The UK’s roughly 90 trillion-pound payments industry is on the cusp of a dramatic makeover: The pandemic has accelerated a broad digitisation that had been gathering pace since the creation of the iPhone, while three years after the launch of Open Banking, a range of new possibilities have been unleashed, including Variable Recurring Payments.
We asked two industry experts to help guide us through the evolving payments landscape: Mike Chambers, Chairman of AnswerPay, who served for over a decade as Chief Executive Officer of the UK’s biggest retail payment system, and Dan Scholey, our very own Chief Operating Officer at Moneyhub, who facilitated the first ever Open Banking payment by a member of the public.
What follows is a synthesis of their thoughts on the future of payments:
Where are we today?
Even with the vast technological advances of the past decade, we still rely on too many legacy cumbersome payments systems that are increasingly not fit for purpose and make it very difficult to move our money in a way that suits our modern lifestyles.
Payments between individuals can be time-consuming and laborious, while, for businesses, receiving payments can be expensive and inefficient.
“The development of Variable Recurring Payments, which are enabled by Open Banking, is a big step forward for the industry. VRPs are an emerging and novel way of making payments where customers set up mandates via regulated third parties known as Payment Initiation Service Providers, such as Moneyhub, to execute payments automatically based on set and personalised rules.”
Open Banking can help remedy a lot of these pain points, but for most of the three years since its 2018 introduction, much of the industry’s focus has been on access to and aggregation of data.
Away from the public eye, organisations including Moneyhub have been collaborating to commercialise the Open Banking payments infrastructure. And today we are at an inflection point where a slew of large enterprises, as well as government agencies, are starting to take advantage of the massive payments opportunities afforded by Open Banking.
Where will we be tomorrow?
The development of Variable Recurring Payments, which are enabled by Open Banking, is a big step forward for the industry. VRPs are an emerging and novel way of making payments where customers set up mandates via regulated third parties known as Payment Initiation Service Providers, such as Moneyhub, to execute payments automatically based on set and personalised rules.
VRPs can strip out layers of complexity and cost, while also providing greater flexibility and control for customers and facilitating the creation of new types of financial services.
Sweeping, automated payments where funds are moved between two accounts in the same name allowing, for example, customers to avoid unnecessary fees by moving money between accounts so as not to go overdrawn, are enabled by VRPs.
“Existing electronic payments methods, such as Direct Debits, are not going anywhere just yet, and new services will develop gradually. And challenges of identification, fraud and financial inclusion when using digital services could serve to slow the move to a world of ubiquitous Open Banking payments.”
How will we get there?
Taken together, VRPs and sweeping allow individuals to act like corporate treasurers: managing their cash flow and seeing their financial position in real time.
“We will have a bank in our phone and we will be our own bank,’’ says Scholey. “So we will be in control of our money: we will be choosing who we pay, how we pay and when we want to pay them.’’
Even with all this innovation and the rapid Covid-inspired digital transformation the long-standing rule of the payments industry, that evolution takes time, still holds true. To take just one historic example: it took over 15 years from the first use case for contactless payments to widespread adoption.
Existing electronic payments methods, such as Direct Debits, are not going anywhere just yet, and new services will develop gradually. And challenges of identification, fraud and financial inclusion when using digital services could serve to slow the move to a world of ubiquitous Open Banking payments.
Still, fortune favours the brave and early-adopters will be best placed to benefit in the long term.
“Some of the established payments providers stand to lose out here and they won't go down without a fight,’’ says Scholey. “Even so, I think as an industry we need to take each of the objections raised and really think about how we tackle them. The end result being better for consumers and merchants."
To read the full article, please click here.