Innovation in Payments: Experts answer 10 burning questions
Over the last ten years, there has been much innovation in the payments sector, but there is still huge scope for payments processes to be further refined. In a recent webinar, ‘Innovation in Payments: Experts answer 10 burning questions’, our CEO, Anders la Cour was amongst the panelists tackling the most pressing topics faced in the payments industry today.
When discussing the drawbacks of current payment options, all panelists agreed that payments are still too costly and slow, mainly due to there being too many parties involved in making a payment as a result of the interbank system built decades ago. Although the infrastructure is old, it is incredibly robust; however, new technologies could eliminate the need for payments to be made via these rails.
When it comes to B2B payments, particularly those that occur across borders, existing payment options are not viable for many businesses. Ultimately, all platforms need to improve the way in which they talk to each other, to provide end users with a consistent method of making payments across channels, reducing cost and complexity in the process.
SMEs are often underserved by banks when it comes to payments, and yet they account for a huge percentage of the UK economy. Unfortunately, higher payments costs and slow clearing times have such a negative impact on some SMEs that they may choose not to open international operations or even trade abroad. These factors, coupled with ever increasing compliance issues, are stifling growth. There are still many obstacles to overcome in this sector, particularly when it comes to the speed and cost associated with low-value B2B payments.
Time and security were highlighted as critical factors when looking at a primary focus for innovation in payments. Security needs to be built-in rather than added as an afterthought; many platforms focus too heavily on putting UX first. Compliance is also crucial, but it needs to be made simple in cash dependent regions so that they are able to embrace digital payments, especially when it helps to reduce the cost of making payments across borders for unbanked consumers. Mobile payment solution m-Pesa has already been hugely successful in Africa, with 70% of the population now using this as a method of making and receiving payments without the need for a bank account.
The importance of cryptocurrencies was also discussed during the webinar, with mixed opinions on whether it would take off, and in which markets it had the potential to be most successful. Despite this, the panelists all agreed that the tech behind cryptocurrency could be hugely disruptive, although this is likely to all take place behind the scenes.
Millennials are another factor likely to have a significant impact on the future of payments; they are responsible for driving a lot of recent innovations. Brand loyalty is reduced as millennials typically go with whichever products work best for them, and as an on-demand, connected generation, there is scope for challenger banks with a focus on digital to gain market share. Millennials also suffer from a lack of access to financial advisers, and so this is another area which could be shaped by this demographic. So long as they get the digital experience right, there are a lot of opportunities on which new and disruptive players can capitalise.
The impact of PSD2 has been widely discussed, but all panelists felt the legislation would remove a lot of barriers in Europe and would be a step towards providing better solutions to customers. Alternative payment providers and aggregators could especially benefit.
The final part of the webinar focussed on the future of payments. Three years from now, not a great deal will have changed as innovation is hindered by legacy infrastructure and regulation being joined up across different regions. However, by 2026 however, the landscape is likely to have been shaped by the uptake of the IoT, with processes becoming even more automated, more transparent and instantaneous.
Overall, the key messages from the webinar were that while there are still barriers holding back innovation, there is huge potential for collaboration between banks and FinTechs, and this is where disruption will happen in a way that benefits everybody.