Why the ‘World Class Payments in the UK’ report is of global significance
The UK’s payments system infrastructure is widely recognised as market-leading. However, evolving customer expectations and innovation in the fintech sector dictate that now is no time to rest on laurels. Work must begin today to develop the payments experience that will be taken for granted in 20 years, writes John Bertrand.
With this in mind, the World Class Payments in the UK report published by trade association Payments UK, was a most welcome guide to the key areas where change is needed if we are to drive evolution in the payments space.
Putting customers first in payments
The major changes proposed in the report are customer-centric, which is a great starting point. To improve customers’ cash management, the report proposes that outgoing payments are tied to the timing and amount of incoming payments, providing customers with more control over their cash flow and thereby better protecting their liquidity.
Indeed, the granting of third-party access to customer accounts is soon to become a European Union Directive. This will make all the more plausible a scenario in which, for instance, a customer receives a notification from their bank informing them that their salary has entered their account and consequently providing the option to instantly pay an outstanding energy bill.
Likewise, the report proposes the use of enhanced data and predictive analytics to help define the improvements customers need to make in order to meet personal cash management goals. This will go a long way toward helping them become fiscally competent; for those struggling to stay cash positive throughout the month without resorting to credit, which can be expensive and potentially ruinous, it could be a game changer.
The report makes a number of further good suggestions, including the rapid opening of accounts for payments and the sharing of more information on payment transactions between banks. Many legacy systems truncate the amount of information around payments as a matter of course, but providing more data will enable better understanding and quicker reconciliation of payments.
Banks are also starting to reward customers who make payments promptly. Incentivised Direct Debits, for instance, deliver 3% rebates to encourage the automatic removal of money from customers’ accounts. The long-standing problem of SMEs being paid significantly beyond the normal 30-day contractual period is just one example of an issue that could be addressed by providing instant discounts to faster payment transactions upon invoice delivery.
Opening up payments infrastructure
Significantly, the technology required to enable such improvements to customer experience in the payments space is already available today. The use of automated texts to mobile phones showing balance levels and payments made, for instance, is already becoming part of banking criteria. Similarly, the proposals outlined above should be considered achievable in the here and now.
However, these welcome changes to the customer experience need to be seamlessly processed by the legacy infrastructure. This can be achieved by providing easy and inexpensive access to the payments infrastructure beyond the 11 member banks to whom access is currently granted.
The report proposes to address the current situation through the addition of further Payment System Providers. This is a smart move; as PSP are permitted to access the infrastructure, an environment conducive to both innovation and competition will be created, while the costs involved will be spread across the total aggregate of payments originating from all their clients using them.
The biggest issues to tackle here include reducing the expense and time required to access the payments infrastructure. While today’s customers expect 24/7 payments, many banks still operate on a 9-to-5 basis; the move to real-time payments for everyone creates concerns around liquidity and fiscal risk. These issues are starting to be addressed by the regulators and the Bank of England.
Go further, go global
The above suggestions made by the report are all sound and, by opening up access to payments infrastructure, it will be possible to enable a faster, simpler and ultimately cheaper journey for the UK pound. Yet, why limit the changes to our own currency?
By adding foreign currencies to the system at the same time, the UK can benefit from faster, immediate payments with its trading partners, while customers, who are becoming more global, would have ready access to different currencies.
Indeed, adding further payment processes for other currencies will only strengthen the UK’s position as the number one Foreign Exchange market globally. Furthermore, solving the issues surrounding moving international payments back and forth at the start of the programme of changes ensures that:
- Consumers are able to hold more than one currency with ease
- Support is provided for trade flows between Europe and the US (60% of UK trade is with the EU)
- The infrastructure is ready for crypto-currencies, should they become reality
With the UK leading the world in Faster Payments – currently there are more than 40 initiatives in this area – other countries can benefit by replicating the enhanced payments experience being built for the UK pound and likewise enjoy a world class payments experience. This would, without question, truly be of global significance.