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As mobile-first payments are proliferating in the UK and the New Payments Architecture (NPA) continues to progress, industry experts discuss new opportunities in the rapidly changing payments landscape.
Over the last decade, the UK payments space has experienced a significant level of disruption. New service providers have raised consumer expectations by introducing new, more flexible, quicker and easier solutions to pay.
With the growth of open banking, digital wallets and the forthcoming launch of the NPA supported by the ISO 20022 messaging standard “now is not the time for complacency”, organisers of an event discussing the next era of UK payments innovation and infrastructure said.
According to UK Finance’s 2021 payments market report, people have been making greater use of contactless, online and mobile wallet channels, largely at the expense of cash.
“What we are living through is a massive change,” said Shane Warman, NPA programme director at Pay.UK, speaking at the event.
“This change has already become a norm” and presents both challenges and opportunities for businesses.
In 2020, one-quarter of UK adults used mobile payments. Digital wallets have already overtaken debit cards as the most popular form of online payment.
At the moment, however, lots of wallets are still running over card rails, said Paul Horlock, chief payments officer at Santander and former CEO of Pay.UK.
Real diversification is still a way ahead, he said, adding that it will come as soon as there are services that run on different rails, such as account-to-account (A2A) or digital currency rails.
“The tokenised versions of cash that may come in the future will start to open up a whole different bunch of opportunities from the customer perspective for merchants and for those involved in the value chain,” Horlock said.
“They’ll start to offer different opportunities for customers such as smart contracts or programmable money”, eventually creating “a whole different way of doing business”.
In addition to A2A and retail payments, digitisation is gaining traction in the business-to-business (B2B) space.
Although mobile payments currently have a small share in B2B payments, it provides new opportunities for innovation in mobile technology.
There is already a trend forming whereby banks are now looking at acquiring fintech firms, such as Pulse, that integrate a number of services, such as trade finance, FX risk management, payments and accounting software, said Adrian Smyth, head of innovation at NatWest.
Full digitisation of the supply chain can help small and medium-sized businesses to easily set up their businesses, link into these services and build innovation on top of that.
“Businesses don’t want to be spending time working out which service to log on to, they just want a service that is easy to consume, easy to use and get on with running and growing their business,” Smyth said.
Another big change that is expected to disrupt the existing UK payment ecosystem will be the launch of the NPA.
NPA is a critical infrastructure and will “enable next-generation payments”, stressed Andy Morris, account executive of immediate payments at ACI Worldwide.
The new infrastructure will deliver building blocks that will enable banks and fintechs to build overlay services on top of that.
This means that it is expected that NPA will deliver legal entity identifiers, purpose codes, the ability to reconcile, structured data and enhanced characters, such as email addresses, and more automation.
It will also facilitate “enabling services” that banks and fintechs can leverage to go beyond services that just rely on card schemes, Smyth said.
The international messaging standard ISO 20022 will deliver enhanced data that could help businesses to further automate the information in payments, pushing those through accounting packages and supply chain packages, he added.
