Future of Payments

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08 | FUTURE OF PAYMENTS 31 / 05 / 2015 | RACONTEUR raconteur.net E very year, another large group of wide-eyed and tech-friend- ly youths go out and open bank accounts. These young folks have never known an offline world and can't remember life without the iPhone. To them, paying in a cheque is like writ - ing an IOU in italics on parchment with a quill. It's one of several reasons why banks are looking to upgrade the way they let cus - tomers pay for the things they want. First credit and debit cards reduced the need for cash and now smartphone apps are re- ducing the need for plastic. "Each year, 'Gen Y' [Generation Y born between the early-1980s and early-2000s] comprises a larger proportion of banking customers," says Patricia Hines, a direc - tor at technology company MuleSoft. "This tech-savvy segment expects the same round-the-clock convenience provid- ed by digital shopping, travel, music and social media websites, and mobile apps. Both banks and non-banks will continue to invest in these types of technologies." The stats speak for themselves. The British Bankers' Association says around 14.7 million people have already down- loaded banking apps to their phones. In 2014, they used these apps for 18 million transactions, double the total just two years before. The UK Cards Association says 58 mil- lion contactless cards had been issued by the end of last year and transactions on them soared 330 per cent compared with 2013. Put all these stats together and what do you have? A brave new world of pay - ments where people just tap or swoosh – and go. Customer experience is everything. People want payment apps to be intui - tive and easy to comprehend, but most of all they want them to work instantly, with- out fuss or fumbling. But there are other, more involved, poten- tial benefits for the customer. "The emer- gence of mobile and internet banking will act as a spur for banks to develop and offer a true omni-banking solution," says Antho - ny Duffy, director of retail banking for Fu- jitsu UK and Ireland. "Banks will be able to gain a true single view of the customer and the ability to start a transaction in one channel and complete it in another, providing cus - tomers with a seamless and synchronised customer experience." Exciting times. But a few things are getting in the way of banks perfecting customer service. One is the bewildering range of platforms offering to streamline A changing regulatory framework geared to open the payments infrastructure to providers other than established banks Improving the efficiency and effectiveness of existing payments infrastructure though implementation of the Faster Payments Service Taking new products, such as mobile banking apps, to consumers which will improve banking customer experience Devising new products which are not small, niche or regional, but offer a consistent service to all customers across all regions Adopting next- generation biometric security technologies, such as the iPhone 6 Touch ID or Hitachi finger vein technology used by Barclays Traditional bank and card companies partnering with non- bank providers, such as Apple Pay, to offer new mobile payment methods Mobile banking apps that are context- aware and able to provide international payment services when a customer is travelling abroad the payment process. Some have been produced in-house by banks, some have been adopted or acquired by them, while others act independently. These must consolidate in future, ac - cording to commentators who say what the industry is crying out for is one el- egant and ubiquitous solution that the banking sector can adopt as one. Some platforms are getting close, such as Zapp or PayM, both of which have es - tablished links with numerous high street banks, or iZettle and Square which enable easy merchant card payments on the go. But an endless stream of alternatives pre - vents any one, or even any group, from dom- inating the arena. "Currently, technol- ogy companies have the competitive advantage," says Peter Veash, chief executive of The BIO Agency. "They're more agile, so can respond to in - novation, whether that's building a better customer experience-led app or facilitat- ing more trustworthy payment systems." Others say banks should stick to their knitting. They don't have to innovate to provide a great customer experience, just make sure the money is accessible and the back-end systems won't collapse under the strain of online transactions. "Banks don't have to be innovating at the cutting edge," says Judo Payments chief executive Dennis Jones. "Banks should focus on improving the legacy infrastructure so that it can support in - novation brought in by new service pro- viders. Banks can partner up with inno- vators and stay relevant with the shift to mobile." Jerry Norton, managing director at IT and business process services firm CGI, argues many institutions have some work to do in this area. "Payment is still con - strained by the underlying infrastruc- ture. It is for this reason that banks are now investing. Improve this and you can offer better payment services to your cus- tomers," he says. In future, legislation and oversight will help steer banks in their financial technology operations. A new Payment Systems Regulator and European Union Directive, for example, will ensure the customer comes first. "The regulator will be looking to make improvements to the industry and it will have an effect on the focus of existing and new banks, as well as payment insti - tutions," says Jonathan Williams, direc- tor of payments strategy at Experian. "This will be in addition to the updat- ed version of the EU's Payment Services Directive and regulation on card fees. It is clear that services need to get closer to the customer, wherever he or she is and at whatever time." FINANCIAL SERVICES DAN MATTHEWS No more poverty with mobile money Bill Gates is making some bold predictions, the latest of which is there will be no poverty by 2030. With billions of people living on less than a dollar a day, that's a mighty claim but, using mobile money, his vision just might come true For the last decade, the Bill & Melinda Gates Foun- dation has invested heavily in projects across the developing world to eradicate disease and illness. It has yet to suc - ceed, but is certainly making a difference. For example, the number of children under five who die each year worldwide has almost been halved, while diseases, such as polio, elephantiasis and river blindness, have all but been eradicated. Now the foundation has moved on to a new focus – to wipe out poverty. In his 2015 newsletter, Bill Gates says: "The lives of people in poor countries will improve faster in the next 15 years than at any other time in history." And he places access to banking services near the top of the list for why this will be the case. What is it about banking that makes such a difference? The difference is clear when you con- sider the tremendous changes in Kenya since a new mobile payments service was launched eight years ago. The service is called M-Pesa – mobile money – and has transformed the economy. Before the service launched, most Ken - yans had no banking services. Only 2.5 mil- lion people had bank accounts in a country with a 40 million population. The majority of workers in the main cities could only send money home to their families via couriers, typically a bus or taxi driver. This was a very poor service as the money might arrive home, but on occa - sions would just disap- pear. If it did arrive, it was always subject to hefty courier fees of 25 per cent or more. Of course, there were services such as Western Union, but these were geared to - wards overseas rather than domestic trans- fers. Then M-Pesa launched in September 2007 and has been followed by several other mobile money services. Now $2 out of every $5 transferred in the Kenyan economy is moved through mobile money – 40 per cent of the GDP – and is used and trusted by almost all Kenyan adults. The reason it took off so fast is that it was simple, easy and trusted. The way the mobile money system works is that there are M-Pesa agents on the ground who record the sending and receiv - ing of money using SMS text messaging. These agents are vetted by the network and act as the trusted agent to manage the money transfers. In other words, no money actually moves, just a message be - tween one agent and another to notify the receipt and re- lease of monies between individuals. The result is that all Kenyans now have access to a fi - nancial system that previously exclud- ed them. According to the Consultative Group to Assist the Poor, less than 20 per cent of the population living outside Nairobi on less than $1.25 per day used a financial ser - vice in 2008 and yet, by 2011, 72 per cent were using M-Pesa. Equally, the system has transformed the banking system. When the service launched in 2007, banks did not trust it. In fact, they asked the regulator to get rid of it as likely to be fraudulent and conducive to criminal activity. The regulator disagreed and gave the ser - vice support, having seen its financially inclusive nature. The result is that many of those people who were previously excluded from the system have now created mobile credit histories through mobile money transfers. Once you have a credit history, you can get a bank account and many Kenyans have. Since the start of the service, the number of bank account holders has increased from 2.5 million to 15 million, and con - tinues to expand as others join the system. For example, Equity Bank recently started competing head-to-head with M-Pesa for mobile money transfers, mobile loans and more at rates that are far more competitive and compelling. The message is where there's money to be moved, there's money to be made. And what does all of this mean for you and me? Well, there are thousands of un - banked and underbanked citizens across Europe and America. America, in par- ticular, has something like 80 million people who are excluded from the banking system. When you are excluded, you are in a poverty trap that is nigh impossible to escape. Everyone can target you in scams, take the cash and leave you broke. A safe, secure and trusted money store and money movement system changes all that, as the M-Pesa example has shown. If everyone in Britain and the world has access to financial services, then Bill Gates' vision of no more poverty might just come true. The vision is that a basic human right should be access to banking so no one is poor because of the system. Surely, that's a good thing therefore. OPINION COLUMN CHRIS SKINNER Chairman Financial Services Club SEVEN WAYS FINANCIAL SERVICES ARE TRANSFORMING PAYMENTS Consumers, particularly the young, are hungry for high-tech, no-hassle, fast ways to pay which are now central to the customer experience The message is where there's money to be moved, there's money to be made People want payment apps to be intuitive and easy to comprehend, but most of all they want them to work instantly, without fuss or fumbling Tech is now tap, swoosh or touch

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