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If you don’t read anything else about the Pay360 event, you need to read this.
At this year’s Pay360 conference, a key group of industry thought leaders shared their predictions for the year ahead and discussed how best to respond to upcoming challenges in the world of fintech, payments and financial services.
Organised by The Payments Association, Pay360 is the annual conference for the payments industry bringing together thousands including senior representatives from banks, merchants and government, to investors, fintechs, FIs and card providers. It’s a real centre for insight in our industry.
Cecil Edwards, Thredd Group Chief Operating Officer joined a prestigious panel to share his predictions for the future. He was joined by Jessica Richards, Head of Market Development, Payments, NatWest; Tom Pope, Head of Payments, Tink; Rob Eleveld, CEO, Ekata; and Robert White, Head of Payments, Santander UK; all chaired by Angela Yore, CEO of SkyParlour.
At the moment, recurring payments come in a few familiar forms: Direct Debits, Standing Orders and Continuous Payment Authorities (CPAs). But the Pay360 panel agree that Variable Recurring Payments (VRP) will make their mark in the coming year and are the next big development for open banking in the UK.
VRP is an extension of open banking API specifications, which allow a third party to request consent from a customer to execute payments on their behalf on a recurring basis, within variable limits.
They have myriad benefits for members throughout the payments ecosystem. Merchants can take advantage of real-time settlements, lower costs, elimination of card fraud and no chargebacks.
From the business or service provider’s perspective, it’s a cheaper, faster way to get paid than card-on-file or Direct Debits. Meanwhile for the customer, the main advantages of VRP are the tight limits of the payments which are set up using a ‘consent’. For example, as opposed to a customer giving a business their card details and losing control of how much and how long they can be billed, VRP allow the customer to set limits on the payments via consent parameters.
Despite the benefits to be had, there are barriers that could stand in the way of immediate adoption. One is the issue of consumer protection. Essentially a VRP is an automated bank transfer, and while there are established protections in place for bank debit and card transactions, nothing currently exists for bank transfers.
Another is cost, which could prevent widespread adoption on the merchant side. Nevertheless, the speed and security it promises means VRPs have the potential to be transformative to the payments industry.
Because the payments ecosystem operates as a network, the ecosystem must agree on central infrastructure to deliver a clear roadmap. The introduction of ISO 20022 this November will be a huge step in the right direction. This stage of ISO 20022 requires migration to the new financial messaging system. This global standard will create a common language for payments worldwide and apply to methodology, process and repository.
It promises to provide richer and higher quality data, which means much more detailed information about the payment is available. This means fewer errors, less manual intervention, fewer delays for the customer and a more efficient, cost-effective and higher quality payments system and experience for all.
In the payments industry, where trust, interoperability and compliance are so important, this level of standardisation can also enable greater compliance with information regulations and help to prevent financial crime.
However, introducing ISO 20022 requires a sizeable investment. Legacy back-office systems may not speak its language, so they either need to be updated or a translation service needs to be put in place.
Every hour bank transfer scam victims lose more money than the average UK worker earns in a year. It’s a shocking statistic, but we will see two things happen with regard to protecting consumers this year.
Firstly, Strong Customer Authentication (SCA) has now been introduced across the EU and EEA as part of PSD2 to secure e-commerce transactions by escalating authentication where necessary. And it's working to drive down fraud rates. You can read more about how it impacts you and your business here.
But the fact remains there is no silver bullet, and regulation is lagging behind reality. Fraud is still growing, and at an alarming rate, because new fraud types are developing – in particular synthetic ID fraud. This is where consumer identities are stolen and patched together to create fake profiles.
There are hopes that the impact of fraud can be mitigated with the increasing technological sophistication of identification methodology, increasing use of biometrics and other identification types, including payment links sent by secure message to social media apps. Whatever security solutions are put in place, the customer should be at the heart of all decisions.
EY’s 2019 fintech census  showed that 42% of UK fintechs were facing a “digital skills shortage”. More than half the firms polled cited talent as their largest concern. The challenge around lack of talent remains; how do we get good lawyers, marketers and accountants to swap their industry for fintech?
The Kalifa Review of UK Fintech made several recommendations in this area:
This will certainly help address the lack of software engineers and data scientists that plays a large factor in the industry’s digital skills shortage. But it will also be vital to tackle the gender imbalance we still see. Women make up just 29.5% of the workforce according to the 2019 FinTech Census , a 0.5% increase from the 2017 report.
As more firms seek to draw from the same pools, competition for top talent will only increase. By taking steps to address diversity gaps and upskilling employees, fintechs can win the war for talent.
With rising interest in cryptocurrencies and declining usage of cash in certain regions, some central banks are actively investigating a new means of payment: central bank digital currencies (CBDC). We have moved beyond theoretical discussions of CBDC; the British Central Bank has set up a dedicated task force, Sweden has extended the test phase for its CBDC, and China announced the launch of its digital currency DCEP (Digital Currency Electronic Payment) in February 2022.
Digital money has the potential to significantly change the whole financial services industry, and as it fast becomes a reality, it’s critical we work together with the wider industry and regulators.
As Tony Craddock, Director General of The Payments Association, said in the green paper ‘A New Era for Money’: “The widespread adoption of CBDCs could be as important to the 21st century as the end of the gold standard was to the 20th. Because of the UK’s long-standing position at the forefront of global financial services, we have an opportunity to take a leading role in shaping the future of money.”
Although we’re still in the early days of CBDCs and we can only estimate how far and how fast they will go, we do know fintechs need to capitalise on the benefits CBDCs have to offer.
By the end of 2022, the global fintech industry’s revenue is estimated to reach $159 billion. The payments landscape is changing rapidly, driven by a number of factors, not least the fact that customers are starting to expect real time 24/7 digital payments. Regulators are driving innovation and competition, and at the same time trying to protect customers and ensure security resilience in the systems. All in all, 2022 is shaping up to be another exciting year for our industry.
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