The UK Payments
industry, along with the rest of Europe, is facing a raft of
challenges in the near future, from the proliferation of alternative
payment channels, increasingly demanding merchant end-user consumer
expectations and the imminent implementation of open data regulatory
standards set to unleash competition from fintech upstarts.
Mobile
Four out of five UK adults now have and use a smartphone according to
Deloitte’s 2016 Mobile Consumer Survey, equivalent to 37 million
people. As smartphones become ingrained in our everyday life more and
more uses for them are being developed, one such use is mobile
payments. Mobile payments enable transactions without the need for
cash or card and as the technology becomes more omnipresent among
consumers so too does it increase in importance for merchants. The
latest East & Partners’ (E&P) UK Merchant Payments program shows
investment in mobile payment products is a key area for future focus
for 21.3 percent of UK merchants, third only to online and contactless
payments.
According to the E&P research mobile payments adoption is rated by UK
merchants as almost critical in importance, with Micro and SME
merchants (£1-20m annual turnover) placing particular emphasis on this
emerging product, due partly to their need to engage consumers across
the gamut of payment channels to protect and enhance their revenues.
Despite mobile payments forming a key element of merchants’ digital
payment strategy, only a quarter of merchants across the sub-£100m
segment provide mobile ready browsing. Unsurprisingly, a higher
percentage of merchants in the lower corporate segment adapted their
web presence to mobile devices, with nearly half ensuring their
website is fully functional on mobile platforms. Meanwhile, Micro and
SME businesses have lagged behind, with over 75 percent reporting they
do not have a mobile optimised website.
The mobile challenge does not end there however, as online payment
platforms add another layer of complexity for merchants. Of the 26.7
percent of merchants who do have ‘mobile friendly’ websites only a
third have the ability to process an online transaction, the E&P
research found. Surprisingly it is the Micro segment which displays
the highest level of mobile payment ability. Nearly 40 percent of UK
merchants turning over between £1-5m per year, if they already have a
‘mobile friendly’ website in place, also have the ability to process
mobile transactions. This is a staggering 10 percent more than their
lower corporate peers. Given the focus all segments have on mobile
optimisation and the importance they place on it, it falls to the
Payment Service Providers (PSPs) to make it possible. Offering a
compelling and cost efficient e-commerce platform to customers who
already view it as a highly critical product will see providers
rewarded for correctly anticipating, and meeting, merchant
requirements.
New payment
methods
Debit cards still reign supreme for UK merchants with the vast
majority of receivables being terminal based debit card transactions
however change is imminent. First there was PayPal, then Amazon,
Samsung and Apple Pay, now we have Payment Initiation Service
Providers (PISPs) such as Sofort and Trustly who are able to initiate
payments on behalf of the end user without any need for an existing
account or ‘wallet’. |
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The upcoming
Revised Payment Service Directive’s (PSD2) open access to payment
initiation will empower PISPs to initiate payments directly from bank
accounts without the requirement for intermediary digital wallet
services (such as PayPal) across Europe, as well as the UK (despite
Brexit!). Increased competition through new alternative payment
competitors disintermediating existing wallet providers will reduce
transaction costs and facilitate instantaneous confirmation and
settlement platforms. With customer usage demand cited as the primary
driver of payment product acceptance by UK merchants, and guarantee of
payment as the secondary driver, both merchant and consumer demands
for ubiquitous payment acceptance and the promise of immediate
settlement will potentially be catalysts for rapid technological
adoption of innovative new platforms.
Data as
an asset
January 2018 will see the finalisation of application programming
interface (API) standards relating to the Revised Payment Service
Directive’s (PSD2) opening up formerly bank proprietary customer
transaction data and payment initiation to third party Account
Information Service Providers (AISPs) and Payment Initiation Service
Providers (PISPs) respectively. The UK’s The Competition and Market
Authority’s Open Banking Framework to be implemented in early 2019
will expand upon this EU mandate in its home market by opening up API
access to fintech entrants beyond the EU AISP and PISP designated
categories.
For corporate and retail merchants, open access to transaction data
will provide third party, AISPs access to merchant invoice and
remittance records by consent. This will enable greater insight into
optimising payables and receivables management, the ability to analyse
customer behaviour, and provide improved integration with accounting
service providers. Traditional transaction banking providers will be
forced into new roles as data custodians and software publishers,
competing for merchant relationships against third-parties.
With less than one fifth of Micro merchants in the UK integrating
their account and payment systems as reported by East & Partners’ UK
Merchant Payments program, this represents a massive untapped market.
Similarly, third party fraud detection providers will be able to offer
monitoring and fraud notification services that aggregate accounts and
products from multiple bank providers, spotting fraud patterns that a
single bank provider could not detect.
EU data sharing initiatives have provided a roadmap for initiatives
internationally, with a Productivity Commission report in Australia
advocating a similar API sharing platform covering transaction
histories, account balances, mortgage repayments, credit card activity
and small business customer data.
Open data payments are all but certain to herald a new era of
competition and innovation in the merchant payment and acquiring space
however success rests on customers’ acceptance and embracement of the
initiative.
For more
information on East & Partners Europe's Merchant Payments Program,
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