The press is full of payments buzzwords: blockchain; bitcoin; fintech; disruptors. A previous backwater of banking has become the great hope for many in the IT industry, and we at the ACT and our members are working hard to address a variety of issues and help deliver the dream.
The two key issues we see are:
Data: The need for sufficient data to either travel with or separately be available to understand the purpose of the payment. Too often businesses send bulk payments and personal payers omit the critical reference to enable auto allocation. The UK PSR has sought to bring these into its new strategy as Enhanced Data and Richer Data. Overlooked is that the cost to high volume payees to allocate a single, poorly described receipt can quickly overwhelm its value.
Standards: The lack of international payment message standards so that messages require translation between systems. The buzz word is ISO 20022 but that standard appears to spawn many forms of implementation.
Besides the top two, there are a number of ancillary issues affecting payments evolution.
File Formats: That there are two file formats within any payment system: the bank format (for instance BACS in the UK, and SEPA in the Eurozone) which relies on alpha numeric IBANs, and the payment card format which relies on 16 numeric card identifier. So as it stands, every payment system in the world has to run twin, integrated yet separate payment tracks, effectively doubling the workload.
Know Your Customer (KYC): the current bugbear from individuals to multi-nationals. A streamlined solution is urgently required to enable new customers to join electronic payments processes and ease customer movement between banks: the digital passport holds out hope. And focus on sanctions is aggravating the KYC issue. Your whizzy, instant paying agent may know you but who takes responsibility for checking your payee (or even your payee’s counterparties) is not sanctioned when it may be in a different jurisdiction, a different payment system, and a different time-zone?
Cybersecurity: highly professional, well-resourced fraudsters move as quickly the developers. They find easy prey in the technologically illiterate and naïve, and harder but not impossible pickings among more sophisticated organisations. This acts as a dampener on new process adoption evidenced by the slow adoption of smart phone bank apps for payments, for which tech savvy users prefer internet banking although that is already a proven profitable area for fraud.
Payments: could payments themselves become obsolete? Might blockchain lead to virtual value being the net of transactions in a system rather than requiring the net value to be applied over a bank account? Instead of physically paying, you might enable a supplier to make use of your receivable. The banks are already a long way down the route of exploring blockchain for securities settlement.
Disintermediation of banks: with no certainty as to who a payer turns to if the payment process fails. For example, the direction of PSD2 assumes one still goes to one’s bank even if a 3rd party smart phone app was used to initiate a failed payment from one’s bank account.
Inclusion: at its simplest, old arthritic fingers cannot accurately use smart phones, even if they can read the little screen. More insidious is the assumption we all have access to broadband, 4G, and appropriate kit at all times. The end result is that we have a multitude of new and old systems to maintain and operate. For instance the UK has scrapped the planned end of cheques, and is now implementing a USA style cheque imaging process to enable them to be more quickly cleared, thus extending their product life.
This list is probably not complete, being simply a quick walk-through of the major issues we see at the moment. I’d love to hear your thoughts in advance of the event, and I very much look forward to seeing you there and discussing what you think really matters in more detail.
