Future Payments Forum
May 14th 2024 Meeting Review
Witstock has chaired the Future Payments Forum since its inception in 2022. The Forum aims to brings together stakeholders in the payments industry to discuss its future in a way that encourages better understanding between users, regulators, service providers and all those organisations that rely on mass-payment systems.
This review describes the meeting and the discussion held by the group. To join the forum please contact Annabel Cartwright, Smartex Limited, +44 7785 254405 or via annabel@smartex.com or adrian@witstock.com.
In the second meeting of 2024, the Forum met to consider what it will take to create a competitor to the dominant retail payment methods in the UK and what needs to be done to encourage effective competition.
The first contributor, Mr Dan Feaheny, Principal, Feeney Fintech emphasised the nature and scope of the challenge that lies ahead of the payments industry. He described a world in which we have moved over the last 20 years, from a lived-experience based on the tangible things in a slowmoving world, into a world of immediacy and instant gratification – the dopamine culture. In this environment payment services must be adapted to be purely digital, fraud free by design, instant and cost-effective.
Dan encouraged the forum to consider the example of hive-minded creatures such as the bumblebee and the absolute need to collaborate more closely to achieve the outcomes in payment services that are needed. He also highlighted the failings in the attempts made so far to achieve the level of change that is needed in both underlying design approaches and how to deliver them.
The issue of identity was emphasised and the lack of effective mechanisms to establish and validate the identity of parties during a transaction. Dan highlighted the multiple and often conflicting efforts of various UK government functions in this area.
The forum agreed that this was a fundamental component of success for the future of payments without which it will be hard to deliver the services needed in our imminent future. It was agreed that much of the challenge of today’s payments and banking industry is dealing with the lack of a reliable, shared infrastructure for identity.
Mr Hamish Blythe, CEO, Trilo showed the forum the state-of the art for Open Banking based payment services. He emphasised the challenges that smaller, independent merchants face in terms of knowing their customers and being able to incentivise them to do more business with them.
Trilo’s ability to add value through enhanced information about the customer and their activity with a retailer and zero cost payment transactions using Open Banking, gives retailers the chance to compete with corporate retail competition. Hamish was keen to emphasise the importance and potential power of the Open Banking initiative to drive change and create a competitor to the existing retail payment schemes.
However, he was also sure that the current implementation by individual banks made relying on it difficult. He noted that some banks had managed to produce a well-engineered consumer journey from Trilo’s app to confirmation of payment in the bank’s app. However, some banks had not, and Open Banking could not be used to support the customer’s activity. It would clearly benefit competition if there was a standard for banking apps in this regard to which all banks must comply.
Other factors that limit the power of Open Banking were the lack of an acceptance brand. However, Hamish plans that Trilo will become synonymous with it and dominate the market. The Forum discussed the economics of the Open Banking service and noted that whilst the current rule is that a bank may only charge for an Open Banking pull payment, what they currently charge retail customers for a Faster Payment transaction (currently nothing).
There was no longterm certainty that this would remain the case once rival payment service providers gained significant market share. It was noted that attempts to produce a common pricing model for Open Banking that could be depended on by Trilo and its competitors, have not produced results so far.
Mr Rob Heasman, Owner, Indian Summer gave the forum a fascinating insight to the challenges of owning and operating a restaurant and the factors he looks for in a payment service. Rob described the impact of the government’s response to Covid on his business and the challenges of the recent economic environment, and why he had decided to adopt the Musqet payment service that combines card acceptance with the ability to accept Bitcoin as a currency.
Mr David Parkinson, CEO Musqet explained the Musqet proposition to the forum and Rob stated that using it has already had some useful impacts on his business, especially his digital profile, which has risen dramatically and encouraged visitors from far-and-wide to seek out his restaurant. It is an example of the potential of payments innovation to support retailer growth.
Rob and David described the fiercely competitive market for provision of debit card services in the UK and that he had secured transaction pricing in the range of 25 to 30bps with no fixed fee per transaction. This provided a sobering baseline for the challenge that any rival to the card schemes must face.
Whilst Open Banking transactions are free at present there are still costs for the service providers that deliver them and these are in addition to the fixed cost of card and cash acceptance that must be borne until Open Banking becomes ubiquitous.
Finally, Mr Adrian Cannon, Chair, FPF presented a synthesis of the findings of the FPF over the last 18 months and made recommendations of ways to increase innovation for payment services at PoS. His focus was the displacement of the current debit card schemes that dominate payments and for which the economics are not clouded by the provision of credit and the cost of risk that it carries. In summary the recommendations were that:
Using bank clearing infrastructure to support small value payments real time would not be cost effective compared to the aggregated, net settlement model of the card schemes. An aggregation capability was important to create cost effective competition.
Differential pricing in the form of retailer discounts from list price for their preferred payment methods would create a drive for change but requires regulatory change.
Payment method choice when adopting a current account and during the life of the account should be mandated.
The EMV payment terminal acts as an accidental barrier to competition at PoS and it should be possible to remove this barrier and make it much easier for new payment methods to be serviced through this channel.
Disaggregate transaction data from movement of funds so that aggregation can be supported and an evolutionary approach to the New Payments Architecture can be used to drive change.
That all aspects of delivering a payment scheme must be addressed and that changing the clearing and access to it will not deliver an alternative to the highly effective dominant methods we have today.
Finally, Adrian reflected on the fact that the cost of doing all these things and deploying a national alternative may not achieve any change in the economics of payments for retailers or their customers, given the competitive nature of debit card services in the UK today.
Attendees of the meeting represented the following companies:
Barclays UK
Feeney Fintech
Musqet
Trilo
British Retail Consortium
HM Treasury
Payment Systems Regulator
UCDx
CIC
Consult Hyperion
Identity Assurance Systems
pingNpay
Unit21
CJS Consultancy
Indian Summer
Smartex
Visa
Debit My Mobile
LINK
Technology Strategy
Witstock
