By Anders Olofsson, Head of Payments and Open banking Finastra, Simon Eacott Head of Innovation & Business Development, Payments, NatWest, Teresa Connors Head of Market Engagement, Payments, NatWest
Rapid digital innovation. New models. New markets. Competitors becoming partners. Value chains simultaneously disintermediating and integrating. As Europe's most senior payments and transaction banking professionals gather in Stockholm for EBAday 2019, they’re in an industry that’s been transformed almost beyond recognition in a few short years.
As a result, there’s never been a more exciting time to be in payments. No longer is it regarded as back-office ‘plumbing’. Payments has moved decisively and permanently into the front office—and it’s now playing a pivotal role in responding to changing customer expectations, demands and behaviors, through technologies as advanced as those used anywhere in the enterprise.
Inevitably, change on the scale now underway in payments brings tensions within the industry. At EBAday 2019, we think three of these may be under the spotlight. First, between digital and physical payments. Second, between real-time speed and robust security. And third, between the power of data and the need for privacy.
All three of these tensions bring challenges. But each also bring opportunities. And innovation to realize these opportunities, as well as improve the payments experience for both consumers and businesses, is under way industry-wide—including in our own bank in the UK, NatWest.
Let’s look first at the tension between digital and physical. These days, the obvious question within the payment profession might seem to be, ‘Who needs physical payments?’ The answer is, actually, quite a lot of people. Which means it’s less about tension between digital and physical, and more about striking the right balance between the two.
While we hear a lot of talk about the “cashless society”, the reality is that physical cash will be around for a long time yet. The recent Access to Cash Review concluded that for 25 million people in Britain—47% of the population—living in a cashless society would present real challenges. And in May 2019, the UK Government confirmed that 1p and 2p coins will be staying in circulation for the foreseeable future1.
The UK is a global leader in FinTech payments innovation, which is opening up huge opportunities for new digital offerings and customer journeys within payments. But it’s important to remember that offering physical ways to pay is a matter of choice for consumers, and of social inclusion for many in society.
Plus, physical payment methods are evolving too. Take cheques, where new technologies are helping to boost the experience and security for the user while reducing cost. So physical will continue to coexist with digital, and we just need to strike the right balance.
The second tension is between real-time speed and robust security. Today, consumers want speed: contactless payments have taken off because they’re fast, convenient and friction-free. But there’s a trade-off between speed and safety, springing from the decrease in friction that high speed entails.
Take corporate treasurers, for example. They actively want a degree of friction: they don’t want multi-million pound cross-border transactions shooting around in real time without checks and balances that ensure every single payment is closely scrutinized.
In fact, security is vital whether you’re a consumer or a corporation. And the threats are growing. According to recent research, about 40% of owner-managed companies in the UK, have faced attempts to defraud their bank accounts through “CEO fraud”, where criminals impersonate a senior executive and get them to pay a bogus invoice.
With the take-off in real-time payments—transactions via the UK’s Faster Payments Service (FPS) are up 23% year-on-year—the money in such a fraud can be gone before anyone has had time to think about it. And the average “hit” from one of these scams? £23,000, a huge amount for a small-to-medium sized business. Consumers are also increasingly wary of fraud, as reflected by the rising incidence of consumers abandoning their purchases when shopping online.
For banks and other payments providers, the challenge is to keep customers safe in the least intrusive and most user-friendly way possible. Steps towards this include leading players—NatWest included—signing up to the new voluntary code that improves consumer protections against authorized push payment scams. In parallel the risk mitigant, Confirmation of Payee, gives customers further protection in a real-time world. So there is a tension between speed and security, but it’s one that’s being addressed.
The third tension is between data and privacy. We all know keeping people’s personal data secure and confidential is vital. But if everyone complies with privacy regulations, what’s the problem? The answer is that holding sensitive data brings great power, which must be used not just compliantly, but also with integrity and responsibility.
This power is increasing hand-in-hand with the volume and availability of data. Today, when any of us does anything online—buy or search for an item, check next week’s weather at a holiday destination, stream a video—we leave a digital footprint. With 12 billion internet-connected devices now in use worldwide, it’s estimated that 90% of the world’s data has been created in the past two years.
Today’s technologies like data analytics and AI have turned this data into a fantastically powerful resource for developing and delivering personalized insights, solutions and experiences, including in payments. As a result, data is the lifeblood of new propositions. But companies harnessing this power must always remember that it’s customers who ultimately own their data—and that we’re merely the custodians of it, and must use it only in ways that customers consent to.
Doing this is key to building and retaining trust among customers. It’s also a legal requirement under regulations such as the EU’s GDPR—which the Global 500 corporations have spent an estimated £5.9bn complying with—and PSD2. However, the regulations bring more than compliance requirements and costs. They also open up opportunities for innovation, as companies balance regulation with new product development.
These opportunities are arising as regulations like PSD2 and Open Banking open up markets, spur competition, and enable payments providers—both banks and FinTechs—to go beyond compliance and create better customer experiences. Capabilities like Confirmation of Payee are just the start, as a strong pipeline of new innovations come to market. At NatWest, we’re proud to be in the forefront of this wave of payments innovation.
To name but a few, propositions rolling off our production line include MIMO, a new companion app that acts as a personal assistant helping customers manage their finances 24x7; Mettle, which combines a current account with invoicing, payment chasing and bookkeeping capabilities for small businesses; Bó, a digital mobile bank that helps customers understand and control their spending; and Tyl, an innovative approach to merchant acquiring that provides smart data-led insights to support informed business decisions. And more offerings are at the pilot stage, including a Payment Initiation Service Provider (PISP) solution combining Open Banking and real-time payments.
Innovations like these are underway across the industry. And it’s the opportunity to showcase, experience and discuss them at first hand that make EBAday 2019 such an exciting event. Every year, EBAday provides an unrivaled European platform to get together and immerse ourselves in today’s most energizing developments. This year promises to be better than ever. We can’t wait!