Change is pretty well the only constant when it comes to consumer payments. In Australia, we have seen a rapid uptake in contactless card use as well as increased use of online payments. Conversely, we have seen a rapid decline in personal cheque use as well as an ever-diminishing use of cash. Monitoring changing payment usage can be notoriously difficult. The Reserve Bank of Australia (RBA) and APCA collect and publish statistics from industry participants on cheques, cards and electronic payments as well the number of ATMs and POS devices. However, other types of usage such as cash use and the split between card-present (point-of-sale) and card-not-present (internet, telephone and mail) transactions are more difficult to track. Consumers and merchants don’t regularly record or report their own payments activity – meaning we only get a partial picture of how payments use is evolving.
This week we had an in depth discussion with Tim Yudin, Payments UK’s Director of Design and Delivery, on the future of payments and how the payments industry is adapting to the digital economy to meet user needs in the UK. Here is what he had to say:
Future of payments systems: what do you envisage are the core components?
We see the future development of payments in the UK as first and foremost to meet the needs of users and customers, maintaining the reliable and secure process in systems we have already, and to act as an enabler for future changes to better allow for competition and thereby drive innovation.
We see the UK’s payments systems in terms of a five layer model covering: Governance, Rules, Standards, Technology, and Settlement. Briefly these comprise:
- Governance layer – needed to ensure that the payments system meets its stated objectives and regulatory requirements. So any payment system (or scheme) must have in place governance arrangements to ensure efficiency, security and reliability of the system is maintained and to deliver innovation.
- Rules – required to ensure stability: all participants need to understand and meet their obligations when making and receiving payments. Each system/scheme must have rules both for participation/membership and for each of the products and services they provide.
- Standards – critical for cross industry interoperability between Payment Service Providers (PSPs) and resilience in the system overall. Many schemes will have different standards, in part because they were created at different points in time. These standards are either domestic or are UK adaptations of international standards.
- Technology layer – PSPs need to connect to the scheme’s central system with enough flexibility to allow for the different ways that they send and receive payments. Each of the UK’s domestic schemes uses different technology or infrastructure for access.
- Settlement – is critical to ensure that PSPs settle their obligations when using the payment system. Each of the schemes has a different settlement model, partly because of history and partly reflecting the needs of each scheme’s products.
Our view is that the key to continuing to improve customer experience is to find ways to harmonise these layers.
This will encourage more people to participate and innovate in the payments system. In our recent submission to the UK’s Payment Systems Regulator’s consultation on a draft strategy, we proposed bringing together a number of the UK’s payments systems in order to achieve this harmonisation.
Meeting the needs of a digital economy: what is the UK perspective?
There’s no putting the genie back in the bottle – the digital economy is here already! There are two key payment user requirements driving this: the need for providers (both existing PSPs and new entrants) to have Access (securely), and the provision of Speed (with certainty) when making payments. We identified a number of new capabilities for the future development of payments in the UK and these needs are an important part of them. For consumers for example, there is a real need to provide visibility and better control of their payments. As we move into the future, consumers will expect real time visibility of their payments and the ability to track them easily, as they do with their Amazon orders!
Encouraging more innovation and competition will allow both existing PSPs and new entrants such as the FinTechs to provide new services that build on these requirements. Innovation in the payments space is going to be based around new technologies and products that haven’t even been imagined yet, like Apple disrupting the music industry by introducing the iPod.
So how will the future play out? We don’t know exactly since the future is unpredictable. We do know that the digital economy will drive innovation – unexpected and expected – and that some will think it’s fantastic and others will still have a tin of money hidden under the bed, we’re all different! Innovation in payments will reflect that.
Identity, authentication, and security in a digital world: digital identity is a cornerstone of enabling the increasingly digital future. What insights can you offer on the drivers and future of digital identity?
Everyone has a different definition of digital identity – it means something different to a bank than it does to a government or to a consumer. At its core it’s about proving that you are who you say you are online, but there are nuances depending on the user need.
For example, the UK Government sees a need for users to not navigate multiple portals when accessing government services online. It’s helpful to citizens to only have one log in when they’re interacting with the Government, removing this duplication of identities.
But that raises questions – should we have individual identities for each sector we interact with – one identity for the government, one for banks, one for companies, one for health services? Or do users want these to be shared?
These questions aren’t answered yet but what we do know is that there are two drivers to what will shape digital identity:
- User acceptance: ultimately, users will decide how many identities they want, and where they want these identities to be visible.
- Control: users need to control how their identity is used and who has access to it.
Strong digital identity can help reduce financial crime. Digital identity also makes it easier to provide users with Access (securely) and Speed (with certainty) when making payments. But there are wider questions around digital identity than just how it impacts payments. Payments UK has been working with government on a collaborative approach to digital identity. Work is still ongoing in this area. The key will be to find a way that works for all parties and most critical of all, an approach that is trusted!