What Rihanna Can Teach Us About a Decade of UK Faster Payments
The end of this month marks 10 years since Rihanna’s single, Take a Bow, reached number 1 in the UK singles charts.
Although I know a little about Barbados, I am only an amateur student of the popular Bajan singer’s lyrics. But I cannot help feeling her song reads like a commentary of the cataclysmic world of banking in 2008; “That was quite a show, but now it’s time to go,” and “You look so dumb trying to apologize… I know you’re only sorry you got caught,” or “it’s over now, go on take a bow.”
For those blessed by youth (or with short memories), 2008 was the year when high finance was caught cheating, and the global banking industry was forced to re-set. Boring stuff, like access to credit and the efficiency of underlying payment systems, was about to take center stage.
UK Faster Payments: Payments Pin-Up?
Take a Bow overtook That’s Not My Name by the noisy (and most excellent) British indie-pop band The Ting Tings in the music charts, in the same week that UK Faster Payments (UKFP) quietly released itself onto the payments charts. Although the world of payments infrastructure doesn’t sound particularly rock & roll, UKFP has grown to become a pin-up icon for central bankers and government policy makers around the world. Since 2008, scores of countries have followed the UK approach of re-evaluating national payments systems, forcing existing infrastructure toward the kind of open-all-hours and open-to-all facilities spearheaded by the UK.
The Real-Time Imperative
This global regulatory nudge toward immediate payments is founded on a desire for efficiency in successful national economies, with how money is accessed and used at a time when corporations expect to be able to manage and move money around the clock. It has been amplified by the expectations of smaller businesses – and, increasingly, of consumers – to have access to reasonably priced and easy to use payments facilities that align with the way people actually want to transact. The public policy logic is that real-time payments infrastructure leads to more efficiency in the way trading parties can discharge their obligations without fear of falling short of funds, and without needing to take build buffers in case payments don’t go according to plan. Old style infrastructure creates a drag, leading to lost opportunities or even actual losses for participants, and even more lost confidence in the use of money.
Evidence for the demand from users is starting to emerge. Research by ACI Worldwide shows that consumers and businesses today expect real-time payments services from their banks, and will consider switching providers if their banks do not offer them. Yet, ten years after its launch, Faster Payments account for less than 20% of the UK market. Despite the impressive figure of over 1.5 billion transactions per year, and over 150 million per month, and a stable growth rate of over 15% per annum, it still seems to take a long time for fundamental payment habits to change, particularly when dealing with consumers.
The last ten years of immediate payments was focused on addressing the macro-economics and probing the “civil engineering” of real-time payments infrastructure. Although the UK system should rightly be seen as an early success, it is by no means perfect. Smart architects and wily managers got Faster Payments up and running in 2008, but some of the pragmatic design decisions (like selecting the cards-based, ISO8583 standard as the basis for messaging instead of the ubiquitous ISO20022) have now run their course. Indeed, Faster Payments Scheme Limited is now running a procurement process to renew the UKFP infrastructure to better support future flows of money and data.
It is likely that we’ll now see greater emphasis on engagement with actual payment systems users and new payment propositions that benefit users’ distinct needs. This extra focus on creating new tools to meet the needs of payments systems users has already been evidenced by initiatives like the Request for Payment schemes and the planned introduction of a Confirmation of Payee capability in the UK.
There is Change in the Air
Previous inertia, which slowed the creation of innovative new services, has now been lightened. For example, new financial services providers can join UKFP. New members already include Starling Bank, the first digital-only bank user, and TransferWise, as the first directly-connected non-bank payment service provider (joining in January and April 2018 respectively). The previous closed-club of old-school banks marshalling access to clearing and settlement infrastructure has ended.
Transaction limits in UKFP are high – £250,000 – and likely to rise further this year too, opening the scheme to broader business and corporate requirements. The ease of access enjoyed by new payments providers will also pass to business users too, via the integrated API-based (Application Programming Interface) services which promise simpler integration into selling/trading platforms.
Corporate treasurers will have new choices for payments handling. Not just in terms of which scheme (say, UKFP versus CHAPS), but also in terms of new payment options that offer more equitable cost and risk sharing between buyers and sellers. For example, in a Request for Payment scenario, buyers may be able to generate a 1% discount in return for an immediate payment, instead of defaulting to batched-up, end-of-month payments exercises. Sellers will offer such discount rates in proportion to their changing needs for cleared funds, and in line with their assessment of buyer risk.
Treasurers should expect keenly priced and well-differentiated deals from new entrants and from existing banks, with well-defined fees and charges corresponding to the new options. Corporate policies, preferences and rules ought to be addressed by banks via an automated dashboard, allowing treasurers to reconcile and account for money movements as well as fees and charges.
Although it takes many years for fundamental payment habits to change, consumers will also play a role in shaping demand. Mirroring a global trend toward greater financial inclusion, UK micro-retailers who have been reluctant, unable or “unworthy” of card-based payments acceptance have recognized the accessibility and low-cost convenience of Faster Payments. The cleaner, the hairdresser, the car mechanic – it’s early days, but you can see credible alternatives to cards emerging.
Work Remains to be Done
Work still needs to be done on creating new propositions understandable by all types of buyers and sellers, better integration into consumer-familiar mobile apps, and integration with the identity/authentication/consent tools that provide a safe alternative to card scheme systems.
Perhaps it’s worth using UK Faster Payments’ 10-year anniversary as an excuse to ramp-up consumer awareness and citizen education about their options in an increasingly digital world. Perhaps Rihanna and her mentor Jay-Z should have a renewed role to play – after all, the last Jay-Z album is laced with messages about financial empowerment. And he has recently ventured into the world of fintech investment too. Although he seems to be missing a trick by not thinking of a new consumer proposition called “Umbrella.”
2008 was a major milestone in the evolution of alternative payment methods. Banks and non-bank third parties are still getting used to the new payments landscape shaped by regulators keen on competition and fueled by fintech investors, but the UKFP still stands out as a pioneer, doing a sterling job, well done. No really, take a bow!
The proliferation of real-time schemes globally will enable new innovative services in the banking and retail sectors and further disrupt the current state of global payments. Download Real-Time Payments: Value Realization is Here to explore the possibilities for value realization in the new real-time banking ecosystem.
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