY EVOLUTION (payments mix) WPR 2005, 2010, 2014 and predictions for WPR 2020 Source: World Payments Report 2014 Source: Faster Payments white paper: A vision for a new access model, 2014 PAYMENT SERVICES MIX IN EUROPE 0 0 2008 2011 2012 Cheques Cards Credit transfers Direct debits 38% 42% 43% 27% 26% 26% 27% 26% 26% 8% 5% 5% Source: World Payments Report 2014 12 % 2005 2010 2014 2020 Convergence in e and m-payments: new products mix 3 0 % 40% 18 % 16 % 52 % 1 8 % 14% 6 1 % 8% 13 % 1 7% THE FUTURE OF UK PAYMENTS IS HERE The UK's payment ecosystem is changing rapidly with the evolution of the Faster Payments Service and introduction of Remote Deposit Capture presenting opportunities for financial institutions and challenger banks Travers Clarke-Walker Chief marketing officer International group, Fiserv FASTER PAYMENTS The Faster Payments Service (FPS), which was introduced in the UK in 2008, is now gaining momentum with customers, making five-day clearance periods a thing of the past for many. The UK market has been restricted by the fact that only the 11 most established high street banks are able to make use of the system. This limits access by other payment ecosystem players, such as challenger banks and financial technology companies, which have to gain access to the scheme via current members, and service is not always in real time. Regulators are working to address this and the Payment Systems Regulator has announced a new access model while working with different payment service providers to help clear all access hurdles. "This new model should alleviate some of the bottlenecks within the system, whether around greater transparency in how solutions and gateways get certified for Faster Payments transactions or the costs associated with supporting those t r a n s a c t i o n s ," s a y s Travers Clarke-Walker, chief marketing officer in the international group at financial technology firm Fiserv. Mo s t sig ni f ic antly, the new access model will allow other players to have access to FPS, helping them to compete on a more level playing field. This is especially important for the so-called challenger banks that have emerged over recent years as an alternative to the traditional institutions. "It will allow challenger banks to focus on differentiating themselves from those high street banks through customer service and product design, versus being limited due to lack of direct connectivity with FPS," says Mr Clarke-Walker. Many banks, including traditional players, challenger banks and building societies, are now working with Fiserv and taking advantage of the new access model to get a direct connection to the Faster Payments network, he says. "We are seeing a high level of appetite for alternative access to the Faster Payments Service among financial institutions, especially challenger banks, since we launched our Agiliti solution," he says. "Agiliti provides comprehensive sof tware and infrastructure designed to address the evolving UK banking and regulatory environment. Its value proposition supports core bank processing plus many of the surrounding needs to support existing retail or challenger banks." Agiliti will also include a Faster Payments connection which allows banks not already on the network to gain access. "This development allows challenger banks a number of options," says Mr Clarke-Walker. "If the bank had an existing relationship with an agency bank, they can continue or they can connect directly and put the cost- savings against other priorities to make them more competitive. "The high street banks clearly acknowledge the increased level of competition that is coming with this new access model, and are actively thinking and experimenting with a variety of digital solutions to defend their position in the marketplace," he says. REMOTE DEPOSIT CAPTURE One way in which financial institutions can help drive greater utilisation of Faster Payments and electronic payments in general, is by providing greater utility to the growing legion of mobile banking users. The ubiquity of mobile devices globally is changing the way people interact with businesses, banks and each other, which is a game- changer in the payments environment. One payment type gaining traction in the UK that leverages mobile devices in banking is mobile or Remote Deposit Capture (RDC), which is the ability to capture a cheque image and convert it into an electronic payment digitally. "We recently supported a pilot for a bank in the UK and are working with high street banks to set themselves up to accept remote deposit through mobile phones. This is very similar to how we enable banks for RDC in the United States and Australia," says Mr Clarke-Walker. "Cheque capture is a smart way to help bridge the gap between those who want the cheques to be further digitised, so they can be processed in real time as a Faster Payments transaction, and those who still prefer to handle a paper cheque." For challenger banks, cheque capture should be part of their standard offering, while the potential exists for existing banks to gain efficiency in operations by the introduction of a remote cheque capture strategy. This technology could contribute to an upsurge in mobile and digital banking, enabling branches to focus on relationship-building rather than acting as cheque post offices. By focusing on delivering solutions for the way customers are already using mobile devices, banks can benefit from increased transactional activity which directly correlates with greater customer loyalty. In a new cheque clearing model, using the Faster Payments Service and enhanced mobile banking services, credit is transferred between trusted parties. Payers can be advised when cheques are presented for payment and, if a cheque returns unpaid, an enhanced service would enable the payer and payee to communicate and fix the problem quickly, minimising rework and exception processing. Banks are perfectly able to create this new order; they will need to localise best practices in RDC from markets such as the US and Australia, and marry them to their existing Faster Payments workflow. "The UK is a global leader in the upgrading of payments system infrastructure that is commonly used to move money," says Mr Clarke-Walker. "This will result in greater cost efficiencies and transparency in how money is moved. Financial institutions need to be ready as these changes will help transform the UK banking landscape and they will increase the level of competition from a variety of fintech organisations looking to redefine modern banking practices." The examples provided by Faster Payments and RDC highlight the changing banking landscape where traditional and challenger banks in the UK must have a comprehensive digital payments strategy to ensure their customers can operate when and where it suits their life. Fiserv has already delivered real-time payment networks in the US and is currently working with SWIFT to roll out the National Payments Platform in Australia. To find out how Fiserv can help your business, visit www.fiserv.com Financial institutions need to be ready as these changes will help transform the UK banking landscape Source: 2015 Ovum Global Payments Survey

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